The ASX gold stock getting a 127% price target upgrade

MARKETS WRAP

S&P 500 TECHNICALS

US INFLATION WRAP

If you like downside surprises on inflation, you just got a big one last night - and markets have rejoiced along with you. 

US headline and core inflation were both seen rising 0.3% month-on-month in November. Instead, headline inflation only rose by 0.1% while core inflation rose by just 0.2%. 

The headline year-on-year forecast was 7.3% year-on-year while the core inflation forecast was 6.1% year-on-year. Instead, the headline year-on-year figure is now 7.1% year-on-year and the core figure is now 6% year-on-year.

So what does that mean for markets?

• It essentially bakes in a 50 basis points hike from the Federal Reserve tomorrow at 5am AEDT
• The bond buying overnight was savage - yields fell 20 basis points in a flash (remember, yields down means demand and price up)
• The US Dollar Index's peak continues to be the peak, falling more against its major partners
• And... equities investors rejoice. It's risk on (if only for a day until the Fed meeting)

THE CHART

If you want to see a correlation like no other, check out this chart. The old adage "Don't Fight the Fed" (or for that matter, any other central bank) is proven for the reason seen here. The correlation between the total value of assets on the three major central banks' balance sheets and the S&P 500 equity index is very close. 

And when central bank assets decrease, so does the S&P 500. Here is the Federal Reserve's current assets side of its balance sheet for your reference:

Will there be a change to this come Thursday morning? We'll all find out.

STOCKS TO WATCH

Following the news that St. Barbara (ASX: SBM) will merge with Genesis Minerals in the near future, Credit Suisse upgraded the price target on the company by - get this - 127%. The new price target of $1.25/share is up from $0.65/share. In case you missed it, the two gold miners plan to merge the operations at its Leonora gold mine in Western Australia. The other assets of St Barbara will be demerged and relisted.

And as part of a broader valuation revision of the Australian healthcare sector, Morgan Stanley has downgraded Fisher & Paykel Healthcare (ASX: FPH) to equal-weight from overweight. 

THE TWEET

Hans Lee wrote today's report.