The commodity tailwind trifecta; with US and Aussie stocks to watch

Jessica Amir wrote a column · Apr 15 03:09

There are three very important things to note this week, it's not only options expiry on April 19th, but Bitcoin's likely halving event on April 20 and now we have Bloomberg saying the S&P500 could potentially revert, so it's worth potentially protecting for downside, which could mean maybe taking profits, or maybe keeping cash on the sidelines so you can pounce, should markets correct.

But today, we explore why that commodities seem to be looking increasingly attractive and appear continuing to up their ante.

Late last year I spoke about why commodities would have their day and year in the sun and for now it seems their case is strengthening for a trifecta of reasons, and it bodes well for the Australian share market too, as well as Australia's balance of trade, and long term investors.

What are the tailwinds for commodities?

- Firstly there are macro positive forced. This includes increasing optimism about rates cuts. The ECB penciled in a rate cut in June, and the market still is pricing in two Fed rate cuts this year. Plus there is increasing industrial output, rising from demand for data centres, chips, rising EV demand at the consumer and car-maker level, and rising infrastructure demand from China; with their economy bouncing back. This week's Chinese GDP and activity data releases should show further improvements.

- The second tailwind for commodities includes rising middle east tension and thirdly, there are new Russian sanctions which has further pushed commodity prices up.

The commodity tailwind trifecta; with US and Aussie stocks to watch

What are the commodities to watch?

1- Iron Ore: The Iron ore price rose 13% last week to US$111/t, its highest level since February and its now up 16% from its 2024 low on an improved Chinese demand outlook as iron ore imports and steel exports rising. Iron ore's + $13/t bounce last week follows price finding cost support since mid-March. Morgan Stanley sees more sustained upside returning (Q3 $120/t) as price gravitates back towards its natural trading range versus the cost curve, spurred by improving tone on China and supply setbacks.

2- Copper: The Copper rose 0.5% last week to US$4.23/lb, its highest in 22 months (since June 2022) and its price is now up 40% from its 2022 lows, as investors position for an uplift in industrial activity and potential interest rate cuts in the coming months. Copper demand is increasing amid rising demand for chips, data centres, EVs and NEVs and infrastructure.

3- Gold: The precious metals price rose 0.6% last week to $2,344/oz; as risk of broader Middle Eastern conflict drove buying in safe haven buying. See my prior notes for the rationale for gold to move up. However you should note that Bloomberg's intelligence division (BI) put out a note showing two potential cases for gold. One could mean gold pulls back, the other, could result in more upside. But speaking of potential downside for gold, it could be due for a haircut if you believe thatgold has an inverse relationship with the US dollar and bond yields.Be mindful that bond yields have moved up, with the 10 year now 4.5%, a five-month high, and the US dollar is also at five month highs as well.

Are you confused? Dont be. Just note that this means, hat if gold pulls back, you might see investors buy into the weakness, and taking advantage of lower prices.

Watch $Newmont Corp(NEM.AU)$ the gold pin-up stock, that reports next week, and has a history of delivering better than expected returns..

4- Lithium: The lithium prices remain volatile but are holding up off their lows. The Fastmarkets Spodumene +2.1% to US$1,200/t whilst Platts Spodumene - 4.3% to US$1,100/t.

5- Oil and Uranium: The Brent +0.8% to US$90/bbl, as growing tensions in the Middle East outweighed a weak global oil demand forecast. But consider that oil prices are being driven higher by demand, not tension. Also, as I have been writing about why investors could expect oil companies to deliver some of the strongest earnings growth this US and Australian quarterly earnings report season. For ASX oil stocks to watch, click here.

6-Uranium prices have been higher and demand is rising as I wrote last week as companies search for clean and clean energyand this is supporting uranium stocks, which have seen the most earnings upgrades in the US. For more click here. Also watch the Uranium ETFs, URA $Global X Uranium ETF(URA.US)$ which is the most bought Uranium ETF and Australia's listed version URNM $BetaShares Global Uranium ETF(URNM.AU)$ .

All in all, as we have been reporting, investors cannot ignore energy, as it's producing better returns than technology stocks. And the market thinks that's where the most earnings growth with come from this year- energy stocks.

7- Aluminium and nickel: The Aluminum price +9.4%, the most since the current form of the contract was launched in 1987, while nickel +8.8%. The metals spiked on US and UK imposing sanctions, banning deliveries of Russian metals produced (after midnight Friday). Reports are now suggesting this will also cement China as Moscow's buyer of last resort for key commodities, and enhance Shanghai's role as a venue to set prices for crucial materials to the global economy.

Despite the sanctions, the market will probably focus on aluminum demand rising on its own merits, amid the green transition.

Nonetheless there will probably be volatility in Aluminium and nickel. Some traders believe removing one of the largest producers from the market will drive prices higher as Russia is a major producer, accounting for 6% of global nickel supply, 5% of aluminum and 4% of copper. And Russia's role in the LME is also significant, in nickel for example, Russia has long been the largest supplier of refined metal, which is the only form deliverable to the LME.

BUT…removing Russia may not be that big of deal, because two metal giants, Rusal and MMC Norilsk Nickel PJSC, are far less entangled in the western financial system than before the Ukraine war, as industry spent the past two years preparing for the prospect of sanctions.

Commodity stocks to watch this and next week

Here are some commodity stocks to watch, aside from the ones mentioned above.

In base metals, we will get a good sense check and updates from BHP, RIO, and Alcoa and Woodside this week and hear their outlooks.

In precious metal, Newmont reports next week. The world's biggest gold producer. Newmont is the pin up gold company, like Nvidia is for tech. Newmont shares on average jump 4% after reporting earnings resuults. So given gold's record price and probable upside, it could be worth watching $Newmont Corp(NEM.AU)$ $Newmont(NEM.US)$ if you are not already.

And amid probable upside in iron ore, and copper, and aluminum, watch commodity producers including BHP $BHP Group Ltd(BHP.AU)$, Rio Tinto $Rio Tinto Ltd(RIO.AU)$, Fortescue Metals $Fortescue Ltd(FMG.AU)$, Anglo American $ANGLO AMERICAN(AAUKF.US)$, Vale $Vale SA(VALE.US)$ and Glencore $GLENCORE PLC(GLCNF.US)$.

Take note that analysts ratings (consensus) see the most return potential in Vale, seeing a potential 34% gain in its shares in year as its price is depressed, while inversely analysts ratings (consensus) interestingly suggests out of the mentioned stocks, there could be downside in Fortescue Metals shares, with consensus seeing a 17% pull back in a year.

Key dates to watch and note

- Rio Tinto reports Q1 sales and revenue April 17

- BHP reports Q1 sales and revenue on April 18

- Alcoa reports Q1 sales and revenue on April 18

- Woodside reports Q1 sales and revenue April 18

- Newmont reports quarterly earnings April 25

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Jessica Amir

Moomoo Official Market Strategist

Investment strategist, featured on TV, radio, newspapers. Follow on Twitter @JessicaDAmir

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