• ASX 200 gets golden, adds 1%
  • Small cap index rises 1.05%
  • Greenstone finds yellow stone

What you need to know first up is that the benchmark ASX200 is doing well. It’s ahead by about 0.9% with 10 minutes of play left in the session.

Even better is the Emerging Companies XEC index which has found 1.1%.

Stocks in New York rallied overnight after the Fed’s Chairman Jerome Powell had a cake in Washington and ate it too, saying:

i) the pace of rate hikes is likely to slow
ii) but that the peak level of rates will be higher than previously expected

Matt Simpson, senior market analyst at City Index told me this arvo in one of the funnest IV’s I’ve done since The Offspring, that Powell is busy weaving the kind of wicked web the Walter Scott was on about in his Marmion: A Tale of Flodden Field.

“Jereme Powell effectively confirmed that the Fed will slow their pace of tightening, prompting strong correlations among asset classes which sent the dollar and yields lower, equities, commodities and (of course) commodity FX higher. Strong, highly correlated reactions signify important events as investors have likely been forced out of an incorrect trade, switched positions or added to their previous convictions.

“And make no mistake,” (Matt is literally shouting at his speaker phone at this stage, I picture those early Charlie Sheen scenes from Wall Street).

“Jerome’s speech was an important event; if the Fed are deemed to be slowing their tightening pace, it is then assumed they are closer to pausing and eventually reversing hikes (policy blunders out with).

“So, in turn, this has seen headlines of the famous ‘Fed pivot’ return, alongside fierce social media debates over its very definition.”

Monetary policy and pivots: a vivisection

Matt says when it comes to monetary policy, the definition ‘pivot’ has become obscured.

“Personally, I view a pivot as the point in which a direction is reversed. If I am driving north but want to head south, a pivot is the point in which the reversal of direction occurs. Using this definition for a monetary policy pivot, it would assume a Fed pivot is when they signal they are to begin cutting rates, after a series of hikes.

“Yet, the media – not you guys, you guys are great –  feedback loop seems to have obscured this classic definition, prompting many to call a Fed pivot – despite them also saying rates will continue to rise. Using this definition is saying a pivot is a change of momentum, not direction. To use the car analogy, a person is driving north and slows down for a bump in the road – and the point of deceleration is deemed to be the pivot.

Direction vs speed: I’m going somewhere with this

“You can argue that it doesn’t really matter, supposing one plans the trade and trades the plan. But understanding that the debate is really about whether we are measuring the change of direction verses change of momentum can quickly help you understand which ‘group’ of pivot speakers you are dealing with, and decide for yourself which is the more significant.

“But the fact we saw a strong reaction in US markets which has seen little follow-through in the Asian session suggests some are already questioning how much of a ‘pivot’ that really was.”

Besides, he adds, we also have the Non-farm payrolls report tomorrow which can also suppress volatility ahead of it.

Now and Next for the Fed

Debates aside, what most agree on is that the Fed will continue to hike rates but at a slower speed.

So it will be a case of deciphering how high they will go and how long they will remain elevated. Some bullies below to chew over:

  • Fed fund futures currently estimate a 75.8% probability of a 50bp hike in December (from 4.0% to 4.5%)
  • They also assume rates to peak at 5.25% in June
  • However, the June peak is only a 37.3% probability so markets lack some conviction this far out
  • In September, the Fed’s median view was for rates to peak at 4.6% by the end of 2023 and fall back to 3.9% by the end of 2024.
  • It is worth noting that Powell said the terminal rate would likely be “somewhat higher than 4.6%”, so the Dot plot could be upgraded in their December meeting
  • Powell warned that rates would need to be held at a “restrictive level for some time” (higher rates for longer)
  • With Powell warning of higher rates for longer, the money markets estimate of a peak in June may be misplaced
  • The Fed next meets on December 14th then return on February the 1st.
  • CPI data is released 1-day ahead of the next Fed meeting which be as important as the meeting itself.

Elsewhere, national home values continued to fall in November, down -1.0% over the month to be -7.0%, or approximately -$53,400, below April’s peak, according to CoreLogic.

“The easing in the rate of decline is mostly emanating from Sydney and Melbourne, but is also evident across many of the smaller capitals and most regional markets.

Across the capital cities, Brisbane and Hobart (both down -2.0%) led the monthly rate of decline in November, while at the other end of the spectrum, Perth values held firm and Darwin nudged 0.2% higher over the month. Perth and Darwin markets are yet to record any signs of a material reversal in housing prices.

 

ASX SMALL CAP LEADERS

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It’s the miners today and not just the minor miners, either.

Golden children of the yellow nugget have found some fire on Thursday, with the spot gold hitting at $US1778/oz, up almost 10% on last month as prices rallied their arses off these last weeks on the softer USD and a Fed which – see above – is suddenly sounding less hawkish.

Also softer bond yields usually = rising gold prices.

The gold sector at home rallied hard, led by Ramelius Resources (ASX:RMS) up near 10%

Evolution Mining (ASX:EVN) and Newcrest Mining (ASX:NCM) were both around 6% higher.

Shares in the gold and battery metals explorer Greenstone Resources (ASX:GSR)  also leapt this morning after it announced a hit of 7m at 57.84g/t from just 90m at the Burbanks gold mine near Coolgardie, including 1m at 375g/t.

According to Josh who knows:

“7m at almost two ounces to the tonne is the sort of thing you don’t normally see in this day and age, so investors will stand up and take notice even at this late stage of the game.”

Other hits include 3m at 4.18g/t from 17m and 2m at 5.88g/t from 38m, in a 10,000m drill program supporting the examination of GSR’s 215,000-330,000oz Burbanks exploration target. That is outside of an existing resource of 3.4Mt at 2.5g/t gold for 277,547oz.

MD Chris Hanson says the strike will place Burbanks in the top 10 drill intercepts for pre-development projects in WA this year.

“We are highly encouraged by the first results from the Phase 1 drill campaign at Burbanks, having returned multiple high-grade intercepts in the first holes drilled which are in line with the historical underground production grades from the Burbanks Gold Project of 324,000oz @ 22.7g/t Au,” he said.

BPM Minerals (ASX:BPM) is also having a field day with the gold, lead, zinc and nickel digger jumping again.

 

ASX SMALL CAP LAGGARDS

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TRADING HALTS

Incannex Healthcare (ASX:IHL) – Cap raise.

Winsome Resources (ASX:WR1) – Corporate transaction news.

Domino’s Pizza Enterprises (ASX:DMP) – Cap raise.

Auroch Minerals (ASX:AOU) – Cap raise.

Regal Investment Fund (ASX:RF1) – Cap raise.

Bastion Minerals (ASX:BMO) – capital raising and potential acquisition by the company.

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