Morgan Stanley’s top picks in the commodities space – Charts and Caffeine

Welcome to Charts and Caffeine – Livewire’s pre-market open news and analysis wrap. We’ll get you across the overnight session and share our best insights to get you better set for the investing day ahead. (And we’re back after a few days off – did you miss us?)


  • S&P 500 – 3586 (-1.51%)
  • NASDAQ – 10575 (-1.51%)
  • CBOE VIX – 31.62
  • USD INDEX – 112.17
  • US 10YR – 3.829%
  • FTSE 100 – 6894 (+0.18%)
  • STOXX 600 – 387.85 (+1.3%)
  • UK 10YR – 4.149%
  • GOLD – US$1672/oz
  • WTI CRUDE – US$79.49/bbl
  • DALIAN IRON ORE – US$98.31/T


  • Fed remains consistent in raise-and-hold/higher-for-longer messaging but some officials have begun to inject hints of caution 
  • Multiple standard deviation moves in currencies, bonds and commodities, strong dollar, rising correlation among assets all play into concerns Fed is breaking things 
  • Credit market stress jumps to ‘borderline critical zone’ amid soaring yields and fund outflows 
  • US officials think risk of Putin using nuclear weapons remains low, but far more worried now than in February amid Russia’s military failures 
  • Truss defends tax cut plan and response to energy crisis, says her government is ‘going unashamedly for growth’ 
  • S&P puts UK on ‘negative outlook’ following recent release of mini budget, estimates budget deficit would widen by 2.6pp of GDP by 2025 China’s top leaders don’t wear masks at National Day celebration events, could be another signal for potential tweak of zero Covid strategy
  • OPEC+ will consider cutting output by more than 1M bpd when it meets on Wednesday amid concerns about global economic slump, stronger dollar 
  • Gazprom suspends natural gas deliveries to Italy, citing refusal by Austrian operator to sign off contractual changes 
  • Credit Suisse CEO says firm at ‘critical moment’, but tells employees not to confuse stock performance with ‘strong capital base and liquidity’ position


Credit Suisse spent the weekend reassuring large clients, counterparties and investors about it liquidity and capital position. Spreads on Credit Suisse credit default swaps (CDS) rose sharply on Friday. These CDS offer protection against Credit Suisse defaulting. 

Credit Suisse five-year credit default swaps (CDS) jumped 6 basis point to close to 247 bps on Friday, the highest level in at least 10 years. Credit Suisse CDS began the year at 57 bps.

Watch this space. 


The RBA decision on Tuesday and US employment data are the big data points this week. 


Today’s chart comes courtesy of Citi and their recent Global Macro update. The reason why this chart is important is that earnings revisions from analysts typically lead earnings-per-share (EPS) trends, and EPS trends typically lead share prices. It makes sense when you think it through. Analysts see earnings contracting and lower their EPS forecasts, earnings per share ultimately contract in the economic environment, and share prices tank as the end result. Pretty clear line of site. The Citi research notes that if the global economy is reaching stall speed, as many expects that it is, then EPS expectations must fall and signal contraction in 2023. The problem as Citi see it? Currently EPS expectations sit at +11% for 2022 and +6% for 2023…. i.e. they can come down a lot further, which would put even more pressure on equities. 


Morgan Stanley have run the ruler over the miners, in light of what’s going on in China. First and foremost they note that Aguust growth numbers were an improvement, but still sub par. Property activity was weak, whilst commodities data showed a sequential increase in imports and a decrease in exports. In that context, here is how MS is seeing some local materials plays;

  •  Whitehaven (ASX: WHC) – Overweight – MS’ top pick as they anticipate thermal coal which stay higher for longer, leading to capital returns – dividends and buybacks. Growth optionality is a positive. 
  • South32 (ASX: S32) – Overweight – Aluminium is the MS commodity team’s top pick and 46% of S32’s valuation and 33% of its revenues comes from the metal. 
  • Rio Tinto (ASX: RIO) – Overweight – Makes the top three also for its exposure to aluminium (25% of CY23 revenue) and high quality iron ore (49% of CY23 revenue). 
  • MS also likes some of the gold plays, being overweight Newcrest (ASX: NCM) and Northern Star (ASX: NST)

Chris Conway wrote today’s report. Hans is on leave.


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