The Overnight Report: Don’t Blink

Daily Market Reports | Sep 30 2022

This story features PREMIER INVESTMENTS LIMITED. For more info SHARE ANALYSIS: PMV

World Overnight
SPI Overnight 6525.00 – 22.00 – 0.34%
S&P ASX 200 6555.00 + 93.00 1.44%
S&P500 3640.47 – 78.57 – 2.11%
Nasdaq Comp 10737.51 – 314.13 – 2.84%
DJIA 29225.61 – 458.13 – 1.54%
S&P500 VIX 31.84 + 1.66 5.50%
US 10-year yield 3.75 + 0.04 1.13%
USD Index 111.95 – 0.75 – 0.67%
FTSE100 6881.59 – 123.80 – 1.77%
DAX30 11975.55 – 207.73 – 1.71%

By Greg Peel

Well that was fun

The futures said up 98 points and the ASX200 closed up 93 yesterday, but only after losing -25 points in market-on-close orders. It opened up around 120 points and stayed there till the bell, so if you were looking to get on early, you couldn’t.

I was expecting to say, again, there’s not much point in banging on as the S&P500 fell -2.1% last night, but strangely our futures are only down -0.3% this morning. Possibly because of a big rally in base metal prices overnight.

Australian bond yields fell sharply yesterday as expected, following plunges in US and UK rates. The ten-year fell -15 points to 3.94% and the two-year -7 points to 3.34%.

The ABS surprised yesterday by releasing its first ever monthly CPI data, which I believe was originally slated for October.

We recall that the June quarter CPI came in at 6.1% year on year. The new data show month of June inflation was 6.8%, July 7.0%, and August back to 6.8% on lower fuel costs. Fuel costs will of course go back up again from now with the excise holiday over.

Core inflation, ex food & energy, was 5.5% in June (month) and 6.2% in August. While these numbers don’t look as scary as the US on 8.3%, the trend is still up, and the RBA still expects a headline CPI of 7.75% before year-end.

The other news, however, is that job vacancies fell a mere -2.1% year on year in August having risen 14.4% in July. That’s hardly a dent in a very high vacancy number and there remains close to one job for every work-seeker. The government better gets those backpackers back here, as the RBA will be frustrated by the result.

And will hike by 50 points next week.

The market didn’t blink on the data, having step-jumped up and stayed there. A 50 point hike has been expected for a while, and reinforced by Fed hawkishness.

As expected, the banks (+1.0%) and real estate (+1.2%) did well on lower yields, and noting real estate was also handicapped by a slew of ex-divs, while energy (+2.8%) and materials (+2.2%) provided support. The energy market is currently being underpinned by sabotage shenanigans.

Healthcare (+1.6%), discretionary (1.5%) and industrials (+1.0%) also did well, while technology was rather tepid (+0.5%) and staples and utilities sat this one out.

Discretionary was boosted by a 14.6% jump for Premier Investments ((PMV)), which smiggled its way to the top of the index table after releasing earnings results.

So we’ll see how we fare today, with the futures down only -22 points.

One Bad Apple

Following a downgrade to Neutral from Buy from Bank of America, last night Apple (Dow) fell -4.9%. And that about sums up the Wall Street session. But there were other issues.

BofA cited weakening consumer demand for iThings in the current environment, a day after Apple canned its planned iPhone 14 production increase due to insufficient demand.

Last night US used car dealership Carmax fell -24.6% on an earnings result, bemoaning weak demand due to higher car loan rates and higher operating costs.

Nike (Dow) has reported in this morning’s aftermarket, and is currently down -9%. We can but guess.

The US 30-year fixed mortgage rate briefly hit 7% last night, up from 3% at the beginning of the year. Mortgage refinancing is down -84% year on year – hardly surprising as rates rise – but new mortgage applications are down -34%.

The major focus for Wall Street concerned new weekly job claims, which last week fell to their lowest level since April. The Fed (and the RBA) is desperate to see unemployment rise in order to curb wage inflation, or else the current trend down in price inflation will not bring down the CPI (or PCE).

Having plunged on Wednesday night, the US ten-year bond yield rose 5 points to 3.79% last night and the two-year rose 8 points to 4.22%.

If it’s any help, Facebook (Meta) announced a hiring freeze and restructure and fell -3.7%. Indeed, hiring freezes are becoming common across the tech sector, but as yet few mass layoffs have been forthcoming.

And last night the Cleveland Fed President said that interest rates in the US haven’t reached restrictive territory yet, and that the Fed has yet to reach a point where it should consider pausing rate hikes.

The good news, if there is any, is the Dow did recover from being down -680 points heading into the last hour and the the S&P500 bottomed out at 3610 before closing at 3640 – above the June intraday low of 3636.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1660.40 + 0.30 0.02%
Silver (oz) 18.80 – 0.09 – 0.48%
Copper (lb) 3.36 – 0.04 – 1.04%
Aluminium (lb) 1.09 + 0.03 3.22%
Lead (lb) 0.83 + 0.02 1.87%
Nickel (lb) 10.15 + 0.34 3.47%
Zinc (lb) 1.36 + 0.06 4.28%
West Texas Crude 81.23 – 0.92 – 1.12%
Brent Crude 88.86 – 0.17 – 0.19%
Iron Ore (t) 98.42 – 0.10 – 0.10%

Base metal prices have a track record of delayed reactions and we can point to a -1.4% fall in the US dollar on Wednesday night backed by another -0.7% last night as to why base metal prices have jumped.

But news last night is that the LME is considering banning Russia from trading and storing metals. The reason copper missed out is apparently due to a jump in LME inventories.

OPEC meets on Wednesday night and is expected to announce a production cut of -1m barrels per day. But oil price weakness last night underscores a shrug from oil traders given OPEC has been unable to meet its quotas to date anyway.

Despite stronger metal prices, more US dollar weakness and Australian data that underscore a 50 point rate hike, the Aussie is down -0.4% at US$0.6505.

Today

The SPI Overnight closed down -22 points or -0.3%.

We’ll see private sector credit numbers locally today.

China will release September PMIs.

The US will see August PCE inflation data and the latest consumer sentiment survey.

Note that Monday is a long weekend in some states but not all, which means the ASX will be open.

Note also that we go on to summer time this weekend, so as of Tuesday morning, the NYSE will close at 7am Sydney time. The SPI Overnight will continue to close at 7am.

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
CLW Charter Hall Long WALE REIT Upgrade to Buy from Neutral Citi
RMS Ramelius Resources Upgrade to Accumulate from Hold 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.

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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