Daily Market Reports | Oct 05 2022
This story features LOTTERY CORPORATION LIMITED. For more info SHARE ANALYSIS: TLC
| World Overnight | |||
| SPI Overnight | 6803.00 | + 107.00 | 1.60% |
| S&P ASX 200 | 6699.30 | + 242.40 | 3.75% |
| S&P500 | 3790.93 | + 112.50 | 3.06% |
| Nasdaq Comp | 11176.41 | + 360.97 | 3.34% |
| DJIA | 30316.32 | + 825.43 | 2.80% |
| S&P500 VIX | 29.07 | – 1.03 | – 3.42% |
| US 10-year yield | 3.62 | – 0.03 | – 0.93% |
| USD Index | 110.16 | – 1.51 | – 1.35% |
| FTSE100 | 7086.46 | + 177.70 | 2.57% |
| DAX30 | 12670.48 | + 461.00 | 3.78% |
By Greg Peel
Double-Whammy
“The Board is committed to returning inflation to the 2–3 per cent range over time. Today’s increase in interest rates will help achieve this goal and further increases are likely to be required over the period ahead. The cash rate has been increased substantially in a short period of time. Reflecting this, the Board decided to increase the cash rate by 25 basis points this month as it assesses the outlook for inflation and economic growth in Australia.”
The ASX200 was already up 160 points ahead of yesterday’s RBA announcement, following a Wall Street bounce that was expected any time, and triggered by the UK government’s policy flip. Then at 2.30pm, Philip Lowe dropped his bombshell.
A rate hike of 50 points was widely expected. The RBA had considered hiking only 25 points at the September meeting, but settled on 50. That made a 25 hike in October a strong chance, until the latest US inflation data hit and the Fed went another 75. And the Aussie dollar was trashed.
But the board is concerned about two factors, it appears.
“One source of uncertainty is the outlook for the global economy, which has deteriorated recently. Another is how household spending in Australia responds to the tighter financial conditions. Higher inflation and higher interest rates are putting pressure on household budgets, with the full effects of higher interest rates yet to be felt in mortgage payments. Consumer confidence has also fallen and housing prices are declining after the earlier large increases.”
The RBA is clearly worried about hiking too far, too fast in the current domestic and global environment could lead to a more dramatic economic slowdown than intended in the battle against inflation, and that it takes time for the impact of rate hikes to flow through the economy. Not yet time to pause and reflect, but just to slow down.
Economists nevertheless believe a slower pace of hikes will only extend the duration of hikes until the actual pause comes next year.
The Aussie ten-year bond yield fell -17 points to 3.72% and the two-year fell -32 points to 3.13%. The Aussie dollar also dropped around half a cent, but given a fall in the US dollar overnight is down only a net -0.2% this morning.
On the stock market, it was a simple case of Buy Everything, and that started before the RBA announcement. Post-announcement, standing out were the banks (+4.2%), but all of energy, materials and real estate posted gains in excess of 4% and technology closer to 5%.
Consumer discretionary rose 3.6%.
The defensives were the laggards, managing only 2-3% gains.
The ASX200 top five gainers and the ASX200 top twenty were all once again dominated by miners, with lithium miners leading the charge. The ASX200 top five loser list contained all of one stock – The Lottery Corp ((TLC)) plunged -0.2%.
The ASX300 top twenty losers list contained three stocks.
And we’ll be at it again today. With Wall Street posting an even bigger rally last night on top of Monday night, our futures are up another 107 points this morning.
Aussie, Aussie, Aussie
While Elon Musk’s sudden decision to throw in the towel and just buy Twitter at his original offer price rather dominated chatter on Wall Street last night, much attention was also given to the RBA’s decision to slow the pace. For this is exactly what Wall Street has been expecting…hoping…the Fed will do.
The RBA gave Wall Street more confidence to “fight the Fed”. Stock indices opened higher last night in a follow-through from Monday night and just kept going up.
While the July rebound rally was dismissed to a large extent as little more than a short squeeze that drove momentum, this time (so far) there is greater faith, even though short-covering is clearly playing its part.
The Bank of England’s forced intervention into the UK bond market, the UN pleading with central banks not to keep hiking and exacerbate further inequality across the globe, and now the RBA’s bold decision to be the first "major" central bank to deliver a lower rate hike, are all putting pressure on the Fed, Wall Street is assuming, to also slow down.
As to whether it will, in the face of the last CPI/PCE data, is not assured. The next Fed meeting is not until early November.
Another fillip for Wall Street last night was data showing the second largest monthly drop in recorded history for job openings, with August openings falling to 10.1m from 11.2m in July. Layoffs also rose to the highest level in eighteen months, although remain low by historical standards.
Another driver among the many was a speech by the New York Fed president, who ranks third behind the Fed chair and vice-chair of key Fed officials, in which he suggested cooling global demand and steady improvements in supply should result in falling rates of inflation for goods over the next year.
“These factors should contribute to inflation declining to about 3% next year,” he said.
All fodder for a relief rally. But is this just another July-style head-fake? Many believe so. The next critical data point will be Friday night’s September jobs numbers. Thereafter, the September quarter earnings season will be the true time of reckoning, with the potential to upset any true rally prospects.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1725.80 | + 25.20 | 1.48% |
| Silver (oz) | 21.03 | + 0.32 | 1.55% |
| Copper (lb) | 3.46 | + 0.03 | 0.90% |
| Aluminium (lb) | 1.14 | + 0.07 | 6.87% |
| Lead (lb) | 0.86 | + 0.01 | 1.63% |
| Nickel (lb) | 9.71 | – 0.07 | – 0.73% |
| Zinc (lb) | 1.37 | + 0.04 | 3.15% |
| West Texas Crude | 86.14 | + 2.99 | 3.60% |
| Brent Crude | 91.46 | + 2.89 | 3.26% |
| Iron Ore (t) | 94.22 | 0.00 | 0.00% |
It was September 29 when it was revealed the LME was considering banning the trade of Russian aluminium and other metals on the exchange. Last night Alcoa warned the LME that due to European buyers shunning Russian exports, there was a possibility Russia would just dump excess metal on the LME and cause serious market disruption.
While a -1.4% drop for the US dollar underpinned all commodity prices, another night of gains for the oils reflected continuing expectation of an OPEC-Plus production cut announcement tonight.
Gold is enjoying a lower dollar and lower US bond yields, which fell again last night.
The Aussie is down -0.2% at US$0.6503.
Today
The SPI Overnight closed up 107 points or 1.6%.
The RBNZ meets this morning.
September services PMIs are due across the globe.
The US will see private sector jobs numbers.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| AGL | AGL Energy | Upgrade to Outperform from Neutral | Credit Suisse |
| ALD | Ampol | Downgrade to Equal-weight from Overweight | Morgan Stanley |
| CMM | Capricorn Metals | Upgrade to Outperform from Neutral | Macquarie |
| PLS | Pilbara Minerals | Downgrade to Hold from Buy | Ord Minnett |
| PMV | Premier Investments | Downgrade to Neutral from Buy | Citi |
| SGM | Sims | Downgrade to Hold from Buy | Ord Minnett |
| VEA | Viva Energy | Downgrade to Equal-weight from Overweight | Morgan Stanley |
For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.
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For more info SHARE ANALYSIS: TLC - LOTTERY CORPORATION LIMITED
