The Overnight Report: New Low

Daily Market Reports | Sep 28 2022

This story features WHITEHAVEN COAL LIMITED, and other companies. For more info SHARE ANALYSIS: WHC

World Overnight
SPI Overnight 6471.00 – 35.00 – 0.54%
S&P ASX 200 6496.20 + 26.80 0.41%
S&P500 3647.29 – 7.75 – 0.21%
Nasdaq Comp 10829.50 + 26.58 0.25%
DJIA 29134.99 – 125.82 – 0.43%
S&P500 VIX 32.60 + 0.34 1.05%
US 10-year yield 3.96 + 0.09 2.22%
USD Index 114.19 + 0.08 0.07%
FTSE100 6984.59 – 36.36 – 0.52%
DAX30 12139.68 – 88.24 – 0.72%

By Greg Peel

Interlude

After a week of solid falls the ASX200 managed to close up 26 points against the Wall Street tide, in a holiday-quiet, grinding session. But don’t get excited about a bottom – the futures are down -35 points this morning, or -0.5% to the S&P500’s -0.2%.

Yesterday was about one thing and one thing only. After being absolutely carted on Monday, resource stocks found some buyers. Even on lower commodity prices the likes of your iron ore and coal miners are still churning out the cash, and following multiple contraction (lower price but stable earnings) those excessive dividends are even more valuable.

Materials rose 2.6% and energy 1.7% following falls of -5.3% and -6.3% on Monday.

Predominant in the comeback were the coal miners, who on Monday looked like burst bubbles. Whitehaven Coal ((WHC)) rose 6.8% and New Hope Corp ((NHC)) 6.1%. Despite further weakness in metals prices overnight, BHP Group ((BHP)) rose 2.8%, Rio Tinto ((RIO)) 3.0% and Fortescue Metals ((FMG)) 5.5%. South32 ((S32)), a proxy for other metals, rose 3.1%.

And that’s about where the story ends. Technology did gain 0.5%, as investors looked to pick up beaten-down names such as AI company Brainchip Holdings ((BRN)), which rallied 7.2% for no other reason.

The consumer sectors were modestly higher, and healthcare modestly lower after playing safe haven on Monday, but real estate fell yet another -2.1%, communication services -1.0% and utilities -0.8%. The Aussie ten-year yield moved only 4 points higher, but that put it over the 4% level to provide more aggravation.

Alas poor Tina, I knew her well. A guaranteed 4%pa for ten years is starting to look pretty attractive as at least part of a portfolio, or 3.4% for two years, when yield upside is becoming more limited vis a vis the RBA’s goals. There’s a whole generation of investors who never knew bonds were things to invest in too.

But it’s back to business today, with base metal prices down yet again, albeit oil prices have bounced somewhat. The fall in the futures suggests yesterday was no more than a breather, and a turnaround on Wall Street remains elusive.

We have August retail sales data out today; might be interesting.

New Low

It looked like we may have indeed had a Turnaround Tuesday on our hands last night when the Dow opened up 400 points. But it wasn’t to be, as those pesky sellers remain poised for any rebound. The Dow was down -300 by mid-afternoon.

Wall Street was heartened by comments made by the Chicago Fed president who said he was nervous the Fed hasn’t waited long enough to assess the increases in the cash rate to date. Charles Evans suggested the Fed will stop hiking rates in March.

That’s still six months away, and Evans is not an FOMC member (he is an alternate member, currently on the bench).

The bad news last night is that the economic data showed good news for the US economy.

The number of US new home sales in August easily beat expectations. The Conference Board consumer confidence index came in at 108, up from 103.6 in August and beating forecasts of 104.5. Strong employment and lower fuel prices were the drivers.

Durable goods orders fell by a lower than expected -0.2% in August, but take out the lumpy stuff and core goods orders rose 1.3%.

The only sign, amongst last night’s data, that Fed rate hikes are working was the first fall in over ten years in the Case-Shiller 20-city house price index in July. But the US ten-year yield rose another 9 points to 3.96%.

Wall Street has now wiped out all of its gains since November 2020 – when Biden was elected and the vaccines were unveiled. Back then the Fed cash rate was zero, the two-year yield not much more, and the Fed was undertaking aggressive QE. That QE was eventually tapered, and the Fed was still buying bonds up until early this year despite inflation moving into high single-digits.

Now the cash rate is 3.00-3.25%, the two-year yield is at 4.29%, and the Fed is swiftly selling bonds (QT), with a lot more to come.

The S&P500’s current losing streak is the longest since February 2020.

When Wall Street was at its low last night the S&P500 had fallen through the June intraday low of 3636 to 3623, before recovering to close at 3647. It’s a similar pattern to when it earlier fell below the closing low of 3666 before recovering.

And then falling again. Wall Street commentators are pretty much split down the middle – is the market oversold and ready for a bounce, or is sentiment just so weak and yield headwinds so strong that a low is yet to be seen?

One thing most can agree on is that if you have a longer term investment time horizon, now is providing a good opportunity to buy into quality stocks. If you have a short term trading horizon, good luck with that.

The VIX volatility index on the S&P has now crossed over the 30 mark, suggesting only now are investors getting worried again. It may be that a VIX stubbornly in the 20s for so long represented hedging put in place that is now rolling off.

Or maybe everyone is just getting really scared ahead of October.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1629.20 + 6.80 0.42%
Silver (oz) 18.36 + 0.03 0.16%
Copper (lb) 3.35 – 0.01 – 0.26%
Aluminium (lb) 1.05 – 0.01 – 1.19%
Lead (lb) 0.80 – 0.01 – 1.29%
Nickel (lb) 10.05 + 0.05 0.54%
Zinc (lb) 1.32 – 0.02 – 1.24%
West Texas Crude 78.50 + 1.79 2.33%
Brent Crude 85.95 + 2.01 2.39%
Iron Ore (t) 98.71 – 0.30 – 0.30%

The Nord Stream pipeline from Russia to Europe has mysteriously sprung more leaks. Satellite images have picked up underwater explosions. The Polish PM has railed against sabotage. We can all have a guess but this does rather set back any idea of a compromise allowing Russian gas to flow to Europe in the winter.

Hence oil prices rallied.

For base metals, the song remains the same.

The Aussie is off another -0.3% to US$0.6436, with the US dollar up a tad.

Today

The SPI Overnight closed down -35 points or -0.5%.

Retail sales numbers today.

The US will see pending home sales.

It’s a bit hard to get a handle on corporate earnings results dates at present. Brokers earlier had Core Lithium ((CXO)) and De Grey Mining ((DEG)) reporting last week, then they were moved to this week, and yesterday Core Lithium provided an update (but not actually an earnings result). So in theory the two report today.

ASX ((ASX)) holds its AGM.

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
BEN Bendigo & Adelaide Bank Upgrade to Hold from Lighten Ord Minnett
QUB Qube Holdings Downgrade to Neutral from Outperform Credit Suisse
SIG Sigma Healthcare Downgrade to Underperform from Neutral 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

ASX BHP BRN CXO DEG FMG NHC RIO S32 WHC

For more info SHARE ANALYSIS: ASX - ASX LIMITED

For more info SHARE ANALYSIS: BHP - BHP GROUP LIMITED

For more info SHARE ANALYSIS: BRN - BRAINCHIP HOLDINGS LIMITED

For more info SHARE ANALYSIS: CXO - CORE LITHIUM LIMITED

For more info SHARE ANALYSIS: DEG - DE GREY MINING LIMITED

For more info SHARE ANALYSIS: FMG - FORTESCUE METALS GROUP LIMITED

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

For more info SHARE ANALYSIS: RIO - RIO TINTO LIMITED

For more info SHARE ANALYSIS: S32 - SOUTH32 LIMITED

For more info SHARE ANALYSIS: WHC - WHITEHAVEN COAL LIMITED