ASX 200 to rise, S&P 500 rallies + Iron ore nears 8-month high

ASX 200 futures are trading 24 points higher, up 0.34% as of 8:20 am AEST.

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S&P 500 SESSION CHART

MARKETS

• S&P 500 higher, finished near best levels, reversing Thursday’s declines
• S&P 500 finishes the week up 1.31%, Nasdaq up 2.37%
• Russell 2000 down 3.2% last week, marked its 12th drop in the past 15 weeks
• US 2-and-10 year yields nudge higher after recent drop to 1-2 month lows
• Bullish focus points for the week – Peak Fed and historical tendency for stocks to rally after last cycle hike, recent ‘goldilocks economic data’, better-than-expected Q3 earnings, outsized short positioning, reopening buyback windows and positive seasonality
• Bearish focus points for the week – Powell says the Fed will not hesitate to hike if necessary, lagged impacts of tightening, yield overhang, Q3 results noting some deterioration in macro backdrop, outsized Q4 earnings expectations
• Retail traders pulled ~$16bn from stocks in October, most in two years (Bloomberg)
• Corporate bond ETFs flag record outflows in October, with investors pivoting into government bond funds (FT)
• FOMO returns as VIX tumbles, investors position for year-end rally (Yahoo)
• Banks relative performance vs S&P 500 has fallen to lowest since 1989 (FT)
• Traders buying sterling on expectation sticky inflation (Bloomberg)
• Odds of of 18-Nov shutdown fall as House Speaker Johnson proposes temporary funding plan without spending cuts (Bloomberg)

STOCKS

• Airlines slash fares in effort to fill record 260m seats this quarter (CNBC)
• Shipping boom turns to bust as carriers flag losses for Q4 (Bloomberg)
• Novo Nordisk's Wegovy significantly reduces risk of death from cardiovascular disease, which could win over health systems and insurers (FT)
• Exxon Mobil to unveil lithium strategy this week (Reuters)

KEY EARNINGS

• 81% have beaten consensus EPS expectations, above the 74% one-year average and the 77% five-year average
• 61% topped consensus sales expectations, below the 69% one-year average and 68% five-year average
• Earnings are coming in 7.1% above expectations, above the 44% one-year average but below the 8.5% five-year average

CENTRAL BANKS

• Powell warns Fed not confident it is on path to bringing inflation back to target (FT)
• Fed repo facility back below $1tn for first time since August 2021 (Bloomberg)
• ECB makes case for keeping balance sheet big (FT)
• BoE's Pill says interest rates already high enough to tackle inflation (Telegraph)
• RBA upgrades economic forecasts but risk of inflation is higher (Bloomberg)
• Bank of Mexico holds, though hints it could start cuts soon (Bloomberg)

GEOPOLITICS

• Israel agrees to daily 4-hour pause to allow civilians to evacuate (Bloomberg)
• Israeli PM Netanyahu says does not seek to occupy Gaza (Reuters)
• Netanyahu says a peace deal with Saudi Arabia was still possible (Bloomberg)
• Iran warns about broader conflict (Reuters)
• Yellen begins talks with Chinese counterpart, which will include discussions on use of economic tools for national security purposes (Bloomberg)

CHINA

• China new loans to have shrunk in October due to seasonal factors (Reuters)
• Chinese banks ramp up short-term debt amid liquidity concerns (Bloomberg)
• China's slow economy takes 9% off global manufacturers' profits (Nikkei)

ECONOMY

• Moody's lowers US outlook to negative due to wider fiscal deficits and political polarization (Bloomberg)
• US consumer sentiment drops again in November, inflation expectations climb to the highest level since March 2011 (Reuters)
• UK GDP stagnated in Q3, justifying increased focus on growth over inflation (FT)

Hydrogen to Hydro-gone

The above Global X Hydrogen ETF tumbled 7.6% last Friday after one of its major constituents – Plug Power (-40.5%) – reported worse than expected Q3 earnings.

A lot of these renewable-related ETFs like Hydrogen, Solar and Cleantech have all been smashed this year. I'll highlight a few key takeaways from Plug Power's earnings, which may or may not resonate with the rest of the industry:

• Plug Power warned that the lack of funding creates a "substantial doubt about the company's ability to continue as a going concern."
• At its peak in 2021, the company had a market cap of US$35bn. Now it's at just US$2bn
• Even then, the company says it expects $1.2bn in FY23 revenue (down from prior guidance of $1.2bn to $1.4bn) and expects revenue to grow to $6bn by FY27 and $20bn by FY30

Iron Ore Nears 8-Month High

Iron ore prices are up almost 30% from mid-August lows as the bad-news-is-good-news dynamic continues to fuel more stimulus hopes.

Here are some key data points from the Shanghai Metals Market (SMM):

• "China’s import volume of iron ore and concentrate in October was 99.385 million mt, down 1.8% MoM but up 4.6% YoY."
• The drop in October reflects a) falling port efficiency amid falling out of national holidays such as the Mid-Autumn Festival and the National Day holiday; b) shirking pig iron output amid maintenance of more blast furnaces
• SMM forecasts that iron ore imports will continue to decline in November due to a) more scheduled maintenance of blast furnaces; b) high iron ore prices will blunt buying appetites of steel mills and c) overseas mines' year-end shipment rush which will keep the supply side topped up

At least from a seasonal perspective, we're heading into a period that's expected to be very strong for iron ore.

A 90% Likelihood of a Year-end Rally?

I came across an interesting data set from Wayne Whaley about historical tendencies for the S&P 500. In summary:

• The S&P 500 is up around 15% year-to-date (as of November 12)
• In the last 22 years where the S&P 500 was up at least 5% for the calendar year to November 15, the rest of the year (November 15 to December 31) was positive
• Going back 50 years, this set up was 27-3
• The average % change between this period was 3.49%
• The average red year was down 0.57%
• There were 22 moves of more than 1%, all of which were positive