The Overnight Report: BoE To The Rescue

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World Overnight
SPI Overnight	6558.00	+ 98.00	1.52%
S&P ASX 200	6462.00	– 34.20	– 0.53%
S&P500	3719.04	+ 71.75	1.97%
Nasdaq Comp	11051.64	+ 222.13	2.05%
DJIA	29683.74	+ 548.75	1.88%
S&P500 VIX	30.18	– 2.42	– 7.42%
US 10-year yield	3.71	– 0.26	– 6.53%
USD Index	112.70	– 1.49	– 1.30%
FTSE100	7005.39	+ 20.80	0.30%
DAX30	12183.28	+ 43.60	0.36%

By Greg Peel

Looking North

The futures said down -32 points yesterday morning but in a quiet start, the ASX200 actually ticked slightly higher in the first hour. At 11am it plunged, to be down -60 points at lunchtime, before recovering ground to the close.

The drop was attributed to steep falls in Asian markets, which were themselves attributed to the surging US dollar. The renminbi is now at the lowest level to the US dollar since 2008. Shanghai fell -1.6%, Hong Kong -3.4%, Japan -1.5% and Korea -2.5%.

But never mind, Wall Street has bounced overnight and our futures are up 98 points this morning.

So we won’t dwell too long on yesterday’s trade. Only three sectors closed in the green yesterday, and they all had micro stories rather than macro influences behind them.

Communication services rose 1.4% on a 2.7% jump for Telstra ((TLS)), as traders assume an exodus from Optus.

Utilities rose 1.9% on a 3.0% gain for AGL Energy ((AGL)), after Mike Cannon-Brookes announced he will nominate four new candidates to the board, saying the energy company must expand its board of directors to include a broader range of skills to reset the company.

Energy rose 0.1% as coal miners again led the way, after Macquarie upgraded its coal price forecasts. Gas companies went the other way, despite higher oil prices, in general weakness.

Technology was the worst performer (-1.5%) after being one of the best on Tuesday, and consumer discretionary fell -1.1% despite a better than expected 0.6% gain in retail sales in August, suggesting the consumer remains resilient. While we have to take price inflation into account, the rise was greater than inflation suggests.

This only provides another reason for the RBA to go 50 points next week. Hence the banks fell -0.8%.

Watch that spin around today.

The Aussie ten-year yield rose another 7 points to 4.09%.

Watch that plunge today.

I can’t make any promises, but today might just be a Lazarus session for REITs.

Hurray for the Limeys

History suggests it’s usually the other way around, but last might the Limeys stepped in to save the Yanks, or at least that was the effect.

Faced with a collapsing pound and soaring UK bond yields, the Bank of England was forced to step in last night and buy an “unlimited” amount 30-year gilts (as they’re called) in order to stabilise a UK market that had become unhinged on the announcement of the government’s increased spending and tax cut policy on top of an already overblown budget deficit.

A BoE auction of 30-years had been planned for last night. That was obviously cancelled.

The new government’s policy has received a scathing rebuke from the IMF – a move usually reserved for third world countries – and the IMF has urged Truss to ditch the tax cuts, suggesting they will only increase inequality.

It’s an extraordinary situation to have a central bank simultaneously hiking rates and implementing QE. The impact was a more than -100 basis point plunge in the UK 30-year yield.

The impact reverberated across The Pond, with the US ten-year yield falling -26 points to 3.70%. The two-year fell -15 points to 4.13%. The US dollar index fell -1.3%.

After falling -6.5% in six consecutive sessions, the S&P500 had made some effort to consolidate in the last two, but did not find enough traction to close higher. All agreed the market was oversold, but what could possibly spin sentiment around and spark a rally?

Well, now we know.

The gains across all three indices would have actually been much greater had not America’s biggest company, Apple (7.5% of the S&P500), fallen -1.3% to be the only Dow stock to close in the red.

Apple announced it was not going ahead with a planned production increase of the iPhone 14 as there was not sufficient demand.

While the fall in yields was always going to be manna for the Nasdaq, that index was also boosted by a 40% leap for Biogen, after the company announced very positive results for its experimental Alzheimer’s drug. The total addressable market is quite simply enormous.

Has the BoE delivered a shot across the Fed’s bow? While the Fed has not mentioned US dollar strength in its statements, it is assumed the FOMC will have been concerned – not just for the impact on US corporate earnings but for the surging cost of USD debt repayments for global emerging economies.

Speaking to CNBC last night, one former FOMC member suggested a globally coordinated central bank intervention into currency markets is not off the table, but likely not imminent.

While Wall Street could now see another swift snap-back rally, few believe this one will be anything more than a bear market relief rally, as was the case in July. One issue is that while the BoE is now buying unlimited amounts of bonds, it will only do so for a month.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1660.10	+ 30.90	1.90%
Silver (oz)	18.89	+ 0.53	2.89%
Copper (lb)	3.39	+ 0.04	1.18%
Aluminium (lb)	1.06	+ 0.01	0.56%
Lead (lb)	0.82	+ 0.02	2.63%
Nickel (lb)	9.81	– 0.24	– 2.42%
Zinc (lb)	1.31	– 0.02	– 1.14%
West Texas Crude	82.15	+ 3.65	4.65%
Brent Crude	89.03	+ 3.08	3.58%
Iron Ore (t)	98.52	– 0.19	– 0.19%

Not much of a response to a lower dollar from metal prices, other than gold.

While the dollar will have helped, it was a surprise (they always are) drop in weekly crude inventories that had oil prices jumping.

Hurricane Ian is having little impact on oil supply, in case you were wondering. While a handful of rigs had to be evacuated in the Gulf, the bulk of rigs are much further to the west and out of harm’s way, as are the major refinery hubs.

The Aussie is up 1.4% at US$0.6526.

Today

The SPI Overnight closed up 98 points or 1.5%.

The US will see June quarter PCE data today, with which you can wrap your fish and chips. It will be tomorrow night’s August PCE result that Wall Street will be nervous about.

We can say the same about another revision of US June quarter GDP.

I suggested the REITs might finally see some relief in the local market today. Unfortunately it will be on a day many will be handicapped from open by going ex quarterly dividends. The list is fairly extensive.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
BEN	Bendigo & Adelaide Bank	Upgrade to Hold from Lighten	Ord Minnett
SIG	Sigma Healthcare	Downgrade to Underperform from Neutral	Credit Suisse
UNI	Universal Store	Upgrade to Neutral from Underperform	Macquarie
WOR	Worley	Upgrade to Hold from Lighten	Ord Minnett

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

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