The Overnight Report: Off The Rails

Daily Market Reports | Nov 22 2022

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

World Overnight
SPI Overnight 7180.00 + 32.00 0.45%
S&P ASX 200 7139.30 – 12.50 – 0.17%
S&P500 3949.94 – 15.40 – 0.39%
Nasdaq Comp 11024.51 – 121.55 – 1.09%
DJIA 33700.28 – 45.41 – 0.13%
S&P500 VIX 22.36 – 0.76 – 3.29%
US 10-year yield 3.83 + 0.01 0.18%
USD Index 107.84 + 0.91 0.85%
FTSE100 7376.85 – 8.67 – 0.12%
DAX30 14379.93 – 51.93 – 0.36%

By Greg Peel

Death in China

On a comeback close for Wall Street on Friday night, the ASX200 jumped over 20 points from the open yesterday, but thereafter no one was interested. The index sank quietly all day to a lacklustre close.

News over the weekend was that Chinese covid cases had increased sevenfold in just two weeks and that three deaths had been reported – the first in six months. The manufacturing city of Guangzhou has been locked down and Shijiazhuang is under stay-at-home orders.

Going well, this zero-covid policy.

The materials sector subsequently closed down -1.5% and energy -0.9% to provide the greatest drag.

Utilities bucked the trend (+1.8%) to be the best performing sector by percentage. AGL Energy ((AGL)) led the index yesterday with a 4.2% gain. There was no particular news, but one assumes the bid for Origin Energy ((ORG)), leaving AGL at the altar, and the new-look AGL board, all add up to a possible bid for AGL from elsewhere.

Technology was down -1.5%, led by a -4.3% fall in Block ((SQ2)) after the government revealed it is considering applying credit card company regulations to BNPL.

Like that was never coming.

The banks provided the main counter to resources (+0.5%), with some help from staples (+0.9%) and healthcare (+0.5%).

There is little point in me needlessly waffling on any further. It was a quiet day, and this week will likely bring more of the same with Wall Street not much interested.

That said, I note the S&P500 has closed down -0.4% and metal prices tanked overnight on China woes, yet our futures are up 32 points this morning.

Seems ambitious. And you’ll need to find some willing players.

Not Much Difference

Wall Street wasn’t exactly lit with excitement last night either.

Fresh restrictions in China also weighed but in a nod to the seventies and wage-price spirals, one of the two largest US railway unions rejected a White House-brokered labour agreement, raising the possibility of a potential strike by early December, which would suggest further supply-chain issues that would continue to drive inflation.

The good news for Christmas shoppers is that retailers will already be well and truly stocked and ready to go, with this week’s Thanksgiving sales the kick-off, so there should be no impact on supply were there to be a rail strike.

The bad news is that if a deal is not reached, a strike could cost the US economy -US$2bn a day.

Who’s next? The teamsters?

If we really are going to get a seventies Christmas this year, then in Australia we should be expecting strikes from postal workers, airport baggage handlers and brewery workers. Ah those were the days.

The Cleveland Fed president and FOMC voting member Loretta Mester appeared on CNBC last night and all but confirmed the Fed will only go 50 next month, while emphasising that was only her personal opinion. When pushed as to whether a slowing in pace would then lead to 25 point hikes in 2023, Mester refused to be drawn other than to insist the latest data would inform that decision.

The minutes of the November Fed meeting will be released tomorrow night.

There was absolutely no response from Wall Street to Mester’s musings. The market locked in 50 points long ago.

The mood was nonetheless dour on Wall Street last night and the indices slipped towards the close.

The Dow was supported by a 6% gain for Disney, after it was announced the current CEO would be replaced by a new CEO who was actually the previous CEO.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1737.80 – 13.30 – 0.76%
Silver (oz) 20.81 – 0.14 – 0.67%
Copper (lb) 3.58 – 0.10 – 2.80%
Aluminium (lb) 1.17 – 0.02 – 1.77%
Lead (lb) 0.96 – 0.04 – 3.73%
Nickel (lb) 10.93 – 0.26 – 2.36%
Zinc (lb) 1.32 – 0.05 – 3.34%
West Texas Crude 79.73 – 0.35 – 0.44%
Brent Crude 87.18 – 0.44 – 0.50%
Iron Ore (t) 91.54 – 1.35 – 1.45%

The WSJ reported last night that OPEC was prepared to increase production in order to help ease tensions with the Biden administration and provide a cushion as new efforts aimed at curbing Russia’s energy industry kick in on December 6.

Oil prices fell -6%.

The Saudi energy minister then responded with, and I paraphrase, don’t be bloody ridiculous. If anything we will cut production to maintain a stable demand/supply balance.

Oil prices bounced 6%.

Falls in metal prices were all about China but also a resurgent US dollar, which jumped 0.9% overnight. This is mainly due to renewed weakness in the euro, which is 57% of the trade-weighted dollar index.

The Aussie is thus down -0.9% at US$0.6603. Here we go again.

Today

The SPI Overnight closed up 32 points or 0.5%.

The RBA governor will speak today. He’s been in hiding since the release of the RBA’s own review which decided the “no hike before 2024” call was a complete [insert word here]-up.

The US will see house prices.

TechnologyOne ((TNE)) will report earnings, while today’s long list of AGMs includes those of BlueScope Steel ((BSL)), Fortescue Metals ((FMG)) and Star Entertainment ((SGR)).

Amcor ((AMC)) goes ex (quarterly dividend).

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ABP Abacus Property Upgrade to Accumulate from Hold Ord Minnett
ABY Adore Beauty Downgrade to Neutral from Buy UBS
AKE Allkem Upgrade to Add from Hold Morgans
AWC Alumina Ltd Downgrade to Hold from Buy Ord Minnett
BWP BWP Trust Downgrade to Lighten from Hold Ord Minnett
GNC GrainCorp Upgrade to Buy from Neutral UBS
HLS Healius Downgrade to Lighten from Hold Ord Minnett
HMC Home Consortium Downgrade to Hold from Buy Ord Minnett
LOV Lovisa Holdings Upgrade to Buy from Neutral UBS
NAN Nanosonics Downgrade to Hold from Add Morgans
NHF nib Holdings Upgrade to Accumulate from Lighten Ord Minnett
NSR National Storage REIT Downgrade to Hold from Buy Ord Minnett
NUF Nufarm Upgrade to Accumulate from Hold Ord Minnett
PPT Perpetual Downgrade to Neutral from Outperform Credit Suisse
RRL Regis Resources Upgrade to Neutral from Sell Citi
S32 South32 Downgrade to Neutral from Outperform Macquarie
SFR Sandfire Resources Downgrade to Neutral from Buy Citi
Downgrade to Sell from Hold 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.)

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CHARTS

AGL AMC BSL FMG ORG SGR SQ2 TNE

For more info SHARE ANALYSIS: AGL - AGL ENERGY LIMITED

For more info SHARE ANALYSIS: AMC - AMCOR PLC

For more info SHARE ANALYSIS: BSL - BLUESCOPE STEEL LIMITED

For more info SHARE ANALYSIS: FMG - FORTESCUE METALS GROUP LIMITED

For more info SHARE ANALYSIS: ORG - ORIGIN ENERGY LIMITED

For more info SHARE ANALYSIS: SGR - STAR ENTERTAINMENT GROUP LIMITED

For more info SHARE ANALYSIS: SQ2 - BLOCK INC

For more info SHARE ANALYSIS: TNE - TECHNOLOGY ONE LIMITED