Aussie market up 14% from October low + UBS looks at coal and lithium

MARKETS WRAP

• ECB to enter more delicate phase as rate hikes still not slowing inflation and QT risks further market instability
• Chinese Vice Premier Sun says efforts to combat Covid entering a new phase
• China reopening shares jump as officials make slow but visible shift on Covid Zero measures
• Global wages have fallen in real term for first time on record this year
• European business community says sentiment, economic outlook has improved
• Asia's factory activity shrinks in November as China lockdown impact weighted on business sentiment
• US markets log consecutive monthly gains for first time since 2021, Dow in bull market
• Greenback posts 3-month low vs yen
• US gasoline prices fall to lowest since before Russia's invasion of Ukraine 

THE CALENDAR

The big ticket item tonight is the US non-farm payrolls. This week’s ADP private payrolls report came in light, not that it is always the best indicator of what the non-farms will do.

The ADP report showed US companies added just 127K jobs during November, against expectations of 190K. It is yet another sign that the US labour market is losing some steam, which will be music to the ears of the Fed as they try to bring inflation under control.

As for tonight’s non-farms, economists polled by Dow Jones expect the US economy to have created 200K jobs in November, after an increase of 261K in October. 

THE QUOTE

I'm sorry, I couldn't go past this quote from disgraced crypto tzar, Sam Bankman-Fried.... no, Sam, it happened by accident. To the tune of $16 billion!!

THE CHART 

How's this for timing? As per the chart above, investment grade spreads hits this year's peak on October 12, while the S&P 500 bottomed a day later. 

THE TECHNICALS

The bulls have gone from earnest triers to undeniable. Chatting with my colleague Hans Lee, we are astounded to observe that after the year we have had in markets, the ASX 200 is a mere 250-odd points from its all-time high. And up 14% from the October low. This is despite threats of a global economic slowdown and still rampant inflation. 

This is a big reason why I like technical analysis so much. A pure trader would simply look at the chart and assess it, not worried about the 'how' or the 'why'. In that vein, there is a strong momentum trade on the ASX 200 at the moment. All major resistance levels have been cleared, the last being 7300, and there is a clear pathway up to 7600. Although that seems unfathomable, if I told you back in October that the market would rally around 1000 points in a straight line, you would have laughed and sent me off for assessment. I have been saying it for a while, the path of least resistance remains to the upside for now. 

It seems Santa has come early, despite markets misbehaving a lot this year. Enjoy the ride. 

COAL – The boffins at UBS have data showing that global coal shipments were up 8% week-on-week and 22% year-on-year in the week ended 27 November. Indonesian coal is all the rage, with exports up 12% year-on-year, whilst Australia, South Africa and Canada remain low against historical levels.

The team closes by noting that thermal coal demand has been weaker, “on a warmer than-expected start to the European winter and China concerns, which have hindered demand, although signs of demand improvement are beginning with China property/COVID re-opening and US Fed rate expectations”.

In the space at a local level, UBS have a BUY rating on Whitehaven Coal (ASX: WHC) with a $9.50 target price, and a NEUTRAL rating on Coronado Global (ASX: CRN) with a $1.70 target price. 

LITHIUM – The UBS team notes recent weakness in Wuxi lithium futures but goes on to comment that “any potential air pockets in demand have not yet materialised”. As such, they see average benchmark spodumene prices up 15 Q/Q in 4Q22, to $6334/t – good news for the lithium bulls.

As for which companies UBS like (and don’t like), they have BUY ratings on Allkem (ASX: AKE)  and Mineral Resources (ASX: MIN), a NEUTRAL rating on IGO Limited (ASX: IGO), and a SELL rating on Pilbara Minerals (ASX: PLS). 

Chris Conway wrote today's report.

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