The Overnight Report: Pounded

Daily Market Reports | Sep 27 2022

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

World Overnight
SPI Overnight 6483.00 + 17.00 0.26%
S&P ASX 200 6469.40 – 105.30 – 1.60%
S&P500 3655.04 – 38.19 – 1.03%
Nasdaq Comp 10802.92 – 65.00 – 0.60%
DJIA 29260.81 – 329.60 – 1.11%
S&P500 VIX 32.26 + 2.34 7.82%
US 10-year yield 3.88 + 0.18 4.90%
USD Index 114.11 + 0.92 0.81%
FTSE100 7020.95 + 2.35 0.03%
DAX30 12227.92 – 56.27 – 0.46%

By Greg Peel

Commodity Crunch

It is understandable that the local market should lose another -1.6% yesterday when the S&P500 lost another -1.7% on Friday night, but yesterday’s session was very different to Friday’s. Friday was simply Sell Everything. Yesterday was Sell Resources.

Six sectors closed in the red yesterday, and five in the green. Commodity prices had finally buckled on Friday night in the face of global recession expectations and the surging US dollar. And that included the one commodity that had recently been very much bucking the trend – coal.

So while a big drop in oil prices was always going to impact on energy, it was the rollover in coal which led the sector down -6.3%. Recent superstar New Hope Corp ((NHC)) led the damage in falling -14.7%, followed by Whitehaven Coal ((WHC)) with -14.0% and Coronado Resources ((CRN)) on -12.4%.

Falls in metal prices, including gold, meanwhile hit the materials sector hard as well (-5.3%). St Barbara ((SBM)) led the way in the ASX200 in falling -10.4%, but in the ASX300, every one of the top twenty losers was a miner except one – Karoon Energy ((KAR)). Syrah Resources ((SYR)) topped the board with an -18.4% plunge.

Utilities was also caught in the crossfire (-3.4%), not helped by more gains in Australian bond yields. The ten-year rose another 8 points to 3.98% and the two-year 12 points to 3.47%.

Thus real estate was hit yet again, down -1.0%, but making a bigger impression on the index were the banks, down -0.7%.

But…

Investors clearly switched to other sectors as they offloaded their resources. Staples rose 1.2%, despite a -14.2% fall in Costa Group ((CGC)) after shock resignation of its CEO. Nothing sinister – the guy’s just burnt out.

Consumer discretionary rose 0.7% and communication services 0.4%. But the real counter was healthcare, up 2.0% on 2-3% gains for all of Cochlear ((COH)), ResMed ((RMD)) and CSL ((CSL)).

The surprise move was in tech, up 1.1% despite a -1.8% fall in the Nasdaq. Bit of bargain-hunting by the looks. Four of the top five index winners on the day were tech stocks, the fifth being REA Group ((REA)) in comm services.

The signs are there that investors are looking for a bottom, possibly helped by the S&P500 coming off its lows in Friday night to hold the June low. The S&P last night closed below the June low, and commodity prices are all down sharply once more, but our futures are up 17 points this morning.

Currency Crisis

At least one US fund manager called last night for a coordinated central bank intervention to restore stability in currency markets. The pound tanked again last night, sending the US dollar up another 0.8%.

In the wake of the new UK government’s announced plan to throw money at the economy to save it, deficit be damned, the UK two-year yield has shot up 140 basis points in two sessions. This puts severe pressure on the Bank of England, which recently hiked by 50 points, to go harder next time to counter fiscally-driven inflation.

The cat is chasing its tail. The US two-year yield rose another 10 points to 4.32% last night in response and the ten-year rose 18 points to 3.92%.

Fed presidents were out and about last night again ramming home the Fed’s determination to tame inflation. The belief continues to grow that having been way behind the curve on inflation to begin with, the Fed's now going to get way ahead and cause a lot of damage.

Central banks across the globe have no choice but to follow the leader, or else their own currencies will be trashed, importing further inflation (see: pound).

The Aussie fell another -1.1% last night to US$0.6457.

Having held the low in the S&P500 on Friday night, US stock indices tried to rally from the open, but it was not to be. By early afternoon the Dow was down -430. Another rally attempt ensued, and briefly the Nasdaq was in the green. But that didn’t hold either.

I noted yesterday the slow-movers would take any rally chance to sell.

The S&P500 ultimately closed at 3655, below the June closing low of 3666. Next level is the June intraday low of 3636. The Dow’s close down -329 puts it in a (technical) bear market (-20%) for the first time since the covid crash in 2020. The S&P is down -23%, and the Nasdaq is down -30%.

Could we see a classic Turnaround Tuesday? It’s not beyond the realms. There is little disagreement Wall Street is at least temporarily oversold. But the close below the June low (right at the death) might bring in more technical selling.

As any well-respected technical analyst would tell you, it could go either way.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1622.40 – 22.00 – 1.34%
Silver (oz) 18.33 – 0.49 – 2.60%
Copper (lb) 3.36 – 0.05 – 1.54%
Aluminium (lb) 1.06 – 0.02 – 1.39%
Lead (lb) 0.81 – 0.01 – 1.21%
Nickel (lb) 10.00 – 0.50 – 4.72%
Zinc (lb) 1.34 – 0.04 – 2.90%
West Texas Crude 76.71 – 2.03 – 2.58%
Brent Crude 83.94 – 2.21 – 2.57%
Iron Ore (t) 99.01 + 0.12 0.12%

No point in dwelling.

Today

The SPI Overnight closed up, yes up, 17 points or 0.3%. Overly optimistic?

Today China will see numbers for August industrial profits.

The US will see consumer confidence, durable goods orders, new home sales and house prices tonight.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AIZ Air New Zealand Upgrade to Outperform from Neutral Macquarie
QUB Qube Holdings Downgrade to Neutral from Outperform Credit Suisse

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

CGC COH CRN CSL KAR NHC REA RMD SBM SYR WHC

For more info SHARE ANALYSIS: CGC - COSTA GROUP HOLDINGS LIMITED

For more info SHARE ANALYSIS: COH - COCHLEAR LIMITED

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

For more info SHARE ANALYSIS: CSL - CSL LIMITED

For more info SHARE ANALYSIS: KAR - KAROON ENERGY LIMITED

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

For more info SHARE ANALYSIS: REA - REA GROUP LIMITED

For more info SHARE ANALYSIS: RMD - RESMED INC

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

For more info SHARE ANALYSIS: SYR - SYRAH RESOURCES LIMITED

For more info SHARE ANALYSIS: WHC - WHITEHAVEN COAL LIMITED