The Overnight Report: Awaiting Jobs

Daily Market Reports | Aug 05 2022

This story features ORICA LIMITED, and other companies. For more info SHARE ANALYSIS: ORI

World Overnight
SPI Overnight 6891.00 + 6.00 0.09%
S&P ASX 200 6974.90 – 1.00 – 0.01%
S&P500 4151.94 – 3.23 – 0.08%
Nasdaq Comp 12720.58 + 52.42 0.41%
DJIA 32726.82 – 85.68 – 0.26%
S&P500 VIX 21.44 – 0.51 – 2.32%
US 10-year yield 2.68 – 0.07 – 2.62%
USD Index 105.75 – 0.63 – 0.59%
FTSE100 7448.06 + 2.38 0.03%
DAX30 13662.68 + 75.12 0.55%

By Greg Peel

Bridge Too Far

Wall Street’s turnaround rally overnight had the ASX200 shooting up 46 points in the first half hour yesterday, rising above 7000 for the first time since early June. But an orderly return to flat then followed for the rest of the session.

Having previously been a technical support level, 7000 now becomes resistance. And at yesterday’s opening high, the index was up 9.6% from the year to date low on June 20. A 10% rebound is also a good place to take some profits.

There is also likely some caution ahead of tonight’s US jobs numbers.

Yesterday’s release of the June trade numbers provided no excitement. The trade surplus hit another monthly record at $17.7bn when $14bn was forecast. Sales of iron ore, coal and LNG drove the result. With China trying to cut back on coal imports, and commodity prices pulling back in general, this might be as good as it gets for now.

The materials sector fell -1.1% yesterday and energy -2.2% on lower metal and oil prices. Orica ((ORI)) is in materials, and it fell -9.3% yesterday to be the worst performing index stock, but due to a big acquisition-related capital raise.

Meanwhile, the banks rose 0.6% after all of the Big Four belatedly passed on the full 50 point RBA hike into mortgage rates.

Consumer staples rather stood out with a -0.7% fall – probably just profit-taking. Bega Cheese ((BGA)) actually rose 6.3%. Healthcare was down slightly and everything else went up, led by technology (+1.9%) and telcos (+1.8%), reflecting Wall Street.

Block ((SQ2)) reported in the Wall Street aftermarket this morning and is down -7%

The top five index winners’ list featured some usual wild rides – Appen ((APX)) recovered 6.3% — but also Bega.

The losers’ list was made up of Orica and resources companies, and some give-back for Pinnacle Investment Management ((PNI)).

So we remain poised under 7000 ahead of tonight’s US jobs number. The futures are up 6 points this morning so it might be another quiet day.

There is likely also some consternation with regard China’s antics off Taiwan. Let’s hope there’s no miscommunication.

Blimey

The Bank of England implemented its sixth consecutive rate hike last night, of 50 points to 1.75%. The governor warned inflation would hit 13% by October (from 8.2% in June) and the UK would suffer a year-long recession. All because of Putin.

Looks like taking over from Boris will be a bit of a poison pill. But when the UK economy needs support, surely you’d go with Truss?

While recession in the UK does not imply recession in the US, it was still food for thought on Wall Street last night. It was otherwise a quiet session, with the indices mostly banging around the flatline before dipping a bit by the close, ahead of the jobs reports.

Wall Street is forecasting fewer new jobs in July than in June (372,000) but still a robust 258,000.

Investors will want to see the result land pretty close to the forecast. If the number is meaningfully higher, the Fed will need to keep going hard. If it is meaningfully lower, it smells of recession.

Speaking of recession, the US ten-year yield fell -7 points last night to 2.68%, and the two-ten spread widened further to 35 points. The bond market is forecasting recession, and/or a “pivot” from the Fed next year – i.e. rate cutting – to fight a recession.

The Fed won’t rule out a recession, but to date believes any pivot assumptions are madness.

“We’re committed to getting inflation down,” Cleveland Fed president Loretta Mester told the Economic Club of Pittsburgh last night. “We’re not in a recession right now. Are the risks of recession going up? Yes.”

Meanwhile, signs are that inflation is retreating.

Most notable has been the retreat in US gasoline prices. Last night the WTI price fell below US$90/bbl for the first time since February, pre-invasion.

OPEC-Plus has agreed to increase production by 100,000bbls per day, although this is not particularly significant. Weakness continued last night following Wednesday night’s release of US weekly inventories showed that demand destruction really does work.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1791.20 + 25.60 1.45%
Silver (oz) 20.16 + 0.12 0.60%
Copper (lb) 3.49 – 0.05 – 1.36%
Aluminium (lb) 1.17 – 0.01 – 0.73%
Lead (lb) 0.92 + 0.01 0.63%
Nickel (lb) 9.98 – 0.17 – 1.63%
Zinc (lb) 1.52 – 0.01 – 0.44%
West Texas Crude 88.54 – 2.12 – 2.34%
Brent Crude 93.46 – 3.45 – 3.56%
Iron Ore (t) 106.50 – 3.88 – 3.52%

I doubt that China’s actions are providing any comfort for metals traders.

Despite the dour forecasts from the BoE, the pound managed to rally after an initial drop. The US dollar index is down -0.6%.

That, and lower yields, on top of heightened geopolitical tension, supported gold.

The Aussie is up only 0.2% at US$0.6970 despite the record trade surplus.

Today

The SPI Overnight closed up 6 points.

The RBA will issue a quarterly Statement on Monetary Policy today.

US jobs tonight.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
APX Appen Downgrade to Underperform from Neutral Macquarie
EDV Endeavour Group Downgrade to Sell from Neutral UBS
FMG Fortescue Metals Downgrade to Sell from Neutral UBS
PNI Pinnacle Investment Management Downgrade to Hold from Accumulate Ord Minnett
Downgrade to Neutral from Buy UBS
PX1 Plexure Group Upgrade to Buy from Speculative Buy Ord Minnett
QAN Qantas Airways Downgrade to Sell from Neutral Citi
SWP Swoop Holdings Downgrade to Hold from Speculative Buy Morgans
TAH Tabcorp Holdings Downgrade to Lighten from Hold Ord Minnett
TCL Transurban Group Downgrade to Hold from Add Morgans
UMG United Malt Downgrade to Neutral from Buy UBS
VUK Virgin Money UK Upgrade to Outperform from Neutral Macquarie

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)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Share on FacebookTweet about this on TwitterShare on LinkedIn

Click to view our Glossary of Financial Terms

CHARTS

APX BGA ORI PNI SQ2

For more info SHARE ANALYSIS: APX - APPEN LIMITED

For more info SHARE ANALYSIS: BGA - BEGA CHEESE LIMITED

For more info SHARE ANALYSIS: ORI - ORICA LIMITED

For more info SHARE ANALYSIS: SQ2 - BLOCK INC