AUDUSD – Drops to Twelve Month Low Below Key 0.70 Level

In the last few weeks the AUDUSD has fallen strongly from resistance at the three-month high around 0.7550 back down to a three month low below 0.72, before dropping sharply to finish last week down to a 12 month low below the key 0.70 level. In doing so it has pushed through multiple key levels of 0.74, 0.73 and most recently 0.72, all of which have provided support and resistance to the currency pair over the last few months. This fall follows several weeks of a strong rally which saw the AUDUSD not only move back up through resistance at 0.73 but continuing higher to the 0.74 level and moving through to the three-month high.

This current medium term down trend is becoming similar to its fall during June/July which saw it drop over 600 pips. The AUDUSD is now eyeing off the 0.70 level to see whether it receives any support from this level, after it was a major support level 12 months ago providing the base for its push higher to 0.80 earlier this year. Given the strong fall over the last few weeks, it is reasonable to expect a rally of some description in the new week, but you cannot question how strong this current fall has been.

The 0.70 level is also a nice round number as a multiple of 10 cents and prevents the AUDUSD from falling into a completely new range with a ‘6’ in front of the price, something it hasn’t had for 18 months.

If it is to receive some solid support shortly which sees the AUDUSD rally higher, there are several aforementioned levels above which are likely to step in and provide resistance which will apply constant downward pressure on price.

 

RBA Expected to Sit on Rates in Final 2021 Meeting

The Reserve Bank of Australia (RBA) meets for the final time tomorrow and no one expects them to move interest rates. Since their last meeting in November, thanks to lockdowns in ACT, NSW and Victoria, the economy contracted by 1.9% in the September quarter.

Whilst this decline was smaller than expected, it was still the third largest contraction for a quarter in Australia ever. Now that those states are free from lockdowns, retail spending has exploded.
When Australian Treasurer Josh Frydenberg delivers his mid-year budget review on 16th December, he will be upgrading his growth forecast for next year.

Last week the Organisation for Economic Cooperation and Development (OECD) warned that Australia’s central bank may need to increase interest rates sooner and faster than it is currently anticipating, keeping a close eye on rising inflation. Many economists are starting to believe that the RBA may be able to lift rates from the historic low of 0.1% sooner than their current 2024 plan.

RBA Governor Philip Lowe recently reiterated to financial markers that they shouldn’t expect interest rate increases in 2022. He added that current rates are consistent with inflation of 2 – 3%. Lowe stated that the central bank would only increase rates if it saw inflation sustainably in or above the target range.

AMP Capital chief economist Shane Oliver believes interest rates could start moving upwards in late 2022. «The main threat would be if Omicron turns out to be more deadly than Delta with vaccines offering little protection resulting in a return to lengthy lockdowns … resulting in another year of disrupted growth,» Dr Oliver said.

ASX200 – Relying on Support at Key 7200 Level

The ASX200 index struggled around the 7200 level trying to stay above it. 3 stocks from the ASX200 list achieved an all-time high last week. Namely:

  • Uniti Group
  • National Storage
  • Collins Foods

No stocks achieved an all-time low last week, but the following stocks achieved a 12-month low:

  • Adbri
  • Aurizon Holdings
  • Bapcor
  • Bendigo and Adelaide Bank
  • Costa Group
  • Kogan.com
  • Magellan Financial Group
  • Nearmap
  • Pendal Group
  • Platinum Asset
  • Pointsbet Holdings
  • Polynovo
  • Regis Resources
  • Zip Co

Closing out the week two weeks ago, the ASX200 index dropped sharply to its lowest level in seven weeks smashing through any support at 7320 and potentially moving through another key level of 7200. This sharp drop has technically completed the head and shoulders reversal pattern that had been forming over the last few months. The pattern had the head above 7600 in August and the first shoulder at around 7400 and the current shoulder around 7500. This is widely accepted as a medium term trend reversal pattern.

In the last week however, it has enjoyed some much-needed support from the key 7200 level propping it up and keeping it within reach of 7400. Prior to the sharp drop, the ASX200 index traded right around the key 7400 level for several weeks, whilst receiving some support from it which allowed it to trade to a six week high just shy of 7500. Even though it received some support from 7320, it struggled to return to 7400.

In early October, the ASX200 enjoyed solid support from the 7200 level where it propped it up for around two weeks and this level has been called upon again as the index has dropped lower. With the sharp drop and some increased daily ranges in the last week, the volatility in the ASX200 index (seen in the chart below as the red line) had picked up.

The following is the Australian industry sectors ranked from the best performing sector to the worst, over the last three months:

  • Utilities
  • Communication Services
  • Energy
  • Australian Real Estate Investment Trusts (REIT)
  • Consumer Discretionary
  • Consumer Staples
  • Industrials
  • Health Care
  • Materials
  • Financials-x-A-REIT
  • Financials
  • Information Technology

All things considered, the index has moved very strongly over the last 12 months, with recent signs that it could easily return to its recent all time high and threaten to move higher. However the recent sharp drop to a seven week low has placed any of those plans on hold for the time being.

Should these 2022 stocks be on your radar?

With December approaching, and 2022 on the horizon, here are some stock ideas to think about in the new year.

2022 stocks

Barclays picks out 2022’s potential big earners

Earnings season has come and gone. According to the latest data from FactSet, it’s been another successful quarter for Wall Street with the latest Q3 earnings report from S&P500 firms showing high growth.

FactSet reports that 82% of reporting S&P500 firms recorded per-share earnings growth above the mean EPS estimate.

Tesla, for example, had a robust third quarter with revenues and vehicle deliveries breaking records. That was just one of many megacaps reporting better-than-expected EPS performance in the third quarter.

Another includes Google parent Alphabet. The tech firm’s latest financials showed an earnings-per-share beat of $27.99 against $23.48 per share forecast.

However, many companies may run into difficulty next year. Earnings growth may be more modest. Recovery in major economies is not expected to match the rates we’ve seen so far this year. A fair few megacaps warned of slowing numbers, such as Disney and Netflix subscribers, in their Q4 guidance.

Wages have also been rising. In the US, for example, wage growth is up 4.9% year-on-year. That may put pressure on margins going forward too.

That said not all businesses are equal. Barclays’ investment division has eyeballed several overweight stocks that could deliver earnings growth in 2022. The banks has scoured the markets to find 35 equities worth looking at as reported by CNBC.

According to Barclays, the selected stocks may offer a 10% upside over their current target prices.

Of those 35, we’ve boiled then down into a further five.

2022 stocks to watch

These equities are drawn from a number of sectors, but the most common are energy, financials, information technology and consumer discretionary.

Halliburton and Schlumberger are two major energy stocks Barclays identifies as having high upsides over the next calendar year. Both are major players within the oilfield services industries and could be poised to make solid gains upon a wider crude oil recovery.

It should be pointed out, however, that COVID is still weighing heavily on the crude oil industry. The pandemic is far from over and rising global COVID cases are putting pressure on oil prices. Demand may take longer than expected to reach pre-pandemic levels.

In terms of price targets, Barclays is optimistic. Schlumberger has been set a $48 price target. At the time of writing, the stock was trading for around $31.25. For Halliburton, the target is $36 with it trading at $23.29 at the time of writing.

Ally Financial may have the biggest potential upside, representing the chief financial stock to watch for in 2022, at least according to Barclays. Upsides maybe as high as 36% for Ally in 2022. Barclays has set a $68 price target. At the time of writing, Ally was trading at around $51.05.

Moving away from financials, Barclays analysts have selected Dick’s Sporting Goods as its 2022 consumer discretionary stock of choice. The stock is already up 130% this year, driven by better-than-expected quarterly financial results.

The stock is down 5% in trading as of Thursday 25th November at around $127.49 – but Barclays believes it may reach as high as $173 across the next twelve months.

While Dick’s 130% year-on-year growth is impressive, it has been positively dwarfed by online personal loan providers Upstart. Upstart by name, upstart by nature it seems. The stock has skyrocketed an incredible 400% y-o-y in 2021.

It may still have plenty of room to grow. Barclays posits 44% share price growth across 2022 with a target price of $285 for Upstart. It is currently trading at $208.21.

Of course, it goes without saying that investing or trading any of the aforementioned stocks holds substantial risk of capital loss. Always do your research prior to committing any capital. Only trade or invest if you are comfortable with any potential losses.

Joe sticks with Jay, yields, dollar up

US bid: Stocks on Wall Street rose to all-time highs, the dollar rose strongly and US front-end yields ticked up as the White House confirmed it will stick with Jay Powell as chairman of the Federal Reserve. Lael Brainard will become vice-chair. I think Powell is rightly getting a heck of lot of credit for steadying the ship at the height of the pandemic when credit markets were exploding. What he’s doing with inflation now is another matter but Brainard wouldn’t have moved swifter on rates, that is for sure.

 

Market reaction has been pretty hawkish, which is kind of odd since a) he ain’t no hawk and b) the odds on Brainard were long. Still there seems to have been something of a Brainard trade which is being unwound, or perhaps it’s just the kind of market overreaction to an unpriceable bit of news which is good to fade…

 

Markets are pricing in a rate hike by June vs July before the announcement, with 2s up 5bps to 0.566%, hitting the highest since March 2020 and 10s rising back to 1.6%. Gold extended its drop as yields rose. The dollar index spiked to a new high at 96.50, whilst EURUSD plumbed a new 16-month low at 1.1236. Cable also lower, back to 1.340 support from 1.3450 before the news. S&P 500 and Nasdaq Composite have hit fresh all-time highs, while the Dow is up 170pts. Banks +2% – yields but also Powell is seen as not such a tough sheriff as Brainard was going to be perhaps? 

 

Markets like the continuity – we know what we are getting with Powell, the market is confident in his leadership, and Brainard will be an effective deputy and mouthpiece in a similar fashion to the outgoing Clarida.  

 

Markets also probably like the fact that the decision to keep a Trump appointee helps to depoliticize the role of Fed chair. This is a good thing – central bank chiefs should not be political appointments, selected by whatever administration in power to suit their partisan ends. Investors will be happy that the left wing of the Democrat party didn’t get their pick – again apolitical appointment is important. But also the fact the ‘progressives’ haven’t got their way this time is good for USD. Biden’s got an eye on opinion polls going south so side-lining the progressives in his party here is probably seen as a good thing, too.

 

Meanwhile, the pressure on EURUSD remains on both sides of the cross as Germany seems to be heading into lockdown – Merkel said situation with Covid is the worst it’s ever been, new restrictions needed. Reaction to the Powell announcement at 2pm is clear to see.

EURUSD Chart 22.11.2021

AUDUSD – Falls to Seven Week Low Near 0.72

In the last few weeks the AUDUSD has fallen strongly from resistance at the three-month high around 0.7550 back down to a seven week low close to 0.72. In doing so it has pushed through the key 0.74 level and another key level of 0.73 which has supported the AUDUSD well on multiple occasions over the last few months. This fall follows several weeks of a strong rally which saw the AUDUSD not only move back up through resistance at 0.73 but continuing higher to the 0.74 level and moving through to the three-month high. After hitting resistance at 0.7550 a few weeks ago, its rally did slow down as it rallied back up to 0.7550 to run into resistance again forcing it lower.

Given its range trading over the last few months, there are several levels that are continuing to play a role, which includes the current 0.73 level where it has found some support a week ago. The 0.73 may provide some resistance which it has also done on multiple occasions, should the AUDUSD rally in the next few days. The 0.73 level first gained attention in August when for several weeks it propped up the AUDUSD and kept it within a range between it and 0.74.

If the AUDUSD continues to fall and remains below the key 0.73 level, you could expect the trough seen in late September around 0.7175 to provide some support. Failing that, the round number of 0.70 is more likely to step in and provide support to the AUDUSD.

Another possible scenario is that the AUDUSD is trading at the very bottom of its current channel over the last few months and is poised for buyers to jump in and move the AUDUSD higher back up through its key levels and return to the top of the channel. This is shown in the chart below.

 

RBA Shines Light Back on Australian Businesses

The Reserve Bank of Australia (RBA) is looking for something to get the Australian economy moving and in a recent speech, the RBA’s assistant governor Luci Ellis believes now is the time for the economy to «evolve.»

In doing so, the central bank has reflected on what the AU economy looked like pre-pandemic and it wasn’t all roses, as the economy was showing little by way of economic or wage growth. «Investment was low, productivity growth was lagging and many of the behaviours we associate with business dynamism were on the decline,» Ms Ellis said in the speech to the Committee for the Economic Development of Australia.

Having previously urged Australian businesses to throw caution to the wind and invest and hire, RBA Governor Lowe has been well supported by Assistant Governor Ellis as she has called for a seldom used word, «dynamism.»

Ms Ellis says dynamism is, «the drive to innovate, adapt and evolve, which helps underpin a society’s living standards.» She wants «adaptation, innovation and dynamism, and [to look at] how the experience of the pandemic might have changed things.»

Meanwhile, the RBA has cautioned Australians about highly speculative cryptocurrencies, reaching frenzied activity. During a speech last week, the RBA’s head of payments policy Tony Richards, questioned the validity of cryptocurrencies generally, but highlighted examples of Dogecoin and Shiba Inu. “The recent boom in this area is perhaps best illustrated by the fact that Dogecoin, a cryptocurrency that was started as a joke in late 2013, had an implied market capitalization as high as $88 billion in June this year”, Mr Richards said.

ASX200 – Drops Below Key Level of 7400

Even though the ASX200 index has drifted lower slightly in the last week or so, 13 stocks from the ASX200 list achieved an all time high last week. Namely: ALS, Altium, ASX, Ausnet Services, Chalice Mining, Graincorp, James Hardie, Macquarie Group, Megaport, Reliance Worldwide, Seek, Technology One and Wisetech Global.

In the last few weeks the ASX200 index has traded in a narrow range receiving some support from the current key level of 7400 level returning to a six week high just shy of 7500. However in the last few days, it has drifted below 7400 although it has been well supported by around 7320 throughout the last few weeks. The ASX200 traded right around the 7500 level in a very tight range for several weeks two months ago and it is little surprise that this level has offered resistance again in the last few weeks. On multiple occasions in the last few weeks, as the index has approached that level it did struggle to maintain the momentum and did stall for several days before easing lower to near 7300.

Over the last few months the ASX200 index has been loosely forming a head and shoulders pattern with the head above 7600 in August and the first shoulder at around 7400 and the current shoulder around 7500. This is widely accepted as a trend reversal pattern, and if the index was to continue to fall in the next week or so, this would complete this pattern and confirm the reversal.
In early October, the ASX200 enjoyed solid support from the 7200 level where it propped it up for around two weeks and this may be called upon again should the index continue to ease lower. The volatility in the ASX200 index (seen in the chart below as the red line) has decreased in the last few weeks returning to a longer-term average.

All things considered, the index has moved very strongly over the last 12 months, with recent signs that it could easily return to its recent all time high and threaten to move higher. The resistance around 7500 is the current obstacle that needs to be cleared although there are obvious levels, eg. 7200, ready to resume support for the index.

Stocks limp into weekend, tech bid, bond yields lower

Week-end run-down:

  • Stocks are ending the week in a bit of a mixed mood, but more half empty than half full. Value/cyclicals on the back foot with bond yields down, tech bid for the same reason. Losses in Europe running around 0.3-0.5% for the main bourses. Looks like the sluggishness in Europe is driving some profit-taking in the US outside of the tech space, energy under pressure from residual weakness in oil.

 

  • Austria’s lockdown and likely lockdowns in Germany put European stock markets into a downwards gear shift earlier in the session and we are holding losses into the close. Austria is also going to make vaccination mandatory, which has so far not inspired much concern about civil liberties from the people you normally hear from when government’s overreach. Across the pond the House has passed Biden’s BBB social spending plan.

 

  • US markets are mixed – Big Tech lifting Nasdaq up 0.5% to a record high and helping the S&P 500 fend off any meaningful decline. Dow is down 0.7%.

 

  • Bonds are telling the story at the moment – 5bps drop in the 2yr is the biggest drop since March 2020 – which seems to be down to the Austria lockdown read across. 10s declined to 1.52%. That move lower in rates only supports growth/tech etc so Nasdaq record high = good for US, but it’s headwind for Europe – which prefers higher rates and is more value sensitive.

 

  • More mixed messages from the Bank of England as chief economist Huw Pill said he doesn’t know which way he will vote in Dec…is there much more data to come before then? Seems odd, only reinforces the unreliable nature of the BoE comms and uncertainty around the future path of monetary policy. If you don’t have something useful to say don’t say anything. GBPUSD is chopping around the 1.3450 area after pulling back from the 1.35 area earlier in the session, 1340 offering near-term support.

 

  • Oil tried to rally today but WTI (Jan) is back to a $76 handle – likely mainly on the lockdown situation in Europe, but sentiment remains bearish amid broader concerns of oversupply.

 

  • Euro is weaker – Lagarde comments earlier + lockdowns cement belief in ECB being slowest to normalise and potential for anti-Goldilocks scenario for Europe into 2022. Anti-Goldilocks but not sure if big bear or little bear…are you playing weaker euro and weaker EZ stocks…or just one? Normalisation of real yields next year ought to be supportive for value/cyclicals, particularly autos and banks, but this is definitely not what we are seeing today. Weaker euro on CB divergence + economic divergence between the US and EU has been and remains the simplest play.

EURUSD is off the lows of the day but still under pressure at 1.13 and conspicuously made a fresh 16-month low.

EURUSD Chart 19.11.2021

Finally, notable that The Economist is leading with something about how no one predicted all this inflation, which is simply untrue. So I leave you with this from me, dated August 26th, 2020: 

 

I find this idea of AIT [average inflation targeting] being a better anchor for inflation expectations problematic. Whilst I don’t pretend to being an economist, regular readers will be familiar with my view that a sharp bounce back in growth (albeit to a level still below pre-pandemic potential) combined with unlimited Fed accommodation, a vast increase in the money supply (if not yet the velocity of money) and a massive fiscal put is basically inflationary. Remember, as Friedman put it “inflation is always and everywhere a monetary phenomenon that arises from a more rapid expansion in the quantity of money than in total output”. The rate of expansion in the monetary base is consistent with past bouts of high inflation in the 1930s, 1940s and the 1970s. Whilst post-GFC QE led to money printing, it was gobbled up by a financial system hungry for capital and balance sheet repairing. The fiscal stimulus this time makes it a very different environment. 

 

Layer on top of that the disruption to supply chains and fundamental shift in deglobalisation trends, and you create conditions suitable for inflation to take hold. If the Fed also indicates it does not care if inflation overshoots for a time – indeed is actively encouraging it – there is a risk inflation expectations become unanchored as they did in the early 1970s, which led to a period of stagflation 

 

…My concern would be that once you let the inflation genie out of the bottle it can be hard to put back in without aggressively tightening and likely as not engineering a recession. Nonetheless, this seems to be the way the Fed is going.   

 

Paul Tudor Jones put it best back in May when he said that the question of whether the current bout of money printing will ultimately prove inflationary comes down to how reasonable is it to expect that in the recovery phase the Fed will be able to deliver an increase in interest rates of a magnitude sufficient to suck back the money it so easily printed during the downswing? Most agree it won’t be easy – in fact AIT would effectively kick the can down the road for many years. The Fed is not even thinking about thinking about sucking the money back in. This ought to stoke inflation, but it could be more than the Fed wants – the genie is coming out. 

Enter the metaverse: an $8 trillion opportunity?

Are you ready to enter the metaverse?

Trading the metaverse

What is the metaverse?

You’re probably aware by now that Facebook’s parent company has changed its name to Meta. In its Q3 earnings release, the social media conglomerate said it was now pushing ahead with creating a metaverse – but what does this actually mean?

A very quick definition of the metaverse is it combines the digital and physical worlds through the use of augmented and virtual reality technology. It’s basically a blurring of the internet with everyday life; a highly immersive virtual world where people gather to socialise, play and work.

The metaverse is a new frontier. Really, it’s a bit of a buzzword at the moment. However, it does present some potential major investment opportunities as it develops into a tangible concept.

Morgan Stanley values this new sector’s potential as an $8 trillion investment and trading opportunity. Tech is where the big bucks are these days – you only have to take a look at Apple’s latest earnings to see that – but $8 trillion is huge by anyone’s standards.

So, how can people go about investing in the metaverse?

Making headway into the metaverse

In a note published by Morgan Stanley on Tuesday, November 16th, as reported by CNBC, Brian Nowak, an analyst at the investment bank, said: “The metaverse is most likely to be a next-generation social media, streaming and gaming platform. And like current digital platforms, we expect the metaverse to initially and primarily operate as an advertising and e-commerce platform for offline products/purchases.”

The most obvious route into this new technology space is Meta. The Facebook parent has been the most vocal about pursuing this blurring of the digital and the physical.

“We remain positive FB primarily because of the still under-appreciated core business growth durability and free cash flow into ’22,” Nowak said. “This is even through an estimated $13.6bn of investment in the metaverse in 2022 to build the next generation version of social networking.”

In addition to Meta/Facebook, Morgan Stanley also earmarked the below stocks, each with an overweight rating, as potential metaverse inroads:

  • Roblox
  • Alphabet
  • Snap
  • Unity Software

Google parent Alphabet is a bit of a no brainer. The company is already one of the world’s foremost technology developers. It makes sense that it wants to grow its offer into VR spaces and other meta tech areas.

Morgan Stanley said Alphabet “has leading traffic, compute power, engineering talent and a growing focus on augmented reality. If we believe in next-generation platforms [Alphabet] should not be missed.”

The bank also noted that Snap is already a market leader in augmented reality technologies. Think of the bewildering level of filters and in-camera options available on the company’s Snapchat platform. Snap is already fairly ahead of the game, but the technology could be adapted for other parts of life than just social media and fancy photographs.

Think in-glasses heads-up displays, similar to the failed Google Glass experiment, giving you local weather updates, entertainment information, shopping highlights and so on.

According to a BBC report, some Snap content creators had been given augmented-reality focussing glasses in May to help test and popularise the technology.

Roblox is a video game company that specialises in virtual reality gaming. The brand has over 47 million daily users. If it can leverage those into metaverse’s potential for advertising, eCommerce, and social aspects, then Morgan Stanley thinks RBLX could be a major meta player.

“Like FB, what we like most about RBLX is that the core growth and monetisation algorithms (aging up, global growth, in-app spend) also remain strong,” Brian Nowak said.

Unity Software is also a key part of the video game industry’s virtual reality segment, only rather than making games like Roblox, it provides development software to other creators. Based on this, Morgan Stanley believes Unity could be able to springboard into the 3D graphics space integral to meta visual development.

“In a scenario where the metaverse attracts large numbers of content creators beyond gaming (e.g., to build virtual stores, 3D models of homes etc.), we believe U could serve as a true ‘picks and shovels’ business for an audience beyond (and including) its current core of game developers and artists,” said Nowak.

The metaverse is still in its embryonic stage, but there is the potential to get in on the ground level for traders and investors alike. Of course, it goes without saying that investing and trading in the aforementioned meta stocks carries all the usual risks. Only invest or trade if you can afford to take any losses and do your research prior to committing any capital.

AUDUSD – Falls Strongly from Three Month High at 0.7550 Down to Key 0.73 Level

In the last two weeks the AUDUSD has fallen strongly from resistance at the three-month high around 0.7550 back down to another key level of 0.74 where it was supported to finish last week, before continuing to decline back to another key level of 0.73. This two-week fall follows several weeks of a strong rally which saw the AUDUSD not only move back up through resistance at 0.73 but continuing higher to the 0.74 level and moving through to the three-month high. After hitting resistance at 0.7550 a few weeks ago, its rally did slow down as it rallied back up to 0.7550 to run into resistance again forcing it lower.

Given its range trading over the last few months, there are several levels that are poised to resume playing a role, which includes the current 0.73 level where it has found some support in the last day or so. The 0.73 level first gained attention in August when for several weeks it propped up the AUDUSD and kept it within a range between it and 0.74.

If the AUDUSD continues to drop and move back through the key 0.73 level, you could expect the 0.71 level to provide some support after it reversed at that level in August. Failing that, the round number of 0.70 is more likely to step in and provide support to the AUDUSD.

Although now less likely, should it bounce off the support at 0.74 and move through the resistance at 0.7550, you would expect the 0.78 level to play a role again having influenced the AUDUSD as much as it did earlier in the year across many months. If the current support at 0.73 continues to prop up the AUDUSD, then the key 0.74 level may resume its role and provide some resistance again.

RBA Leaves Rates as Historic Lows – Banks Move Independently

Having left the cash rate at its historic lows at its monthly board meeting, the Reserve Bank of Australia (RBA) did change their tune ever so slightly as they left the door open to a rate rise in 2023, having previously said they couldn’t see rates rising until 2024. However this is of little comfort to many as in recent years, major Australian lenders have seen it fit to make interest rate moves independent of the central bank. This includes moves in the last week or so.

After the meeting, RBA Governor Philip Lowe said that inflation had picked up earlier than expected but in underlying terms was “still low”. “The board is prepared to be patient, with the central forecast being for underlying inflation to be no higher than 2½ per cent at the end of 2023 and for only a gradual increase in wages growth,” he said. Governor Lowe has repeatedly rejected predictions that he’ll need to raise interest rates next year in response to higher inflation.

They are also still very conscious of the red-hot property market in Australia with increasing “household indebtedness” as people continue to question why the central bank isn’t playing a role in maintaining a lid on soaring prices and curbing borrowing. The central bank has been reluctant to comment on housing adopting the approach that they have a bigger economic picture to manage.

However after their last meeting, the central bank did make a comment on the scenario of increasing rates quickly and the impact on property prices. “Price falls could be widespread if interest rates were to increase sharply due to unexpected inflation or rising risk premiums,” the RBA said in its Financial Stability Review released last Friday. “Sharp price falls could cause greatest harm to the financial system for assets where leverage is common, notably residential and commercial property.”

ASX200 – Continues to Trade Around Key Level of 7400

In a sign of how well the market is moving in the last 18 months, 13 stocks from the ASX200 list achieved an all time high last week. Namely: ASX, AUSNET SERVICES, CHALICE MINING, COMMONWEALTH BANK, GRAINCORP, IDP EDUCATION, JAMES HARDIE, JANUS HENDERSON, MEGAPORT, PREMIER INVESTMENTS, RELIANCE WORLDWIDE, SEEK, TECHNOLOGY ONE

A quick scan through the ASX Top 20 stocks will show a handful of stocks that have performed very poorly this year, while others have shone. In the last three months, Aristocrat Leisure and Macquarie Group have been the best performers. Commonwealth Bank and Afterpay join that group if you look over the last 6 – 12 months. Continuing to drag the chain are the miners in BHP, Rio Tinto and Fortescue Metals, which are all trading at close to 12 month lows.

In the last few weeks the ASX200 index has traded in a narrow range receiving some support from the current key level of 7400 level returning to a six week high near 7500. The ASX200 traded right around the 7500 level in a very tight range for several weeks two months ago and it is little surprise that this level is offering some resistance again. On multiple occasions in the last few weeks, as the index has approached that level it did struggle to maintain the momentum and did stall for several days before easing lower to near 7300.

Over the last few months the ASX200 index has been loosely forming a head and shoulders pattern with the head above 7600 in August and the two shoulders around 7400. This is widely accepted as a trend reversal pattern, however its current movement higher in the last two weeks is threatening to collapse the pattern.

Several weeks ago, the ASX200 enjoyed solid support from the 7200 level where it propped it up for around two weeks and this may be called upon again should the index continue to ease lower.  The volatility in the ASX200 index (seen in the chart below as the red line) has decreased in the last few weeks returning to a longer-term average.

All things considered, the index has moved very strongly over the last 12 months, with recent signs that it could easily return to its recent all time high and threaten to move higher. The resistance around 7500 is the current obstacle that needs to be cleared although there are obvious levels, eg. 7200, ready to resume support for the index.

What’s going on with EV stocks?

A few EV stocks have been grabbing headlines for different reasons this week. From Rivian to Xpeng, here’s what you might have missed.

EV stocks

Rivian soars

Rivian only made its stock market debut two days ago but it’s quickly becoming the darling of electric vehicle investors.

Not content with being 2021’s biggest IPO, opening 30% higher than its projected debut share price, Rivian continues to hit the accelerator. Pre-US market open, the stock is up a further 23%.

Why Rivian? The company isn’t expected to hit profitability any time soon. It’s yet to deliver any meaningful volume of vehicles. It’s not really generating any revenue either.

Rivian’s a good case study of the market betting on a sector. It’s already made big wins with Tesla, so now it’s looking for the next big thing. That could be Rivian. The carmaker offers two models at present, the R1T pickup and R1S SUV, and will soon be entering the commercial vehicle game following an Amazon order for 100,000 delivery vehicles.

Amazon owns a 20% stake in the start-up. Funnily enough, potential rivals Ford owns a 12% stake in Rivian. With the new launch boost Rivian is enjoying, Ford has made about $10bn so far. That’s more than the Detroit old guard carmaker made selling vehicles last year.

The challenge for Rivian now is turning this momentum into revenue generation and vehicle deliveries. The R1T has started to roll off forecourts across the US. Rivian’s R1S will begin deliveries in 2022. After investing $1bn in a factory in Normal, Idaho, the Californian mark says it has the capacity to deliver 150,000 vehicles a year.

With roughly $11bn in capital to play with thanks to the largest US float since Facebook, Rivian is expected to pour that cash into building new factories and delivering trucks and SUVs. It’s one to watch.

Tesla dips

Elon Musk has been up to his old tricks again.

He has sold $5bn worth of his Tesla shares after polling his legion of Musk Rat Twitter followers. An unusual move from an unusual CEO but fair play to Musk. He did actually follow through. Since then, however, the Tesla share price as been on a bit of a wild ride.

Upon making his Tweet, the stock hit the skids.  It is now down about 10% across the week, wiping off around $157bn of Tesla’s market cap. Until we see another uptick, which is likely given the world is in the grips of electric vehicle fever, Tesla has lost its $1 trillion valuation.

A $1 trillion valuation for a car company seems excessive on the face of it, but investors just seem to love Tesla. Some brokers, such as Fidelity, have reported that Tesla remains one of the most traded and bought stocks, with buy orders completely outstripping sells.

Even with this week’s blip, there’s no way Tesla is anywhere close to skidding off the road. As it stands, the stock is still up 51% in 2021 as a whole. Compared with 2020’s lows, Tesla is 1,300% higher.

Tesla reported another exceptionally strong quarter in its latest earnings report. A record-breaking 241,300 vehicles were delivered in Q3 2021, helping the EV pioneers reach Wall Street-beating revenues and earnings per share.

It is interesting to see that, despite these incredible stats, that the Tesla share price is so susceptible to the actions of its CEO. It goes without saying that executive-level actions can move shares up or down, but very few companies have a head honcho so woven into the world of social media like Tesla.

What’s next? Expansion is the name of the game. More factories are under construction. More cars are rolling off production lines. There’s still more to come from Tesla – probably more Elon Musk shenanigans too.

Xpeng rises

China has its own number of electric automobile makers, such as NIO and Li Auto, but we’d like to turn our attention to their rival Xpeng.

Xpeng made a strong start in Asian trading today, jumping 10% after the marque teased a new SUV model. It’s likely to replace Xpeng’s G3 and G3i models when fully revealed at the Shanghai Motor Show event on November 19th.

Xpeng deliveries are behind those of Tesla, but it really only operates in one market. Certainly, it’s delivered more vehicles than the $100bn Rivian – but bizarrely you don’t see valuations anywhere near that high for Chinese electric carmakers.

In October, Xpeng delivered 10,138 cars, of which 3,657 units were its G3 and G3i SUV, reaching a monthly record since the vehicle’s launch in December 2018.

The company said its cumulative deliveries have exceeded 100,000 as of the end of October.

China is the largest auto market in the world and is quickly emerging as THE go-to place for electric motors. Bearing in mind the industry is still in its infancy, but over two million electric passenger vehicles have been sold in China in 2021 so far.

While the marketplace is fairly crowded, there is still substantial room for growth – especially with the Chinese government pledging to up its eco-game in the wake of the COP26 summit.

Keep an eye on Xpeng, as well as other Chinese EV stocks like Li and NIO. There could be something big building in the Far East.

Earnings season: The magic wears off as Disney records miss

The sparkle falls off the House of Mouse as Disney posts a fourth quarter earnings miss in its latest financial report.

Disney earnings

Disney’s headline stats

Disney latest earnings failed to meet Wall Street expectations when they were published after the closing bell yesterday.

Fourth quarter revenues and earnings-per-share both came in below forecast levels. Disney joins Apple as one of the megacaps missing earnings this reporting season.

The key takeaways from the House of Mouse’s latest financials are:

  • Earnings per share – $0.37 (adjusted) vs $0.51 forecast
  • Revenue – $18.53 billion vs $18.79bn forecast

A slowdown in streaming subscribers for the entertainment conglomerate’s Disney+ service is on the cards, despite numbers falling in line with Disney estimates. During the last quarter, Disney added 2.1m subscribers bringing the total up to 118.1m.

Comparatively, Netflix added 4.4m subscribers according to its last earnings report.

Average monthly per-subscriber revenues are also down about 9% year-on-year. As of Disney’s last reported figures, the company earns $4.12 per month from Disney+ subscription fees. Total sub numbers across all of the streaming services owned by Disney, including ESPN+ and Hulu, reached 175m.

Direct-to-consumer revenues rose 38% to $4.6bn in Disney’s fiscal fourth quarter. Content licensing and sales revenues also increased by a healthy 9% to $2bn. However, due to higher marketing and operational costs, content licensing and sales said it was operating at a $65m loss for the quarter.

Cinemas have only recently started to reopen around the world. Only a few Disney properties made it to theatres but still offered decent returns. Fall Guy, Black Widow, and Shang-Chi and the Legend of the Five Rings were the main Disney releases of the quarter. Two of these fall under the Marvel umbrella. Marvel films tend to be something of a cash cow for Disney.

Disney parks reopen

Attendance at Disney’s theme parks across the world picked up as vaccinations took hold globally in H2 2021.

Revenues across Disney’s parks and cruises segment showed a 26% increase to $5.45bn – despite $1bn in costs accrued by bringing the business’ leisure facilities up to COVID-safe standards. As it stands, all Disney parks, resorts, and cruise liners are operational again.

Pandemic-incurred travel restrictions have been lifted by the United States. Disney is anticipating the return of international visitors to its parks, especially those in California and Florida.

“We’re seeing really great demand. Very thrilled with our demand. Not only internationally but especially domestically, but particularly, again, because of our guest experience improvements at numbers that are very, very strong and very, very healthy,” Disney CEO Bob Chapek told CNBC. “So not only do a lot of people want to come but when they come, they want to really engage in Disney.”

Content, slowing subscribers, and metaverses: a look into Disney’s crystal ball

Disney appears to be the next brand to be exploring the metaverse after Facebook’s parent changed its name to Meta last week.

In a post-earnings call to analysts, Chapek touched on Disney’s plans to blend all of its properties and content into a seamless multi-channel customer experience.

“Suffice it to say our efforts to date are merely a prologue to a time when we’ll be able to connect the physical and digital worlds even more closely, allowing for storytelling without boundaries in our own Disney metaverse,” the Disney CEO said. “And we look forward to creating unparalleled opportunities for consumers to experience everything Disney has to offer across our products and platforms wherever the consumer may be.”

In the near future, however, the focus appears to be ramping up the content offer across Disney’s various streaming platforms. Most of this won’t land until the fourth quarter of 2022.

“Q4 will be the first time in Disney+ history that we plan to release original content throughout the quarter from Disney, Marvel, Star Wars, Pixar, and Nat Geo, all in one quarter. This includes highly anticipated titles such as Ms. Marvel, and Pinocchio,” Disney Chief Financial Officer Christine McCarthy said on the company’s earnings call.

However, subscriber growth could be limited to “low single-digit millions” according to Disney estimates.

This could affect Disney’s share price. The stock is already down nearly 8%. Atlantic Equities has downgraded Disney in light of slowing subscriber numbers. The investment bank has slashed Disney’s guide price from $219 per share to $172.

Despite this underperformance, Disney still holds a strong buy status according to the Markets.com Analyst Consensus tool. This is based on 22 analysts offering recommendations on the stock over the past three months:

Disney Analyst Consensus rating

Unsurprisingly, given this quarter’s earnings miss, news sentiment on Disney is bearish:

Start your engines: Rivian is 2021’s biggest IPO

Electric carmaker Rivian puts the pedal to the metal with the largest stock market debut of the year so far. Here’s what you need to know.

Rivian IPO

Rivian stock market debut puts the pedal to the metal

Rivian, the Californian EV start-up, has reached a valuation of over $100bn since making its public debut yesterday.

That puts the electric car maker above the likes of established carmakers like GM and Ford. Rivian is now, in terms of market cap, one of the largest car companies on Earth.

It’s quite impressive, given the fact the business is yet to make any substantial revenue or deliver a significant quantity of vehicles.

Rivian shares began trading at $106.75 per share – some 37% higher than initial IPO price estimates. The carmaker was reportedly looking at a $72-74 initial public offering share price ahead of its stock market debut.

Intraday trading reached a high of $119.46 before closing Wednesday’s session at $110.73. On a fully diluted basis, Rivian now boasts a market cap of $100.8bn.

Rivian is expected to generate $11.9bn in capital from its IPO. That makes it the largest US float since Facebook.

The company trades on the Nasdaq under the RIVN ticker.

Big backers bet on EV through Rivian

Shareholders and backers are betting on electric vehicles quite heavily. Amazon has a 20% stake in the business. Ford has claimed a 12% stake, which is now worth a cool $10bn.

How else could explain Tesla’s $1.1 trillion valuation? Elon Musk’s EV manufacturers enjoyed another record-breaking quarter recently, but Tesla does have years of hype and market rep, and actual tangible revenues, to back it.

Electric vehicles do, however, look like the future. Many legacy marques, including Ford, GM, Mercedes-Benz, and Volkswagen, are finally now starting to get the message. Billions in R&D and product development means pretty much all major car manufacturers are planning to go fully electric by 2030.

We’re in the first stages of what could be a complete electric revolution. Tesla is definitely the poster child, but this massive Rivian valuation shows the market is looking for other brands that could make a big splash in Tesla’s wake.

The problem with Rivian, however, isn’t the future, it’s the present. The marque said it was poised to make losses of over $1.2bn in 2021. Profitability will not be on the cards for quite a long time.

Then there is the problem with its product offer. As we pointed out in our Rivian IPO preview, the company currently only offers two models: the R1T pickup truck and the R1S SUV. SUVs are fine. They’re possibly the most popular segment of the electric vehicle market. They certainly are in China, which is the world’s largest auto market.

But where Rivian could go wrong is by focussing on the R1T. What’s interesting is that Ford is one of the start-up’s key stakeholders – but is actually shaping up to be one of its largest competitors in the electric pickup sector.

Ask any American to think of a pickup truck and they’ll inevitably picture a Ford F150. The F150 has been the gold standard for pickups ever since it was launched in 1948. 900,000 F150s roll off forecourts across the United States every year.

An all-electric F150 is being launched in 2022 starting at around $30,000. The Rivian R1T’s base model begins at around $70,000. Rivian says it has 50,000 pre-orders for the R1T. Ford already has 160,000 for its electric F150.

This also discounts further electric pickups from the likes of Chevrolet and other GM brands.

The auto industry is tough. Companies like Ford and GM have already been building cars for over a century. They know how it works. While Silicon Valley may be labelling them dinosaurs, it seems odd to write such carmakers off completely and focus entirely on untested start-ups.

Even Polestar, the all-electric luxury spinoff from Volvo Cars, is only expected to fetch a $9-10bn valuation when it goes public.

Still, according to this huge valuation, it appears investors are putting all their chips on the newcomers. EV stocks can be some of the hottest equities to watch.

Where next for Rivian?

Rivian will now begin ramping up its production capabilities and start delivering vehicles. It’s about time it generated some revenue. Estimates suggest the business will create $0-1m in revenues in 2021.

Having enjoyed one of the largest floats of modern times, Rivian now has the cash to spend on factories and getting vehicles out to the public. It recently spent over $1bn in building a factory in Normal, Idaho. Reports say a further $5bn could be spent on a battery and vehicle production site somewhere in the US and another $1bn on a factory in Bristol in the UK.

Deliveries of the R1T are underway with the R1S expected to hit the roads by 2022. Rivian claims it currently has the capacity to deliver 150,000 vehicles a year.

One key long-term order for the business has come from shareholders Amazon. The eCommerce behemoth has contracted Rivian to deliver 100,000 vans and commercial vehicles by 2030. This could be a potentially lucrative segment for Rivian – but again it will be up against Ford. Ford says it has already sold out of pre-orders for the electric version of its ubiquitous Transit van.

It’s time for Rivian to put its money where its mouth is. There are over a billion vehicles worldwide that could be replaced if the electric revolution can continue unabated. But the shadow of Detroit muscle and European production heft still looms large. Rivian will have to move fast if it wants to out accelerate the motoring world’s biggest names.

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