The Overnight Report: Same Old Debate

Daily Market Reports | Jun 23 2022

This story features APA GROUP, and other companies. For more info SHARE ANALYSIS: APA

World Overnight
SPI Overnight 6412.00 + 23.00 0.36%
S&P ASX 200 6508.50 – 15.30 – 0.23%
S&P500 3759.89 – 4.90 – 0.13%
Nasdaq Comp 11053.08 – 16.22 – 0.15%
DJIA 30483.13 – 47.12 – 0.15%
S&P500 VIX 28.95 – 1.24 – 4.11%
US 10-year yield 3.16 – 0.15 – 4.57%
USD Index 104.20 – 0.21 – 0.20%
FTSE100 7089.22 – 62.83 – 0.88%
DAX30 13144.28 – 148.12 – 1.11%

By Greg Peel

No Conviction I

Following Tuesday’s solid rally on the ASX, the futures suggested another 48 points gain yesterday morning on the back of Wall Street’s rebound, but arguably, we’d already done that. Which is likely why the ASX200 only managed a 34 points gain to late morning before falling to be down -30 at lunchtime.

Another attempt to rally in the afternoon also failed.

The session saw a mixed bag of sector moves but not the sort of extremes we’ve seen recently. Energy rose 1.5% on stronger oil prices, which have tanked overnight. Utilities often follow energy but a 2.1% gain yesterday was supported by APA Group ((APA)), which rose 4.2%.

Real estate gave back -1.0% after having had a bit of a rebound while technology lost -1.5%, with Zip Co ((ZIP)) falling -11.3% after the company made the schoolboy error of issuing a statement assuring investors all was fine. When a company is compelled to do that, you know things aren’t.

The stock is now down -95% from its February high. Somewhere there is a UBS analyst feeling a strong sense of schadenfreude.

Consumer discretionary fell -1.4% with a bit of help from an -8.9% drop for Blackmores ((BKL)) after UBS slashed its price target, citing inflation pressures, competition and China’s zero-covid policy.

Industrials dropped -1.0% on a -1.4% fall for Transurban ((TCL)), despite the Aussie ten-year yield falling back below 4% yesterday.

Other sector moves were smaller, with the banks and materials slightly lower – the latter including a chart-topping -17.7% plunge for St Barbara ((SBM)) after the gold miner issued a (disappointing) trading update.

The RBA governor said on Tuesday he didn’t see an Australian recession on the horizon, but given all talk of a global recession, and particularly a US recession, the local market appears to be hedging its bets. It may be that the 6500 level, representing a -13% fall from the high, may be somewhere to hang around for a while.

The index rallied through 6500 in November 2020 in the covid rebound (and vaccine announcements), at which point it was still down -500 points from the pre-pandemic high.

No Conviction II

Jerome Powell told a US senate committee last night that a recession was “certainly a possibility,” but not the intended consequence of monetary policy moves. Yet he also assured markets he will do everything he can to get inflation back down.

After rallying 640 points on Tuesday night, the Dow fell -360.

Then someone pointed out Wall Street has been thumped all month on recession fears, and an S&P500 down -23% from its highs sort of suggests a recession is already being priced in.

The Dow bounced to be up 240. But sentiment faded to the close. Wall Street is also hedging its bets.

It didn’t help that having led the market on Tuesday with a 5.5% gain, the S&P energy sector last night fell -4.2%, in line with oil prices.

Last night Joe Biden implored Congress to pass a proposed three-month fuel tax holiday (sounds familiar). The suggestion is Congress is unlikely to buy it. Just has been the case with oil reserve releases, allowing imports from Venezuela and pressuring the Saudis, it won’t make that much difference (also sounds familiar).

Biden also pleaded with fuel retailers to cut their margins to provide relief for Americans suffering as a result of Putin’s war. And he told energy producers to stop their share buybacks and invest in increased oil and gas production instead.

All well and good, after his green policies included restrictions on exploration.

Biden’s desperate attempts may have helped a -4% fall for oil prices last night, but analysts agree at the end of the day, prices will simply be driven by demand/supply. A possible recession suggests weaker demand.

Meanwhile, recession talk also has investors rushing back into bonds, at more attractive (nominal) rates. The US ten-year fell -15 points to 3.16%.

Once upon a time such a move would have had growth stocks soaring, but not in the current climate.

Falls last night of less than -0.2% for all three major indices suggest Wall Street is at a crossroads.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1838.00 + 5.30 0.29%
Silver (oz) 21.42 – 0.24 – 1.11%
Copper (lb) 3.92 – 0.17 – 4.10%
Aluminium (lb) 1.22 – 0.02 – 1.85%
Lead (lb) 0.92 – 0.02 – 1.75%
Nickel (lb) 11.34 – 0.20 – 1.74%
Zinc (lb) 1.66 – 0.01 – 0.42%
West Texas Crude 106.19 – 4.46 – 4.03%
Brent Crude 110.07 – 4.85 – 4.22%
Iron Ore (t) 127.02 – 1.91 – 1.48%

Well we might say the good news from the ongoing pullback in commodity prices, driven by global recession fears (and Chinese policy), is they place downward pressure on inflation.

Despite a small fall in the US dollar index, the Aussie is down -0.6% at US$0.6929.

Today

Never give up hope. The SPI Overnight closed up 23 points or 0.4%.

Jerome Powell will move across the Capitol to provide a testimony to a House committee tonight.

Flash estimates of global June PMIs are due.

Appen ((APX)) hosts an investor day.

Speaking of energy, and reflecting on news the energy police have now withdrawn from the local market as operations stabilise, this is a must see:

https://youtu.be/ELaBzj7cn14

From March, 2017.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
BGA Bega Cheese Downgrade to Neutral from Buy UBS
BWP BWP Trust Upgrade to Neutral from Sell UBS
CHC Charter Hall Upgrade to Buy from Neutral UBS
CIP Centuria Industrial REIT Upgrade to Buy from Neutral UBS
COF Centuria Office REIT Upgrade to Neutral from Sell UBS
CVN Carnarvon Energy Upgrade to Outperform from Neutral Macquarie
LFS Latitude Group Downgrade to Neutral from Outperform Macquarie
SCP Shopping Centres Australasia Property Downgrade to Neutral from Buy UBS
TRJ Trajan Group Upgrade to Buy from Accumulate Ord Minnett

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

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CHARTS

APA APX BKL SBM TCL ZIP

For more info SHARE ANALYSIS: APA - APA GROUP

For more info SHARE ANALYSIS: APX - APPEN LIMITED

For more info SHARE ANALYSIS: BKL - BLACKMORES LIMITED

For more info SHARE ANALYSIS: SBM - ST. BARBARA LIMITED

For more info SHARE ANALYSIS: TCL - TRANSURBAN GROUP LIMITED

For more info SHARE ANALYSIS: ZIP - ZIP CO LIMITED