ASX to edge up, Wall St bulls are back, $A leaps

Concerns triggered by the surge in some Reddit army shares have faded and concerns about

Concerns triggered by the surge in some Reddit army shares have faded and concerns about a pending correction have faded too.

In addition to Fundstrat Global’s correction rethink (in short, it’s done for now), JPMorgan is outright bullish.

JPM’s cross-asset team sees room for a 20 per cent rally in equities largely because of the de-risking already completed by institutional investors, from the Reddit army uprising, according to The Market Ear.

JPM puts the current implied equity allocation at 43.8 per cent, which is still significantly below its post Lehman period high of 47.6 per cent seen in January 2018.

Bank of Montreal chief economist Doug Porter said risk assets have been given the green light. “The World MSCI [just] had its biggest weekly gain since the US election three months ago. Commodity prices mostly moved in sync, with oil hitting one-year highs, lifting inflation expectations and, in turn, pulling bond yields up as well close to key thresholds.”

“One notable outlier from the broad upswing in risk assets was in the currency space,” Mr Porter noted, “as the US dollar edged higher, in part reflecting a view that the US economy may outperform in relative terms.”

Click here for the AFR’s interim profit season calendar. Tuesday, Wednesday and Thursday will be busy days this week.

Today’s agenda

No local data: Waitangi Day holiday in NZ

Overseas data: Chinese New Year holidays start from Thursday; Japan current account December, Euro zone industrial production December; Donald Trump’s impeachment trial to start on Tuesday (Wednesday AEDT)

Market highlights

ASX futures up 5 points or 0.1 per cent to 6778

  • AUD +1% to 76.78 US cents
  • On Wall St: Dow +0.3% S&P 500 +0.4% Nasdaq +0.6%
  • In New York: BHP +1.2% Rio +1.2% Atlassian +1.2%
  • Tesla +0.3% Alphabet +1.7% Apple -0.3%
  • In Europe: Stoxx 50 +0.4% FTSE -0.2%% CAC +0.9% DAX flat
  • Spot gold +1.1% to $US 1814.11/oz in New York
  • Brent crude +1.3% to $US59.59 a barrel
  • US oil +1.1% to $US56.85 a barrel
  • Iron ore -0.6% to $US157.01 a tonne
  • 2-year yield: US 0.10% Australia 0.10%
  • 5-year yield: US 0.46% Australia 0.42%
  • 10-year yield: US 1.16% Australia 1.19% Germany -0.45%

From today’s Financial Review

States must take lead on economic reform: NSW: NSW Treasurer Dominic Perrottet says states can’t expect the federal government to do the ‘heavy lifting’ on reforms to property tax, skills, education and healthcare.

Nationals cite NZ model for emissions plan: The National Party has increased pressure on the Morrison government to follow New Zealand in excluding agriculture from any pledge to cut carbon emissions to net zero by 2050.

Vocus Group back in play, focus on strategic assets: Fibre network owner Vocus Group is believed to be in the crosshairs of a potential suitor for the third time in four years.

United States

US economy adds 49,000 jobs in January: All told, the United States still has 9.9 million fewer jobs than it did in February last year, just before the coronavirus erupted across the country.

S&P 500, Nasdaq post best weekly gain since early November: The S&P 500 rose for a fifth straight session in its longest streak of gains since August, as investors looked through weak January jobs data.

FactSet: “At this point in time, more S&P 500 companies are beating EPS estimates for the fourth quarter than average, and beating EPS estimates by a wider margin than average. As a result, the index is reporting higher earnings for the fourth quarter today relative to the end of last week and relative to the end of the quarter.

“Due to this increase in earnings, the index is now reporting year-over-year growth in earnings in Q4 2020 for the first time since Q4 2019. Analysts expect double-digit earnings growth for all four quarters of 2021.”

In its latest survey of US consumers, Morgan Stanley said it found that consumers listed the virus (58 per cent), political environment (45pc), and rising inflation (34pc) as top concerns. “Virus concerns are trending lower, political concerns are up, but off pre-election peaks, and inflation concerns moved higher to near prior peak.”

Morgan Stanley said it found that 42pc of consumers expect the economy to improve over the next six months and 40pc expect things to get worse. “These data points show a less optimistic outlook than last month but are within the range that has held over the last few months.

“On a personal household level, the financial outlook is stable with majority of consumers (81pc v 82pc a month ago) thinking their own finances will get better or stay the same over the next six months.”

Europe

European stocks were little changed at the end of an upbeat week on Friday.

The STOXX 600 posted its best weekly performance since November with a rise of 3.5pc despite a lacklustre session on Friday, when gains in travel and leisure stocks, basic materials and banks were countered by losses in defensive sectors such as utilities, telecoms and healthcare.

Germany’s DAX index was flat after data showed orders for German-made goods fell more than expected in December, ending a seven-month streak of positive reports as fresh restrictions to contain the COVID-19 pandemic subdued demand from other euro zone countries.

“Today’s data shows that stricter lockdown measures since mid-December, as well as the Christmas break, have finally hit German industry … but at face value, this only looks like a temporary breather,” strategists at ING wrote in a note.

London’s FTSE 100 slid 0.2pc, extending losses to a third straight session, as a higher pound weighed on the internationally focused firms on the index.

Asia

Bank of America bullish on China’s economy: “We believe China can double its GDP size by 2035, if it manages to deliver the reforms it promised, esp. in new urbanisation, services opening up and innovation.

“Population ageing, high leverage and a shift in growth model may slow but not derail the potential growth trajectory.”

BofA also said: China has managed to double its economic size five times since 1980, or once every 7-10 years. “Why not one more time in the next 15 years? This would imply average annual growth of 4.7pc, much lower than the 9.3pc over the last four decades.”

China stocks ended higher for the week on Friday, as investors found support from a continued economic recovery, though Sino-US tensions remained a worry.

The blue-chip CSI300 index rose 0.2pc to 5483.41, while the Shanghai Composite Index slipped 0.2pc to 3496.33. For the week, CSI300 climbed 2.5pc, while SSEC inched up 0.4pc.

Hong Kong stocks closed higher on Friday, helping the indexes post their best weekly performance in three months, following persisting buying activity from mainland investors.

The Hang Seng index ended 0.6pc higher at 29,288.68, while the China Enterprises index was unchanged at 11,561.32. For the week, HSI added 3.6pc, its biggest gain since the week ended November 6, while the HSCE added 3.2pc.

On Friday, mainland investors purchased net of $HK9.4 billion worth of Hong Kong stocks via the Stock Connect linking mainland and Hong Kong, Refinitiv data showed.

That came after their buying hit a monthly record of more than $HK300 billion in January, as asset managers looked to the city for bargains.

Currencies

RBC Capital Markets on FX bets: “For the week ending February 2, US dollar shorts were scaled back by 22,000 to -235,000. Meanwhile, euro longs declined by 28,000 to 137,000 (lowest level since November 2020). Japanese yen longs were little changed at 45,000.

“Sterling longs increased by 2000 towards 10,000. Swiss franc longs continued to rise (now almost 15,000). Canadian dollar longs rose from 14,000 to 16,000. NZ dollar longs decreased from 15,000 to 12,000. Australian dollar positioning turned slightly short (-2000), while Mexico peso positioning turned slightly long (3000 from -1000).”

Commodities

China’s iron ore futures vaulted to a one-week high on Friday, buoyed by expectations of improved demand for the steelmaking raw material after the Lunar New Year holiday.

Iron ore on China’s Dalian Commodity Exchange ended daytime trading 4.2pc higher at 1004.50 yuan ($US155.16) a tonne, after earlier hitting a one-week high of 1017 yuan.

It has gained 1.4pc on the week, after three consecutive weekly losses.

Weekly Chinese steel inventory data released on Thursday to “select” institutional clients showed the growth in warehouse stocks had far outpaced those held by steel producers, said Atilla Widnell, managing director at Navigate Commodities in Singapore.

“Traders of the DCE and SGX-listed iron ore futures contract perceived this data to be bullish for underlying physical demand,” he said.

“It suggests COVID-19 afflicted steel supply chains are returning to normal and local blast furnaces may soon start to lift capacity utilisation rates to meet stimulus-fuelled steel demand for 2021.”

Asian iron ore markets are likely to be quiet in the next two weeks, with physical and derivatives traders expected to be away during top steel producer China’s week-long Lunar New Year holiday from February 11.

Nornickel ordered to pay $2.6b fine for Arctic fuel spill: The court ruling could pave the way for Russia’s largest environmental penalty, and the fine may also weigh on MMC Norilsk Nickel’s dividend prospects.

Australian sharemarket

Earnings season off to a flyer: The central bank stoked a broad sharemarket rally this week, as bullish residential property market price forecasts underpin recovery hopes.

Best week in three months lifts ASX to 11-month high: The Australian sharemarket recorded its best week in three months as upbeat earnings results and the RBA’s extended bond buying pushed stocks to an 11-month high.

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