The Overnight Report: A Question Of Durability

This story features EVOLUTION MINING LIMITED, and other companies. For more info SHARE ANALYSIS: EVN

World Overnight
SPI Overnight	6593.00	0.00	0.00%
S&P ASX 200	6706.00	+ 127.30	1.94%
S&P500	3900.11	– 11.63	– 0.30%
Nasdaq Comp	11524.55	– 83.07	– 0.72%
DJIA	31438.26	– 62.42	– 0.20%
S&P500 VIX	26.95	– 0.28	– 1.03%
US 10-year yield	3.19	+ 0.07	2.21%
USD Index	103.96	– 0.23	– 0.22%
FTSE100	7258.32	+ 49.51	0.69%
DAX30	13186.07	+ 67.94	0.52%

By Greg Peel

Everyone’s a Winner

Thursday night’s session on Wall Street hinted at consolidation at a bottom so on Friday, local investors decided it might be a good idea to pick up the hardest hit stocks and sectors. Hence we saw tech up 6.0%, real estate 2.5% and discretionary 2.2% when energy and materials went backwards and the banks stood still.

Friday night’s session on Wall Street confirmed a bottom (in the short term at least) with a flurry, so yesterday the local market opened with a green light. Investors bought everything.

On Friday the banks rose 0.1% and yesterday 2.6%, for the biggest percentage and index point gain. Not sure what changed over the weekend, other than short-term sentiment and FOMO.

Energy also rose 2.6%, helped by a slight rise in oil prices, but the standout were materials, up 1.8% despite some steep falls in metal prices and ructions in the gold sector. After warning of production issues, large-cap Evolution Mining ((EVN)) fell -21.9%. The impact was felt across the sector, with leader Newcrest Mining ((NCM)) falling -5.6%.

So it was a good effort by materials in general, and no more than a case of picking up the big boys after a recession fear/China lockdown period of weakness (which is not over).

Consumer discretionary put in a repeat performance in rising another 2.2% and technology gained another 2.4%. Real estate was the only winning sector from Thursday to underperform (+0.8%).

Staples rose 1.3% after a solid earnings result from Metcash ((MTS)) which had that stock up 4.1%.

Healthcare rose 1.3% with a little help from Imugene ((IMU)), which despite jumping 18% on Thursday shot up 45% yesterday on positive trial results. Ramsay Health Care ((RHC)) rose 3.0% on reports private equity continues to sniff around.

The wild ride that is the lithium sector swung back wildly yesterday, with Liontown Resources ((LTR)) up 11.3% and Allkem ((AKE)) up 7.1%.

And blow me down if Thursday’s wallflower Flight Centre ((FLT)) didn’t gain 6.6%. Mind you, it is close to 17% shorted.

All very exciting if you don’t consider that every relief rally in the Wall Street bear market this year has proven short-lived, and even if this one proves to have a longer life, virtually every money manager advises fading it (selling into the bounce) as it is unlikely the ultimate bottom has been seen.

I wouldn’t get too keen on fading this week however, as you are likely to been run over by a window-dresser desperate to bump up returns ahead of EOFY.

Testament is that while Wall Street very unsurprisingly dipped back a little last night after Friday night’s surge, our futures have closed unchanged this morning.

Take a Breath

The US posted surprisingly strong new durable goods orders data for May last night, showing a 0.7% gain despite recession fears, when economists had forecast 0.2%. Durable goods include cars, planes and military hardware, so monthly numbers can be quite lumpy, but the core number, which takes out transport/military, rose 0.5%.

It was the seventh increase in eight months.

US pending home sales had been falling for the past six months as mortgage rates rose and economists had forecast another -4.0% drop in May. Instead they rose 0.7%, despite (or perhaps because of) mortgage rates guaranteed to be higher through the second half. The bulk of US mortgages are 30-year fixed.

Pending sales are still down -13.6% year on year and no one expects anything other than further house price declines as rates rise and recession fears dominate.

Despite the solid data, Wall Street fell back last night. That’s hardly surprising following Friday night’s surge, and a 6% gain for the S&P500 over the week.

As noted, it’s hard to find anyone who doesn’t think it’s any more than another bear market rally which may still run for a bit but will inevitably fail, just as every other relief rally has failed this year. Money managers advise investors nibble at the quality names offering value and secure cash flows and not to go barrelling back into no-profit growth names despite their severe de-rating.

Stock markets are all about earnings, but in the current climate it’s all about earnings, given the Fed trajectory is well understood. Results will begin to flow next month and as I’ve noted often enough, everyone other than the bottom-up analysts themselves believe June quarter earnings forecasts are too high.

The big banks always kick things off and this morning, after the bell on Wall Street, they have announced their responses to passing the Fed stress tests on Friday night, which inform what level of dividend increase they are allowed vis a vis their capital buffers.

Morgan Stanley has led the way with both an increased dividend and buyback. Goldman Sachs and Bank of America have also increased their dividends, while JPMorgan and Citigroup have stuck with their current dividends.

The state of US bank balance sheets, along with household balance sheets and full employment, are reasons many question whether a recession is really in the offing, or at least anything more than a mild recession.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1822.70	– 3.70	– 0.20%
Silver (oz)	21.13	– 0.01	– 0.05%
Copper (lb)	3.78	– 0.02	– 0.46%
Aluminium (lb)	1.22	+ 0.02	1.43%
Lead (lb)	0.89	+ 0.02	1.79%
Nickel (lb)	10.44	+ 0.19	1.82%
Zinc (lb)	1.59	– 0.01	– 0.63%
West Texas Crude	109.57	+ 1.95	1.81%
Brent Crude	115.15	+ 2.03	1.79%
Iron Ore (t)	129.68	+ 1.15	0.89%

Finally a modicum of relief in metal prices. At least they weren’t all in the red last night.

The further increase in oil prices is attributed to the aforementioned solid durable goods number.

Gold is currently in a bit of limbo as it balances inflation hedge status against rising US bond yields. Last night the ten-year rose another 7 points to 3.19%.

Despite a small dip in the US dollar index, the Aussie is down -0.3% at US$0.6925.

Today

The SPI Overnight closed unchanged.

The US will see monthly consumer confidence tonight, along with house price data.

Collins Foods ((CKF)) reports earnings today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
APX	Appen	Upgrade to Neutral from Underperform	Macquarie
AX1	Accent Group	Downgrade to Neutral from Buy	UBS
BPT	Beach Energy	Upgrade to Neutral from Underperform	Macquarie
CCX	City Chic Collective	Downgrade to Neutral from Buy	UBS
EVN	Evolution Mining	Upgrade to Neutral from Underperform	Macquarie
HVN	Harvey Norman	Downgrade to Sell from Buy	UBS
LNK	Link Administration	Upgrade to Overweight from Equal-weight	Morgan Stanley
MCR	Mincor Resources	Upgrade to Outperform from Neutral	Macquarie
NWH	NRW Holdings	Downgrade to Neutral from Outperform	Macquarie
RMC	Resimac Group	Downgrade to Neutral from Outperform	Macquarie
RRL	Regis Resources	Downgrade to Underweight from Equal-weight	Morgan Stanley
SBM	St. Barbara	Downgrade to Neutral from Outperform	Macquarie

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

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