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ASX to slip, S&P 500 slides on recession worries - 19/01/23

Market Highlights

ASX futures down 9 points or 0.12% to 7330 near 6.55am AEDT
AUD -0.5% to 69.51 US cents
Bitcoin -2% to $US20,919 near 5.55am AEDT
On Wall St at 2.55pm: Dow -1.3% S&P -1.1% Nasdaq -0.8%
In New York: BHP +1.4% Rio +1.4% Atlassian -2.9%
Tesla -2.4% Apple -0.01% Amazon +0.3% Microsoft -1.3%
Stoxx 50 flat FTSE -0.3% CAC +0.1% DAX flat
Spot gold -0.1% to $US1906.08 an ounce at 1.47pm New York time
Brent crude -0.2% to $US85.73 a barrel
10-year yield: US 3.38% Australia 3.54% Germany 2.01%
US prices as of 2.54pm in New York
Australian shares are poised to open lower, tracking losses on Wall Street after disappointing retail sales data bolstered bets that the Federal Reserve’s rate-rising moves could push the US economy into recession.
At 3.01pm, the Dow was down 467 points to 33,442. The S&P 500 slid 47 points to 3943.
“Weak retail sales in December shows consumers are likely retrenching during a time of economic uncertainty,” LPL Financial chief economist Jeffrey Roach said. “The trajectory for the US economy is weakening and recession risks are rising for 2023.”
Oanda’s Edward Moya: “The ‘bad news is good news’ rally ran out of steam as investors started to realise a recession is coming.”
The local currency was 0.7 per cent lower; the Bloomberg dollar spot index edged 0.2 per cent higher.
The yield on the US 10-year note tumbled 17 basis points to 3.38 per cent at 2.54pm in New York.
In addition to the weak data, two key Federal Reserve policymakers made clear that the focus remains on checking inflation with still higher interest rates.
Loretta Mester, president of the Federal Reserve Bank of Cleveland, told the AP that the Fed’s key rate should rise a “little bit” above the 5 per cent to 5.25 per cent range that policymakers have collectively projected for the end of this year.
“We’re starting to see our policy actions do what they’re intended to do,” she said. “But I do believe we have to continue raising ... and then hold for a while so that we get back to price stability in a timely way.”
“We’re almost into a zone that we could call restrictive - we’re not quite there yet,” St Louis Fed boss James Bullard said in an online Wall Street Journal interview, explaining that price pressures remain too high and officials must not “waver” on bringing them steadily down to the Fed’s 2 per cent target.
“Policy has to stay on the tighter side during 2023” as the disinflationary process unfolds, he added, saying that he penciled in a forecast for a rate range of 5.25 per cent to 5.5 per cent by the end of this year in the Fed’s December dot plot of projections.

Movers & ShakersBroker Upgrades & Downgrades

(AKE) Allkem Price Target Cut 2.2% to A$17.50/Share by UBS
(AKE) Allkem Price Target Cut 2.8% to A$17.30/Share by Citi
(ALD) Ampol Price Target Raised 0.7% to A$36.90/Share by UBS
(CAI) Calidus Resources Price Target Raised 13% to A$0.85/Share by Canaccord Genuity
(EVN) Evolution Mining Price Target Raised 64% to A$3.20/Share by Canaccord Genuity
(GOR) Gold Road Resources Price Target Raised 17% to A$2.10/Share by Canaccord Genuity
(NST) Northern Star Resources Price Target Raised 12% to A$13.00/Share by Canaccord Genuity
(PRU) Perseus Mining Price Target Raised 8.3% to A$2.60/Share by Canaccord Genuity
(RED) Red 5 Price Target Raised 13% to A$0.36/Share by Canaccord Genuity
(RMS) Ramelius Resources Price Target Raised 15% to A$1 55/Share by Canaccord Genuity
(REG) Regis Resources Price Target Raised 25% to A$2.50/Share by Canaccord Genuity
(SLR) Silver Lake Resources Price Target Raised 3% to A$1.70/Share by Canaccord Genuity
(TIE) Tietto Minerals Price Target Raised 14% to A$0.80/Share by Canaccord Genuity
(WGX) Westgold Resources Price Target Raised 17% to A$1.75/Share by Canaccord Genuity

Today's Agenda

Local: December Labour Force at 11.30am AEDT
Overseas data: US December building permits and housing starts, Philadelphia Fed index January

Australia job expectations

TD Securities: “We expect Australia’s labour market to end the year on a firm note, forecasting an above consensus +35k (cons. 20k) print on headline employment growth, and participation rate forecast to remain at 66.8 per cent leaving the unemployment rate unchanged at 3.4 per cent, at historic lows. A strong headline print led by solid full time employment should further increase the odds of a 25bps hike at next month’s RBA meeting.”
NAB: “For employment, we expect the December numbers to show a still strong labour market with a business-as-usual +25k employment growth and the unemployment rate unchanged at 3.4 per cent (Consensus +20k/3.4 per cent).”
In its latest jobs data review, Roy Morgan on Wednesday said employment decreased slightly in December driven by a decrease in full-time employment.

United States

Retail sales plummeted 1.1 per cent last month, the biggest drop since December 2021. Data for November was revised to show sales decreasing 1.0 per cent instead of 0.6 per cent as previously reported. Economists polled by Reuters had forecast sales decreasing 0.8 per cent. Retail sales rose 6.0 per cent year-on-year in December.
Retail sales are not adjusted for inflation. December’s decline in sales was likely in part the result of goods prices falling during the month.
A separate report from the Fed showed manufacturing output dropped 1.3 per cent in December and production in the prior month was much weaker than initially thought.
News on inflation continued to be encouraging, with a third report from the Labor Department showing the producer price index for final demand decreased 0.5 per cent in December after rising 0.2 per cent in November. In the 12 months through December, the PPI increased 6.2 per cent after climbing 7.3 per cent in November.
Microsoft plans 10,000 job cuts, to take $1.7b charge Microsoft said the layoffs come as the software giant sees customers exercise caution, with some parts of the world in recession and others heading toward one.


In a monthly steel market comment, Platts, a unit of S&P Global Commodity Insights, had a cautious outlook for iron ore: “Expectations have risen on China iron ore demand increasing after easing of COVID-19 measures, while iron ore demand could pick up when mill restocking needs resurface after the upcoming Lunar New Year holidays in China.
“However, more steel mills may reduce operation rates if steel production margins remained depressed, which might add some demand pressure for iron ore in January.”
As of January 13, iron ore stocks at Chinese ports were 133.59 million tonnes, down 15 per cent on the year, but up 1.74 per cent on the week, Platts reported. In the week to January 13, ore stocks for trade were at 79.52 million tonnes, down 15 per cent on the year, but up 0.66 per cent on the week, with stocks enough for 41 days.
On January 13, Chinese steel sector’s imported iron ore inventories were at 102.4 million tonnes, down 11 per cent year on year, but up 2.9 per cent on the week.

That indicated stocks would last for 37 days, down 13 per cent on the year, but up 2.5 per cent on the week, Platts said.


(All news & data sourced from AFR / The Australian / Bloomberg / Reuters / CNBC / Wall Street Journal / Morningstar / OPTO / Trading Economics)


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