The Overnight Report: Nerves Set In

Daily Market Reports | Sep 21 2022

This story features NEW HOPE CORPORATION LIMITED, and other companies. For more info SHARE ANALYSIS: NHC

World Overnight
SPI Overnight 6737.00 – 77.00 – 1.13%
S&P ASX 200 6806.40 + 86.50 1.29%
S&P500 3855.93 – 43.96 – 1.13%
Nasdaq Comp 11425.05 – 109.97 – 0.95%
DJIA 30706.23 – 313.45 – 1.01%
S&P500 VIX 27.16 + 1.40 5.43%
US 10-year yield 3.57 + 0.08 2.32%
USD Index 110.19 + 0.60 0.55%
FTSE100 7192.66 – 44.02 – 0.61%
DAX30 12670.83 – 132.41 – 1.03%

By Greg Peel

Can’t get a break

A late rally on Wall Street, the earnings result from New Hope Corp ((NHC)), a bump up in iron ore prices and some dovish signs from the RBA all conspired to send the ASX200 up 86 points yesterday. Except that it was up 84 in the first half hour, at which point only Wall Street and New Hope were known.

The index did retreat to be up only 55 when the RBA minutes were released, so they did provide a kicker back to the highs.

Great stuff, except that Wall Street has fallen again and our futures are down -77 points this morning.

New Hope rose 8.8% on its result, buoyed by surging thermal coal prices, and dragged up peers Coronado Resources ((CRN)) by 7.1% and, to a lesser extent, Whitehaven Coal ((WHC)), by 3.9%. The energy sector closed up 2.0%.

Fresh data from China yesterday indicated government stimulus is working, given an increase in steel-making in early September. This had the iron ore price up over 2%. But that gain has since been wiped out on news steel-making hub Tangshan has been locked down.

Materials rose 2.7%.

The minutes of the September RBA meeting, released yesterday, revealed the board did consider only a 25 point hike, but given the inflation situation, settled on 50. Comments made by Philip Lowe in the interim were backed up by the statement “All else equal, the case for a slower pace of increase in interest rates becomes stronger as the level of the cash rate rises”.

This has economists wondering whether October might bring a 25 point hike and not 50, as has been assumed. However, the shock US CPI numbers were released post the RBA meeting. Still, the Aussie ten-year yield fell -5 points yesterday to 3.63%.

This was no relief for real estate nevertheless, which fell -0.5% yesterday to be one of only two sectors to close in the red. Healthcare fell -0.1%.

Slower rate rises would perversely be good for the banks, given the market is now more worried about loan defaults than interest margins as rates rise. Financials jumped 1.3%.

Consumer discretionary, industrials, technology and utilities all saw gains of around 1%.

Not much point in banging on, as if the futures are accurate we’ll be back where we started, again.

The Fed statement is out tonight, and tomorrow is a holiday. Friday is also a holiday in Victoria – a celebration in anticipation of the Swans flogging the Cats. Elsewhere, Friday will also be a holiday for those who’d like a four-day long weekend. WA celebrates the King's birthday on Monday.

So today should see volumes wind down in the afternoon, and Friday will be thin, when the local market responds to the Fed.

Hitting a Ton?

Could the Fed hike by an unprecedented 100 points tonight? Wall Street odds still favour 75 but there is a growing nervousness. The sharp increase in core inflation in August has investors worried.

It doesn’t help that last night the Swedish central bank hiked by 100 points. With the August CPI in Sweden hitting a greater than expected 9.0%, Riksbank went to 1.75% from 0.75%, suggesting they’ve been a little slow on the uptake.

The Fed has also been slow, but has to date enacted hikes worth 2.25%.

On Monday night Wall Street staged a late rally when the US ten-year bond yield pulled back from 3.50% and the two-year from 4.0%. Last night they broke through early in the session. The Dow fell -550 points.

While the two-year did fall back again to close at 3.95%, the ten-year closed up 8 points to 3.57%, implying bond traders are indeed wary of a 100 point hike. The pullback in the two-year did provide some relief nonetheless, and late in the session the Dow was back to -250, before losing steam in the final minutes.

Monetary policy is one issue on Wall Street’s mind at the moment, but another concerns earnings forecasts, which continue to be called too high. Last night Ford (Dow) issued a profit warning and fell -12.3% — its biggest daily drop since 2011.

Ford noted that inflation and parts shortages will leave it with more unfinished vehicles than expected and that payments to suppliers will be about US$1bn more than expected. The news rattled Wall Street as it was assumed the signs were of supply chain constraints beginning to ease.

The Nasdaq was a rare outperformer last night, helped by a 1.6% gain for Apple. The stock is in all three major indices but has its highest weight in the Nasdaq. As I have noted before, while 1.6% doesn’t seem like much, it’s a big move for America’s largest listed company.

The gain came after Apple announced price rises for its app store in a number of Asian and European countries, seen as a response to the surge in the US dollar. The increase in eurozone countries will be to EUR1.19 from EUR0.99, or basically 20%.

Who said inflation had peaked?

I noted yesterday the trend lately has been to rally into a Fed meeting, as was the case on Monday night, but last night it appears investors lost their bottle, as all S&P500 sectors closed in the red.

Over to Jerome.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1664.90 – 12.00 – 0.72%
Silver (oz) 19.25 – 0.29 – 1.48%
Copper (lb) 3.50 – 0.01 – 0.21%
Aluminium (lb) 1.11 + 0.00 0.08%
Lead (lb) 0.85 – 0.00 – 0.37%
Nickel (lb) 11.16 + 0.15 1.33%
Zinc (lb) 1.42 + 0.00 0.27%
West Texas Crude 84.45 – 1.28 – 1.49%
Brent Crude 90.95 – 0.81 – 0.88%
Iron Ore (t) 98.33 – 0.30 – 0.30%

Higher US yields have again upset gold while oil price falls were attributed to fears a too-aggressive Fed will curb demand (which is exactly the point).

We could attribute a -0.6% fall in the Aussie to US$0.6694 as a response to the RBA minutes, but the US dollar index is up 0.6% as the Fed continues to lead the world in net rate rises.

Today

The SPI Overnight closed down -77 points or -1.1%.

Fed statement tonight.

Brickworks ((BKW)) and WH Soul Pattinson ((SOL)) report earnings today. Brickworks rose 5.8% yesterday as it has a stake in New Hope.

There are quite a few ex-divs today, including Adbri ((ABC)), Atlas Arteria ((ALX)), Cochlear ((COH)) and Cleanaway Waste ((CWY)).

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ALL Aristocrat Leisure Upgrade to Overweight from Equal-weight Morgan Stanley
ALX Atlas Arteria Downgrade to Underperform from Outperform Credit Suisse
BEN Bendigo & Adelaide Bank Upgrade to Buy from Neutral Citi
BKW Brickworks Upgrade to Add from Hold Morgans
GPT GPT Group Upgrade to Buy from Neutral Citi
NAB National Australia Bank Upgrade to Buy from Neutral Citi
TYR Tyro Payments Downgrade to Accumulate from Buy 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.)

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CHARTS

ABC ALX BKW COH CRN CWY NHC SOL WHC

For more info SHARE ANALYSIS: ABC - ADBRI LIMITED

For more info SHARE ANALYSIS: ALX - ATLAS ARTERIA

For more info SHARE ANALYSIS: BKW - BRICKWORKS LIMITED

For more info SHARE ANALYSIS: COH - COCHLEAR LIMITED

For more info SHARE ANALYSIS: CRN - CORONADO GLOBAL RESOURCES INC

For more info SHARE ANALYSIS: CWY - CLEANAWAY WASTE MANAGEMENT LIMITED

For more info SHARE ANALYSIS: NHC - NEW HOPE CORPORATION LIMITED

For more info SHARE ANALYSIS: WHC - WHITEHAVEN COAL LIMITED