The Overnight Report: Fedspeak

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World Overnight
SPI Overnight	7111.00	– 37.00	– 0.52%
S&P ASX 200	7146.30	– 11.70	– 0.16%
S&P500	3957.25	– 35.68	– 0.89%
Nasdaq Comp	11196.22	– 127.11	– 1.12%
DJIA	33536.70	– 211.16	– 0.63%
S&P500 VIX	23.73	+ 1.21	5.37%
US 10-year yield	3.87	+ 0.05	1.36%
USD Index	106.73	+ 0.44	0.41%
FTSE100	7385.17	+ 67.13	0.92%
DAX30	14313.30	+ 88.44	0.62%

By Greg Peel

Over-Hawkish and Over Here

“The market seems to have gotten wa-ay out in front on this, over this one CPI report. So it’s good, finally, that we saw some evidence of inflation starting to come down, but I just cannot stress [enough] this is one data point. We’re going to need to see a continued run of this kind of behaviour and inflation slowly starting to come down, before we really start thinking about taking our foot off the brakes here.”

I had noted that the Fed would need more than just one lower inflation report to alter its planned trajectory. Fed governor Christopher Waller happened to be speaking in Sydney yesterday. The world was listening.

As was the local market, with the ASX200 opening up 38 points and then falling back for the rest of the session. The Aussie ten-year yield jumped back 11 points to 2.76%.

Only the resource sectors managed to hold their initial gains, with materials closing up 3.4% and energy 0.9%, while every other sector retreated. There were -1-2% falls for all sectors which benefitted greatly on Friday from lower yields related to the lower US CPI.

The resource sectors responded to price surges across the commodity spectrum, driven by a precipitous fall in the US dollar (that ended last night) and signs China is easing restrictions despite pretending otherwise.

The NSW floods have not gone unnoticed. By rights insurers should benefit from higher rates but yesterday they fell, helping financials down -1.0%, while ag company Elders ((ELD)) reported solid earnings but warned of the winter crop being flood-impacted.

The CEO also announced he will be retiring which contributed to the stock's -22.9% plunge. Yeah, thanks for the gold watch.

Hence consumer staples fell -1.6% to leave every sector in the red by the close other than resources.

Guess what? Every index top five winner was a miner. Elders topped the losers, while Perpetual ((PPT)) dropped -5.8% as it heads back to court to sort out the complex menage-a-trois of a corporate battle.

Wall Street took heed of Waller’s statement but there was other, conflicting, Fedspeak to absorb last night. Indeed there are no less than ten Fed officials getting their 15 minutes of fame this week.

In the meantime, Wall Street has taken a breather after last week’s big surge, accelerating losses to the close.

Technically Speaking

“I think it will probably be appropriate soon to choose a slower pace of increases. We’ve done a lot.”

So said Fed vice chair Lael Brainard last night, following on from Waller’s assessment. But we can consider (a) this is not the first time she’s said exactly that, (b) she’s only talking about the pace, not the end-rate, which she has said could be 5% and (c), we can debate till we’re blue in the face all the way to mid-December but Wall Street was expecting a drop to a 50 point rate going into the CPI print, and still does coming out of it.

Even Powell has previously hinted the pace can come down, if not the terminal rate target.

Yet there are ten Fedheads set to put in their two bobs’ worth this week so no doubt there’ll be much discussion. That said, Wall Street closed lower last night and US bond yields higher in the wake of Waller’s remarks. No huge surprise after last week’s surge.

From the technical perspective, the S&P500 is running into a wall at the 4000 level. It crossed 4000 on Friday night before falling back, and tried again last night before ultimately failing. On that basis, selling accelerated into the close.

It appears something beyond just endless Fed rhetoric will be required to push Wall Street forward into a true Santa rally.

News last night is that Amazon plans to lay-off -10,000 corporate and technology employees. Merry Christmas.

Typically at this time Amazon employs around 50,000 seasonal drones to work in the distribution centres, so maybe the corporate-types have one temporary option?

It’s the biggest lay-off in Amazon’s history, albeit represents only -1% of its global workforce and -3% of corporate. But it follows Meta’s lay-off of -13% of its workforce and Musk firing half of all Twitter staff. The tech sector lay-off and hiring-freeze announcements keep coming, and I’m guessing these guys all have fairly similar skills.

Wall Street is never quite sure whether lay-offs are bad news (implying recession) or good news (the Fed wants to see higher unemployment).

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1772.90	+ 1.60	0.09%
Silver (oz)	22.02	+ 0.32	1.47%
Copper (lb)	3.78	– 0.00	– 0.01%
Aluminium (lb)	1.20	– 0.02	– 1.36%
Lead (lb)	0.98	+ 0.02	2.00%
Nickel (lb)	11.96	+ 0.17	1.47%
Zinc (lb)	1.36	+ 0.01	0.45%
West Texas Crude	85.35	– 3.61	– 4.06%
Brent Crude	92.66	– 3.33	– 3.47%
Iron Ore (t)	92.09	+ 1.30	1.43%

Despite last week’s nervous excitement about possible Chinese covid policy easing, cases climbed over the weekend, with Beijing and other big cities reporting record infections on Monday.

OPEC also cut its global demand forecast, again. And the US dollar finally bounced, by 0.4%. All adds up to a sizeable retreat in oil prices last night, following last week’s gains, and mixed moves in metals.

It has upset the US that Quad partner India has continued to purchase oil from Russia to fuel its economic growth, but last night Treasury Secretary Janet Yellen said India can continue buying as much Russian oil as it wants, including at prices above a G7-imposed price cap mechanism, if it steers clear of Western insurance, finance and maritime services bound by the cap.

On December 5 the G7 will impose a price-cap on Russian oil exports, and new sanctions will prohibit any insuring, financing or transporting Russian oil. Yellen could have told India “You can buy all you want but good luck trying to get it”.

No one really knows how this will all play out, and how it will impact on oil demand/supply and pricing.

The Aussie is off -0.1% at US$0.6713.

Today

The SPI Overnight closed down -37 points or -0.5%.

The minutes of the November RBA meeting are out today.

China will release October retail sales, industrial production and fixed asset investment numbers.

The US will see the October PPI tonight. Wouldn’t want it to be higher.

Incitec Pivot ((IPL)), United Malt ((UMG)) and Jervois Mining ((JRV)) report earnings today.

AGL Energy’s ((AGL)) AGM today should be fun. Allkem ((AKE)) also holds its AGM, among others.

National Bank ((NAB)) goes ex-dividend.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ABP	Abacus Property	Downgrade to Neutral from Outperform	Macquarie
ALL	Aristocrat Leisure	Downgrade to Neutral from Outperform	Credit Suisse
CIP	Centuria Industrial REIT	Downgrade to Neutral from Outperform	Macquarie
CSL	CSL	Upgrade to Outperform from Neutral	Credit Suisse
DXI	Dexus Industria REIT	Upgrade to Outperform from Neutral	Macquarie
EVN	Evolution Mining	Upgrade to Overweight from Equal-weight	Morgan Stanley
IVC	InvoCare	Upgrade to Neutral from Underperform	Macquarie
LLC	Lendlease Group	Downgrade to Neutral from Outperform	Macquarie
NAB	National Australia Bank	Downgrade to Neutral from Buy	Citi
		Downgrade to Neutral from Outperform	Macquarie
NSR	National Storage REIT	Downgrade to Underperform from Neutral	Macquarie
NST	Northern Star Resources	Downgrade to Equal-weight from Overweight	Morgan Stanley
NUF	Nufarm	Upgrade to Outperform from Neutral	Credit Suisse
ORG	Origin Energy	Upgrade to Buy from Hold	Ord Minnett
RHC	Ramsay Health Care	Upgrade to Buy from Accumulate	Ord Minnett
		Downgrade to Neutral from Buy	Citi
SCG	Scentre Group	Downgrade to Underperform from Neutral	Macquarie
WHC	Whitehaven Coal	Upgrade to Neutral from Sell	Citi

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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