The ASX is set to open higher today, with futures trading 12 points higher, up 0.16%.
The local index will start better than Wall St closed out Friday. While the S&P 500 did rally, on Friday it closed at session lows after Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) reported disappointing earnings.
Apple CEO Tim Cook did comment, "We're now at a point where production is what we need it to be. And so the problem is behind us.”
Alphabet CEO Sundar Pichai said, "Our revenues this quarter were impacted by pullbacks in advertiser spend and the impact of foreign exchange. In Q4, we saw slower growth of consumption as customers optimise GCP cost, reflecting the macro backdrop. Google Cloud had an operating loss of $480 million.”
Over at Amazon, CEO Andy Jassy said, “Probably the number one priority that I spend time with the team on is reducing our cost to serve and our operations network.”
In other market-moving US news, approximately 500,000 jobs in January were added which caused further rate hike fears.
Meanwhile, bond yields bounced and gold prices plummeted on Friday.
Here’s what we saw (source Commsec):
- The Euro fell from highs near US$1.0940 to lows near US$1.0790 and was near session lows at the US close.
- The Aussie dollar fell from highs near US70.70 cents to lows near US69.15 cents and was near US69.20 cents at the US close.
- The Japanese yen eased from near 128.30 yen per US dollar to around JPY131.20 and was near session lows at the US close.
- Global oil prices fell by around 3% in volatile trade on Friday. Investors worried that the strong US jobs report would lead to further rate hikes. Also, investors were uncertain about the impact of European Union price caps on Russian refined oil products.
- The Brent crude oil price shed US$2.23 or 2.7% to US$79.94 a barrel.
- The US Nymex crude oil price fell by US$2.49 or 3.3% to US$73.39 a barrel. Over the week Brent crude slid 7.8% and Nymex crude fell by 7.9%. Base metal prices fell on Friday.
- The copper futures price fell by 0.8%.
- The aluminium futures price slid 2.2%. Reuters notes that other base metals also fell, with zinc down 4.8% in response to a surge in inventories.
- Over the week copper fell by 3.8% and aluminium fell 3.4%.
- The gold futures price fell by US$54.20 or 2.8% to US$1,876.60 an ounce. Spot gold was trading near US$1,865 an ounce at the US close. Over the week gold fell by US$52.80 an ounce or 2.7%.
- Iron ore futures rose by US$1.31 or 1.1% to US$125.26 a tonne. Over the week iron ore rose by US$2.56 or 2.1%
Newcrest Mining Ltd has received a conditional non-binding takeover bid from Newmont Corporation Ltd.
The bid for Australia’s biggest gold miner would see the $20 billion Australian company folded into the approximately $57 billion capped North American producer.
The proposal states Newcrest shareholders would be entitled to 0.38 Newmont shares for each Newcrest share held. The acquisition bid is at an exchange ratio of 0.363 Newmont shares for each Newcrest share.
This is a new proposal from Newmont after its original proposal was deemed by the Newcrest board to be unable to deliver compelling value to shareholders.
Conditions of the new bid include granting of exclusivity to Newmont, due diligence, Newmont shareholder approval and various regulatory approvals.
A Chess Depositary Interest listing on the ASX for new Newmont shares issued to Newcrest shareholders will also be considered.
Newcrest is now considering the bid.
Some analysts believe this may not be the only bid to come for Newcrest.
The $46 billion Barrick Gold Ltd has previously approached Newcrest and the $35 billion Agnico Eagle Ltd may also prove to be a competitive suitor.
Newmont, Barrick and Agnico make up the world’s three largest gold producers while Newcrest is the largest gold producer in Australia and British Columbia. It owns the Lihir mine in Papua New Guinea and is expected to produce more than 2 million ounces this financial year.
Newcrest shares are down 0.13% over the year but up 17.2% in the past six months.
China’s economy expanding
City Index senior market analyst Matt Simpson said China’s economy was expanding again, according to official data (USD/CNH).
The National Bureau of Statistics China (NBS) released PMI data this week which shows both the manufacturing and services sectors are expanding.
Appetite for risk has enjoyed a great to start to the year, mostly thanks to China reopening and abandoning its COVID-zero policy. It was a key reason as to why the International Monetary Fund (IMF) chose to not downgrade global growth forecasts for the first time in a year, and tentatively call for a ‘turning point’ in the global economy. And that is so far being backed up by data coming from China.
This week we have seen four headline PMI surveys released covering manufacturing and services, three of which have beat expectations and expanded. If PMI’s are above 50 it denotes expansion and is favourable for growth prospects in the future.
Admittedly manufacturing is the laggard as the NBS print only expanded by 50.1 (and Caixin’s read remains within contraction at 49.2), yet both service PMI’s accelerated higher.
In fact, the NBS service PMI added 12.8 points m/m, which is its highest monthly increase since the depths of the pandemic in 2020.
The Caixin prints are a privately run survey and can be useful to monitor alongside NBS data to get a feel for the overall trend.
Something which stands out is that the Caixin survey has mostly had manufacturing within contraction for the best part of two years, yet their services PMI tends to track the oscillations of NBS and Caixin service PMI’s very well.
Given the past four cycles average 8.5 months, which suggests the current business cycle in China could trough around September or October his year. Unfortunately, peaks are far less reliable to measure but we can see momentum is pointing firmly higher, which bodes well for H1 this year.
Yield differentials between the US and China 2-year treasury note continue to suggest USD/CNH could be oversold, at least over the near term. The daily close chart (above in black) also better shows the potential for a higher low, as part of a countertrend move.
The daily candlestick chart shows a recent pullback has failed to retest the 6.6976 low, and yesterday formed a 2-bar bullish reversal pattern (bullish piercing line). Whilst prices remain within a small retracement channel, we’re now looking for a break higher and minimum move to the highs around 0.6800 (near the monthly pivot point, 100% projection and recent highs).
Should it break higher, then it has the potential to extend to the 138.2% or 161.8% projection levels, the latter of which is by the 200-day EMA.
Further out, I doubt Beijing will want their currency to depreciate too much given weak export data, so it's possible the anticipated move higher is simply a countertrend move which could later break to new cycle lows.
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