The Overnight Report: Rinse And Repeat

This story features WOODSIDE ENERGY GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: WDS

World Overnight
SPI Overnight	6701.00	– 25.00	– 0.37%
S&P ASX 200	6730.70	– 69.40	– 1.02%
S&P500	3665.78	– 29.38	– 0.80%
Nasdaq Comp	10614.84	– 65.66	– 0.61%
DJIA	30333.59	– 90.22	– 0.30%
S&P500 VIX	29.98	– 0.78	– 2.54%
US 10-year yield	4.23	+ 0.10	2.40%
USD Index	112.87	– 0.03	– 0.03%
FTSE100	6943.91	+ 18.92	0.27%
DAX30	12767.41	+ 26.00	0.20%

By Greg Peel

Just the Job

Australia added all of 900 jobs in September. Economists had forecast 25,000. It wasn’t enough to move the unemployment rate off 3.5% nevertheless, or the underemployment rate off 6.0%, and participation remained steady.

It does show the labour market is now slowing. In isolation, this bad news should be good news for the stock market.

The RBA had already decided to only hike by 25 points this month rather than an expected 50 – not because inflation is peaking, as the opposite is true, and the latest food-bowl floods are only going to make things worse, but because it is concerned of the lag effect of higher rates, which are already showing up clearly in the housing market.

The jobs result will perhaps not lead the RBA to pause on Cup Day, but it at least should mean only another 25 despite inflation. And that should have been good news.

The problem is, the Fed is not of the same opinion, regarding concern over lag effects. With the Fed remaining unforgiving, Wednesday night’s weak auction of 20-year US Treasuries had overall US bond rates jumping again. We have little choice but to follow suit.

Yesterday the Aussie ten-year yield rose 11 points to be back over 4% at 4.05%. The two-year rose 12 points to be back at 3.50%.

And so the usual suspects copped another hiding. Technology fell -2.4%, discretionary -1.6%, utilities -1.9% (despite higher oil prices), and healthcare -2.1%.

Due to lower commodity prices, materials fell -2.4%, with gold miners particularly slammed. Oil prices bucked the trend so the session was to some extent saved by a 3.1% jump for energy.

Aside from oil prices per se, both Woodside Energy ((WDS)) and Santos ((STO)) reported record quarterly revenues yesterday.

Staples played its typical role in only falling -0.4%, but the surprise on the day were the banks. The financials sector closed slightly to the upside. This year surging yields have led the banks lower on loan loss and falling loan demand fears.

Perhaps this was the one sector in which a weak jobs number, implying the labour market has begun to turn and the RBA can go easy, had an impact against the tide.

The bad news is US yields are up again overnight. Our futures are down -25 this morning.

Despite all this latest volatility, the ASX200 is still at the same level it was in early October.

No Let-Up

“We are going to keep raising rates for a while. Given our frankly disappointing lack of progress on curtailing inflation, I expect we will be well above 4% by the end of the year.”

It had all been going so well. The Dow was up 400 points early in the session last night on more strong (not too bad) earnings results, until the Philadelphia Fed president opened his mouth.

The US ten-year yield shot up another 10 points to 4.23% and the two-year 5 points to 4.61%. That’s a new high for the ten-year – highest since 2008. The Fed funds futures rate, which specifically reflects Fed cash rate expectations, hit 5% for mid-2023.

The Dow closed down -90 points.

Earnings results are playing their part, bringing some hope to an oversold market.

Last night AT&T (Dow) reported and rose 7.7%, which is a big move for the telco plodder. Another plodder is old world tech stock IBM (Dow), which rose 4.7% having reported in Wednesday night’s aftermarket.

It was not all so bright though, with Tesla falling -6.7% after it, too, reported on Wednesday night.

And it’s not looking good tonight for social media stocks. Snap has just reported in this morning’s aftermarket, and is down -26%, having already been down -77% from its high going in.

It’s all about advertising – one of the first costs to be cut in a downturn. Snap’s revenues growth is declining heading into the fourth quarter, and visibility is too low for the company to offer any guidance. While Snap is not a tech biggie, advertising is also key for the likes of Meta, Google and others.

Whether earnings results can continue to come in better than feared on a net basis, the reality is you can’t fight the Fed.

The Fed wants to see “financial conditions” tighten. This means two things – wider credit spreads and a lower stock market.

Wider credit spreads imply a higher cost of borrowing for corporates beyond that implied by Fed rates hikes, as an additional risk premium is included. A weaker stock market reduces consumer demand on the “wealth effect” basis. Both are needed to lower inflation.

Until the Fed sees signs of lower inflation, it’s not going to stop. Hence, while many on Wall Street believe we can see a rebound rally, few (if any) believe we won’t also later see a new low, probably next year.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1627.60	– 1.90	– 0.12%
Silver (oz)	18.64	+ 0.18	0.98%
Copper (lb)	3.45	+ 0.06	1.70%
Aluminium (lb)	1.10	+ 0.02	1.66%
Lead (lb)	0.90	– 0.01	– 0.81%
Nickel (lb)	9.89	+ 0.10	1.01%
Zinc (lb)	1.34	+ 0.03	2.15%
West Texas Crude	85.98	+ 0.10	0.12%
Brent Crude	92.61	+ 0.35	0.38%
Iron Ore (t)	94.76	– 0.10	– 0.11%

Global metal producers and buyers will gather in London next week to finalise their contracts for supplies for the year ahead. Traders are pushing the London Metal Exchange to stop accepting Russian metal, fearing its warehouses will become a stockpile for unwanted material that distorts global prices for commodities like aluminium and copper, the Financial Times reports.

The LME has considered a ban but has so far been reluctant to shift from its position as an apolitical exchange and clearing house. Judging by last night’s moves in metal prices, the pressure may become too great.

The US dollar was also steady overnight, balancing out a weaker yen against a strong pound in the wake of Truss’ departure. The yen has not been this low against the dollar since 1990, when it saw a property and stock market blow-up. The BoJ, like the BoE, has been forced to intervene to prop up the currency.

The Aussie dropped as low as US$0.6250 on the weak jobs number, but is back at US$0.6281 to be up 0.1% over 24 hours.

Today

The SPI Overnight closed down -25 points or -0.4%.

AGMs today include those of Insurance Australia Group ((IAG)), Link Administration ((LNK)) and Worley ((WOR)).

Quarterly reporters include AMP ((AMP)), Allkem ((AKE)) and Coronado Resources ((CRN)).

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
BAP	Bapcor	Downgrade to Neutral from Outperform	Credit Suisse
BEN	Bendigo & Adelaide Bank	Upgrade to Overweight from Equal-weight	Morgan Stanley
BOQ	Bank of Queensland	Downgrade to Equal-weight from Overweight	Morgan Stanley
		Downgrade to Neutral from Buy	UBS
BPT	Beach Energy	Upgrade to Add from Hold	Morgans
CBA	CommBank	Upgrade to Hold from Reduce	Morgans
CGC	Costa Group	Upgrade to Outperform from Neutral	Credit Suisse
NHF	nib Holdings	Upgrade to Add from Hold	Morgans
SFR	Sandfire Resources	Upgrade to Neutral from Underperform	Credit Suisse
UNI	Universal Store	Downgrade to Neutral from Buy	Citi
WBC	Westpac	Upgrade to Add from Hold	Morgans

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)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms