This week saw flashes of what lies ahead with ANZ Bank publishing a rate-fall timetable, Citi seeing an uptick in global steel production, Goldman Sachs and Wilsons joining the copper rush and Morgans forecasting strong demand for commodities.
Those observations from well-placed investment banks have not been part of the daily news flow dominated by political point scoring and human tragedies but they are important developments for investors, and they can be measured.
The simplest test to demonstrate that the business sector is in the final stages of the Covid-era roller-coaster is to see how most stock markets are at, or are testing, their all-time highs.
In Australia, the ASX-200 index (which measures the 200 biggest listed companies) is sitting around 7817, less than 0.5% below its record of 7850 reached three weeks ago. The broader all ordinaries index, at 8065, is 0.5% below its peak of 8107 reached on March 8.
In the U.S., the S&P500 (a broader measure of the market than the Dow Jones 30) is at 5226, a fraction below its all time high of 5263 reached late last week.
The story of key market measures bumping against the ceiling, or bursting through it, is repeated in Britain, France, Germany, and Japan.
The common threads connecting markets are a combination of euphoria about the potential wealth-creating effect of artificial intelligence (AI) and confidence that the interest rate cycle has peaked with falling rates translating into rising asset values and higher commodity prices.
But how quickly rates fall is the $64 trillion question because as Bloomberg writer John Authers said yesterday, the way down from the rates mountain will not be like a slide down the other side of the triangular Matterhorn, more like getting off down Cape Town’s Table Mountain, a long flat ride before a slow descent.
Gold has been an early mover in demonstrating how the change works, outperforming most other commodities thanks to its primary role as the ultimate reserve currency benefiting from heavy buying by the organisations which know most about the future course of interest rates because they set them, central banks.
Overall, this week on the Australian market was a largely forgettable affair as investors took to the sidelines ahead of the four-day Easter break.
The all ordinaries index, as mentioned earlier, crept a little higher while the metals and mining index was pancake flat.
The gold index showed signs of life with a rise of 1.4% as investors started to recognise the value gap between the physical bullion price and gold equities which have been laggards but which might have started playing catch up.
Of the big picture factors mentioned earlier, it was ANZ’s research quarterly which did most to boost confidence in a widespread economic recovery, noting that “a soft landing has been delivered, inflation is approaching its target, the U.S. dollar is weakening and there are pockets of commodity strength”.
On rates, ANZ said Switzerland had surprised by being the first major country to cut rates, Europe is likely to follow in June with the U.S. and Britain following in August. Australia should join in around November and New Zealand would cut next year.
Most importantly from a commodity perspective, especially for gold, ANZ said the U.S. central bank had finished tightening with rate cuts coming in the second half of the year.
Citi, in a comment on global steel demand which should flow up into the iron ore market, noted that the price of hot-rolled coil steel had risen slightly in the U.S. adding to confidence that a global steel production recovery could be underway.
Goldman Sachs joined Citi in the copper bulls club with a major report that pointed to shortages of the critical metal developing.
Wilsons said the long-forecast copper shortfall looks like making an appearance later this year as mine outages crimp supply.
“With interest rate cuts in the U.S. expected this year and a soft landing scenario likely for the global economy, demand for copper should be well supported given its range of industrial uses,” Wilsons said.
Citi, on almost the same day, repeated its past bullish comments about copper but trimmed its price forecast to US$10,000 a tonne by the end of the year (it’s currently US$8820/t), rising to US$12,000/t over the next two years – a near 50% increase in 24 months, if correct.,
Morgans, the local stockbroker, focused on the broader commodity sector in a report which said everything was set for “a more balanced year of growth”.
“We view demand conditions for commodities as likely to grow healthier than market expectations, with a weakening U.S. dollar and return to growth in the western world countering China’s weak property market,” Morgans said.
The top commodity picks of Morgans are oil and copper with both continuing to benefit from decades of underinvestment.
Individual stars this week were hard to find though Talisman was a late performer with a 7.5c (43%) rise to 23c after reporting excellent base metal (copper, lead and zinc) drilling results from its Durnings project in the Lachlan Fold Belt of NSW.
Many Peaks Minerals was an early star with a rise of 12c (156%) to 20c after acquiring a promising gold prospect in West Africa’s Ivory Coast.
29Metals was the big loser of the week, shedding 16c (30%) to 36c after reporting a flood-caused shut down of its Capricorn copper operations in Queensland, a re-run of the flood problems for WA goldminers.
Other gold stock news and moves included:
• Northern Star, up 14c to $14.03 after announcing the start of an approvals process to expand its flagship mine, the Superpit in Kalgoorlie.
• Kingsgate losing 10c to $1.15 despite reporting significant exploration results close to its Chatree mine in Thailand with a best hit of 29 metres at 1.53 grams of gold per tonne.
• Toubani Resources rising by 1c to 13c after reporting a 71m zone of 1.86g/t gold from a depth of 79m, and
• Genesis falling by 19c to $1.78 as investors digested last week’s high cost expansion plans. UBS thinks the stock has further to fall with a target price of $1.75. Macquarie and Shaw disagree with price tips of $2 and $2.20 respectively.
Champion Iron was the pick of the iron ore producers with a rise of 11c to $7.23 with Citi tipping a target of $9.60 while also telling clients that the company’s US$3 billion Kami project in Canada was a “long-dated option”.
Lithium stocks struggled as the price slipped 3% lower over the week, taking Liontown down by 16c to $1.13 and Galan down by 2.5c to 38c. Mineral Resources, which has a foot in lithium and another in iron ore, shed $1 to $61.56.
Other news and market moves in a short week included:
• Sheffield Resources rising by 2.5c to 56c after reporting the maiden shipment of zircon concentrate from its Thunderbird project in WA’s Kimberley region.
• Aeris Resources being named by Bell Potter as one of its top small copper stocks with a price target of 23c, comfortably above the company’s latest price of 15c.
• Centaurus continued to battle a weak nickel price even as its released a new ESG assessment of the low-carbon Jaguar project in Brazil. On the market, Centaurus slipped 3c lower to 30c.
• Lincoln Minerals edged 0.2c high to 0.8c after reporting high grade graphite assays from its Kookaburra project in South Australia.
• Rincon slipped 0.4c lower to 2.6c despite reporting copper sulphides in its first hold at its West Arunta in WA.
• Power Minerals added 2c to 15c after announcing a $1.025 million capital raising and the acquisition of the Rincon Salar lithium project in Argentina, and
• The price of cocoa hit an all-time high of US$9000/t, roughly the same as copper, thanks to crop failure in Ghana and just in time to boost the price of Sunday’s Easter Eggs – as you have probably noted.
