The Overnight Report: Taking The Risk

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World Overnight
SPI Overnight	6797.00	+ 28.00	0.41%
S&P ASX 200	6779.40	+ 102.60	1.54%
S&P500	3752.75	+ 86.97	2.37%
Nasdaq Comp	10859.72	+ 244.87	2.31%
DJIA	31082.56	+ 748.97	2.47%
S&P500 VIX	29.69	– 0.29	– 0.97%
US 10-year yield	4.21	– 0.01	– 0.31%
USD Index	112.00	– 0.01	– 0.01%
FTSE100	6969.73	+ 25.82	0.37%
DAX30	12730.90	– 36.51	– 0.29%

By Greg Peel

Release the Hounds

It was a simple case of a sentiment shift yesterday on the ASX as buyers who’d been waiting for the green light were unleashed – that green light being Wall Street’s surge on the belief the Fed is now ready to pause.

It’s the second time this year Wall Street has made that assumption, and the first time didn’t end well.

So whether or not “don’t fight the Fed” should still apply there are times when it’s a matter of “don’t fight the tape”. You’ll just get trampled in the rush.

All ASX200 sectors closed in the green yesterday. Best performer was materials (+2.5%) with four of the top five winning stocks all miners, covering gold, lithium and iron ore. BHP Group ((BHP)) rose 2.6%. The move came despite some sharp falls in base metal prices overnight.

Coincidentily, South32 ((S32)) and OZ Minerals ((OZL)) both provided quarterly results yesterday, and combined with lower metals prices, fell -1.8% and -1.2% to be among the worst performing stocks.

Topping the charts was battery technology company Novonix ((NVX)), which has been on a run since revealing it was in negotiations to receive a US$150m grant from the US Department of Energy. It rose 33.5%.

At the other end of the scale, energy was the underperformer (+0.7%) as oil prices rose only modestly and New Hope Corp ((NHC)) went ex. Staples played their defensive game in rising only 0.9%.

Technology was second best performer (+2.3%) and all other sectors rose between 1-2% in a typical Buy Everything session.

China finally released its GDP result and monthly numbers on the weekend after delaying them till the end of the congress. No doubt the statisticians were told to go back and do better because why would a 3.9% September quarter growth rate (year on year) be held back when 3.3% was the forecast?

Month of September industrial production rose 6.3% when 4.5% was forecast. However, retail sales rose 2.5% when 3.3% was forecast and fixed asset investment rose 5.9% (year to date) when 6.0% was forecast.

Not that it helped Chinese stock markets yesterday. Fearing tighter market controls from an omnipotent Chairman Xi, the Shanghai index fell -2.0% and the Hang Seng -6.4%.

In New York last night, listed Chinese tech stocks fell an average -15%.

The good news is I don’t have to say that it matters not because we’ll go flying back the other way today. Wall Street has strung two sessions of rallies together.

Our futures are up 28 points this morning.

False Hope?

We recall that in his July post-meeting press conference, Jerome Powell suggested not all hikes have to be 75 points, after the Fed had delivered two. Wall Street took this to mean a pause was coming, and so followed the July-August rally.

Until Jackson Hole. At which Powell rebuked Wall Street for being so stupid as to assume a pause. The Fed hiked another 75 in September and expected to do so again next week.

The WSJ article on Friday night that suggested now the Fed is ready to talk pause has been the primary driver between what, after last night, are two sessions of sharp snap-back rally. Wall Street is now mostly assuming 75, 50, stop.

But on Thursday night the Philly Fed president said the Fed would need to hike to “well over 4%” before any pause. And on Friday night the San Fran president provided hope by saying “I think the time is now to start talking about stepping down – the time is now to start planning for stepping down,” before then saying rates need to go to 4.5-5.0%.

Two more hikes for 125 to make 4.25% will not be “well over 4%”, nor close to the 150-200 points the San Fran president sees.

Powell’s next press conference will be interesting, as will any dissention in the ranks of the FOMC for another 75 point hike.

Meanwhile, Wall Street is happy just to take the punt. The good news last night was that while a flash estimate of US October manufacturing PMI implied a tick up to 50.7 from 50.6, the services estimate showed a big fall to 46.6 from 49.3. Services have led the US economy out of covid.

Europe’s composite PMI estimate, combining the two, fell for the fourth month to 47.1 from 48.1.

China’s growth rate, as noted earlier, of 3.4% year on year in the quarter takes its annual run-rate to 3.0%, when Beijing’s target at the beginning of the year was 5.5%. Elon Musk believes China is heading for recession. Tesla has cut the price of two of its EV models in China. The shares fell -1.5% last night.

Tonight begins the make-or-break week for the US earnings season. Five Mega-Techs report this week representing 21% of the S&P500. Microsoft and Google kick things off tonight.

If they can match Netflix, Wall Street’s off to the races. If they match Snap, goodnight.

Commodities

Amidst all the speculation concerning the LME and Russia, it appears China’s numbers have provided a lift for base metals.

Not much to note elsewhere.

Other than the Aussie. Having shot up 1.9% on Friday night with the US dollar falling -0.8%, last night the US dollar was unmoved, China posted better than expected numbers, and the Aussie is down -1.3% at US$0.6313.

Told they were all short.

Today

The SPI Overnight closed up 28 points or 0.4%.

The US will see numbers for consumer confidence and house prices tonight.

There is a decent list of companies reporting quarterlies or holding AGMs today.

Federal budget tonight.

Spot Metals,Minerals & Energy Futures
Gold (oz)	1649.30	– 8.60	– 0.52%
Silver (oz)	19.30	– 0.12	– 0.62%
Copper (lb)	3.43	+ 0.05	1.51%
Aluminium (lb)	1.08	– 0.00	– 0.19%
Lead (lb)	0.87	+ 0.00	0.06%
Nickel (lb)	9.93	+ 0.24	2.51%
Zinc (lb)	1.35	+ 0.02	1.76%
West Texas Crude	84.75	– 0.30	– 0.35%
Brent Crude	93.38	– 0.12	– 0.13%
Iron Ore (t)	94.51	– 0.35	– 0.37%

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 Outperform from Neutral	Macquarie
BOQ	Bank of Queensland	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
IAG	Insurance Australia Group	Upgrade to Add from Hold	Morgans
		Downgrade to Hold from Buy	Ord Minnett
NVX	Novonix	Speculative Buy	Morgans
RBL	Redbubble	Downgrade to Neutral from Buy	UBS
SDF	Steadfast Group	Upgrade to Buy from Accumulate	Ord Minnett
SUN	Suncorp Group	Upgrade to Buy from Hold	Ord Minnett
TCL	Transurban Group	Upgrade to Buy from Accumulate	Ord Minnett
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.)

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