Morning Report / 3 things catching our eye as James sets off on his postie run (BOQ, DBA US, RIO, XRO, AAPL US)

The ASX took a breather yesterday, no great surprise considering the last fortnights performance, despite all the obvious fundamental worries & uncertainties we continue to believe the path of least resistance is up. Under the hood the Resources continued to weigh on the index while Healthcare & IT were the strongest sectors both gaining over +1%. Elsewhere in Asia it was also an uneventful day, hopefully investors haven’t gone into hibernation ahead of the US election, its still almost 3-weeks away.

Whether Biden or Trump is residing in the Whitehouse at Christmas is starting to feel relatively unimportant as COVID numbers escalate across the globe, Europe alone is now witnessing 100,000 new cases daily. The UK has seen a 40% increase in just a week and France has seen businesses close and Paris under curfew, not surprisingly the “recovery stocks’ have slowed their ascent but we all knew this was almost inevitable without a vaccine as the Northern Hemisphere moves towards winter. There are now over 170 vaccines being tracked by the World Health Organisation (WHO) with mid-2021 the most optimistic timeframe for a vaccine hence the cycle of uncertainty still has further to travel.

A brief note today as explained yesterday’s while James takes on the Flinders Ranges on a Postie Bike! Today he takes off from Port Augusta to Angorichina– a fair hike and very little of it on bitumen. Tomorrow he will head up Leigh Creek, then in the BHP mining town Roxby Downs on Saturday before heading back to Port Augusta on Sunday. A different ride this year, more ks to cover and some rougher terrain. If you would like to donate, please click here – thank you for those that have contributed thus far, I have been very impressed with the generosity of subscribers.

For MM today though, we will simply cover 3 stocks / sectors catching our eye each day, assuming of course the market continues to follow our anticipated path.

MM remains bullish stocks into 2021.

ASX200 Index Chart

The “Aussie” continues to rotate between 70 and 74c, again no great surprise after is impressive recovery since March. The look and feel of the local currency might be providing a useful clue for the Resources Sector into Christmas:

1 – The $A feels likely to consolidate further short-term with a downside bias – the read through is ongoing weakness in the Resources Sector for the coming weeks ahead.

2 – We are bullish the $A initially targeting 80c medium-term – the read through being we want to buy the highly correlated resources stocks moving forward.

MM remains bullish the $A medium-term.

Australian Dollar ($A) Chart

1 Did the Bank of Queensland (BOQ) just light the banking fuse?

Yesterday saw BOQ soar over 5% on a day when the market drifted lower, an impressive full year result was the catalyst which got the buyers excited. The regional bank enjoyed earnings of $225m approximately 10% better than consensus analyst expectations. While one result beating expectations doesn’t make a proverbial summer it is encouraging, technically we can initially see another +10% upside for BOQ – the bank is the 8th most shorted stock on the ASX and this significant position could easily see an aggressive squeeze. Similarly fund managers feel very underweight the banks which leaves plenty of upside for this huge sector.

MM believes the Banking Sector will outperform through 2021.

The Bank of Queensland (BOQ) Chart

2 Countries are hoarding food as COVID returns

I recently read an article which outlined how some countries are starting to hoard food – reminds me of what many people did in March / April, remember the toilet paper, tin food & pasta saga. Countries like Taiwan, China, Jordan and Egypt are already increasing reserves of grains and strategic foods “just in case” a vaccine is not forthcoming – makes sense to us.

MM is long an Agricultural ETF in our Global Macro ETF Portfolio; we are looking to increase our position in the DBA from 6% to 10%.

Invesco DB Agricultural ETF (DBA US) Chart

3 BHP Group (BHP) taints resources sentiment

Yesterday BHP said that the commodity outlook was “uncertain” not ideal rhetoric for investors but anything else would be simple bravado and BHP is a better company than that. As we said earlier MM believes the resources stocks are slowly moving towards a switching opportunity which is illustrated by RIO and XRO below – note we used these 2 simply because they trade round the same price.

MM is waiting to switch part of our IT exposure to the resources – but not yet.

RIO Tinto (RIO) V Xero Ltd (XRO) Chart

Overseas Indices & markets

Overnight US stocks continued their recent consolidation, but it wasn’t a bad session with all the major indices closing down less than 1%. With the US election looming more sideways action is expected but we believe it’s just a matter of time before the likes of the tech-based NASDAQ rally to make fresh all-time highs.

MM continues to believe US stocks have found a significant short-term low.

US NASDAQ Index Chart

Overnight Apple (AAPL US) managed to close mildly positive during a weak session as investors embraced its new iPhone product launch. We continue to like the stock / business but it will be a big ask for it to scale Septembers blow-off top following the company’s stock split i.e. we can see AAPL failing to reach $US140 even when / if the NASDAQ makes new all-time highs.

MM remains bullish Apple Inc (AAPL US).

Apple Inc (AAPL US) Chart

Have a great day!

The Market Matters Team


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