Bond yields continued to climb overnight seeing more value-based stocks rise and growth (Tech stocks) pull back. The US S&P500 continues to whip just below the all-time high at 4,700. Crude continued to jump which led the energy sector higher overnight.
US markets continue to look a bit overbought here. At this stage, the seasonal pattern is playing out. We saw a run in the US reporting season with over 80% of companies once again beating earnings expectations. From here typically we see a pullback or some weakness late Nov early Dec which set up for a Christmas rally. The next test will be the Debt ceiling issues.
Daily virus numbers worldwide fell back to just below 3million a week in October but are starting to climb again. Locally, Australia has now hit over the 85% second does. NSW and Vic have surpassed the 90% double dose target. QLD, SA WA, and NT are now above the 70% targets. NSW and VIC are both looking to start accepting vaccinated overseas travellers back in without a 2-week quarantine period. This is all very positive as we are slowly reopening Australia, and we will see immigration back next year, which has been one of the main drivers of our economy.
We saw a large move in the miners yesterday which was triggered by 3 days of strong gains in Iron Ore futures. The Iron Ore miners are still cheap at these levels even if Iron Ore remains sideways at US$100 a tonne. But be aware that the volatility in this space is likely to remain as steel production caps will remain until after the winter Olympics in February next year.
The XJO is expected to open flat this morning following a similar albeit tumultuous night in the U.S. Yesterday we rallied, clearly bouncing off the bottom of the recent trading range at roughly 7,350. A large part of drive was on the back of a strong XMJ which has been relishing a recent surge in Iron Ore prices and a low AUD. They are trading at key resistance which they may have stuck their head above yesterday. With gold dumping again overnight, it may struggle to make further leaps and bounds.
Our market will likely remain in the sideward channel until we see the U.S breaks theirs. For now, it seems we should hang around these levels with the next key resistance being 7,400 and 7,450.
US shares closed mostly higher overnight, as economic data showed a spike in the US manufacturing PMI, which rose to a higher level than expected. US government bond yields continued to rise after the nomination of Jerome Powell for a second term as Fed Chair, and this caused continued selling in yield sensitive sectors such as technology and gold. Overall things are going quite well in the US economy at the moment, but there are persistent concerns around the US government debt ceiling, which is likely to be reached in mid-December; unless a solution is found to the issue shortly, we could start to see volatility creep in to US markets. Eight of the eleven SP500 sectors closed higher overnight, with Energy the strongest performer, followed by Financials. Discretionary stocks fared the worst overnight, followed by Communications and Technology stocks.