The Overnight Report: Change Of Heart

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

By Greg Peel

Big is Better

Big numbers and a big dividend from BHP Group ((BHP)) had the Big Australian surging 4.1% yesterday to make a rare appearance on the top five ASX200 leaders’ board. At over 10% of the index market cap, BHP alone has the power to move the market, and yesterday it added 24 of the final 41 point gain.

With 7000 conquered for now, initial exuberance had the index up 67 points by 11am, well over 7100, but this is another resistance level and hence the index pulled back to around 40 points up, after which the exchange might as well have closed for the afternoon.

BHP had the materials sector up 1.7% following a night of lower commodity prices driven by China’s weak July data. Energy nevertheless fell -1.0% on lower oil prices.

It wasn’t all beer and skittles among the day’s earnings reporters, however. Challenger ((CGF)) plunged -10.1% to top the losers’ board, Seek ((SEK)) fell -5.1%, Seven West Media ((SWM)) -3.9% and Sims ((SGM)) -3.3%.

On the other hand, Temple & Webster ((TPW)) – not in the index – jumped 29.8%.

Real estate was the only other sector to close in the red (-1.1%). This followed results from Goodman Group ((GMG)) which had the stock down -0.5%, and retail landlords Shopping Centres Group ((SCP)), which fell -3.7% and Charter Hall Retail ((CQR)) -2.2%.

There might be a story in an online retailer’s success and a lack thereof for old world shopping mall REITs, except that Temple & Webster had fallen -75% in a year.

The fall in the real estate sector came despite a drop in bond yields across the curve, with the ten-year down -14 points to 3.22%. This followed the release of the RBA minutes which if anything were actually hawkish.

“So far the strength of labour incomes had been the more important driver [compared with the impact of rising rates and prices], but the balance between these two opposing forces could shift over time and it was difficult to predict how this balance would be resolved.”

In other words, inflation is yet to tame demand. Expect another 50 point hike in a couple of weeks.

The fall in Aussie yields is not otherwise suggesting a recession, as the two-year is only 2.70%, but this is lower than the “neutral” rate Philip Lowe is assuming.

Healthcare (+1.0%) and staples (+1.0%) were the other standouts yesterday. CSL ((CSL)) reports today so we’ll see how that goes.

Wall Street hit a bit of a wall last night but still closed higher. Our futures are up 12 points this morning but with each day bringing more and more earnings reports, we’ll have to see if 7100 can hold.

Ouch

BHP was the major driver downunder yesterday and last night it was a similar story for the Dow, with solid earnings results from Walmart (+5.1%) and Home Depot (+4.1%) contributing about half of the 239 point gain.

After falling early, the US indices quickly found buyers and the Dow was up 370 early in the afternoon, and the S&P500 was up 0.5%. Then they all dropped like a stone.

The S&P500 banged its head, very hard, on its 200-day moving average.

History shows the first upside attack on a down-sloping 200-day moving average always fails. But, of course, history feeds on itself. Mentality on Wall Street has now shifted from “sell the rip” to “buy the dip” and having fallen right back to the flatline, the S&P500 again found buyers late in the session.

More and more pundits are now deciding the June low was the low.

While there are more US retailer earnings reports this week, thereafter the result season is all but over, and the next Fed meeting is a month away, although we do have Jackson Hole late next week.

Much will now rely on the data flow but one interesting element arose from Biden’s signing of the Inflation Reduction Act last night.

Buried amongst the climate change and healthcare initiatives are some tweaks to the tax system, one of which is a 1% tax on stock buybacks that will become effective from January 1. While analysts don’t see 1% as bringing an end to buybacks, there is some incentive to ensure any buyback plans are implemented before year-end.

Another element supporting further market strength, apart from the fundamental aspect of the S&P500 now showing greater breadth (more stocks rising, not just the biggies), is the return of the meme traders.

Bed, Bath & Beyond has been the favourite this time around, rising another 29% last night to be up 270% in August, but last night brought a new player into the frame. FuboTV – another of the multitude of US streaming services – jumped 45% for no reason.

The common factor is these stocks are all heavily shorted – bankruptcy was expected for BBBY – and while experienced traders all have a giggle about another slap in the face for young retail investors when the music again stops, they agree a bit of youthful exuberance is still positive for market sentiment in the near term.

Commodities

Oil prices fell heavily on Monday night on the weak Chinese data, and last night talk of a revival of the Iran nuclear deal (which would see a ban on Iranian oil exports lifted) drove another leg down.

The oils are now at their lowest prices since January, and with inflation the main talking point among Americans (and everyone else) at present, there’s some light at the end of the tunnel. The average US gasoline price has now fallen 64 days in a row.

The Aussie is up 0.1% at US$0.7025.

Today

The SPI Overnight closed up 12 points.

The RBNZ meets this morning and on the subject of monetary policy, locally we’ll see the June quarter wage price index (see earlier RBA wages comment).

The minutes of the Fed meeting are out tonight, and could be market-moving, along with US July retail sales data.

Aside from CSL, today’s reporters include Amcor ((AMC)), Brambles ((BXB)), Santos ((STO)) and Super Retail ((SUL)), just to name a few.

Qantas Airways ((QAN)) is also on the list, but I’m not too sure about that one, as Qantas has always reported on the Super Thursday of the last full week. There is no release date noted on its website.

FNArena’s Corporate Results Monitor provides both a calendar of upcoming result releases and a summary of all reports to date: https://www.fnarena.com/index.php/reporting_season/

The Australian share market over the past thirty days…

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

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