The Overnight Report: Within Minutes

Daily Market Reports | Nov 24 2022

This story features QANTAS AIRWAYS LIMITED, and other companies. For more info SHARE ANALYSIS: QAN

World Overnight
SPI Overnight 7259.00 + 10.00 0.14%
S&P ASX 200 7231.80 + 50.50 0.70%
S&P500 4027.26 + 23.68 0.59%
Nasdaq Comp 11285.32 + 110.91 0.99%
DJIA 34194.06 + 95.96 0.28%
S&P500 VIX 20.35 – 0.94 – 4.42%
US 10-year yield 3.71 – 0.05 – 1.38%
USD Index 106.08 – 1.15 – 1.07%
FTSE100 7465.24 + 12.40 0.17%
DAX30 14427.59 + 5.24 0.04%

By Greg Peel

Break on Through

The ASX200 had no trouble conquering 7200 yesterday, smashing through from the open and then settling into an otherwise dull session. It was an opening step-up, and that was that, other than a little bit of fade in the afternoon.

Leading the charge was once again cooperation between resources, with energy up 1.3% and materials 1.0%, and the banks, up 0.7%.

Industrials chimed in with a 1.3% gain, after Qantas Airways ((QAN)) jumped 5.3% on yet another guidance upgrade, proving that the easiest way to make money is to bend your passengers over and roger them senseless.

Utilities actually clocked the highest percentage gain (+1.6%). It seems the two big energy providers are still riding a corporate action wave.

Technology went the other way and dropped -1.1% after WiseTech Global ((WTC)) fell -6.7%. Investors were clearly not impressed with the AGM update.

Real estate also bucked the trend -0.3%. There was little to no movement in bond yields but Growthpoint Properties ((GOZ)) did fall -4.6%, for reasons unclear.

Star Entertainment ((SGR)) dropped on its AGM on Tuesday but posted a larger -5.6% drop yesterday. Macquarie downgraded to stock to Neutral, warning potential regulatory change (cashless gambling) may be more disruptive than first thought.

Bummer.

Star held consumer discretionary back to a 0.5% gain, and the defensives all had similar sessions – staples up 0.7%, communication services 0.5% and healthcare 0.4%.

Breaking up through 7200 is a strong technical signal and Wall Street is up again overnight, although our futures are up only 5 points this morning – likely not getting too excited ahead of Wall Street being closed tonight.

We also saw oil prices particularly weak overnight.

Otherwise, it’s beginning to look like someone might be packing a sleigh.

Whoa There

The minutes of the October Fed meeting released last night revealed a “significant majority” of FOMC members believes it would “soon be appropriate” to slow the pace of rate hikes as recession threat looms.

For the first time, the minutes actually acknowledged the threat of a recession.

Several members said there was an increasing risk that the Fed’s actions “would exceed what was required” to bring inflation down to acceptable levels. There is disagreement about just what the peak rate should end up being before the Fed pauses sometime next year.

Bear in mind the promising October CPI report was released after the Fed meeting.

So, Wall Street is excited. At least, the half dozen people actually at work last night were.

Stock indices closed higher, although faded a bit at the close ahead of tonight’s holiday. The US ten-year bond yield fell -5 points to 3.71% and the US dollar index plunged -1.1%.

Lock in 50 points next month. Except 50 points was already locked in. The focus has now shifted out to 2023, and the question of whether the first hike of the year will be 25, and how many more 25s after that?

A “significant majority” of members want to slow down – now. “Several” are concerned about going too far – next year. Even before the December meeting there’ll be data out for the October PCE, November jobs and the November CPI. As far as 2023 is looking, the FOMC will be, as it has always maintained, data-dependent.

Last night’s data releases showed durable goods orders rose 1.0% in October when 0.5% was forecast. Ex of lumpy transportation, orders still rose 0.5%. But the trend is not expected to last.

Flash estimates of November PMIs showed manufacturing falling into contraction at 47.6, down from 50.7 in October, and services dropping to 46.1 from 47.8. In the post-lockdown economy, US consumers had been lapping up services such as travel, entertainment and dining, which appears now to be running its course. Although a big part of services is healthcare.

The final Michigan Uni consumer confidence survey for November showed an increase to 56.8 from 54.7 two weeks ago, suggesting consumers are fans of a deadlocked Congress as well. But that’s down from 59.9 in October, and given is this is 100-neutral index, still way into pessimistic territory.

I reckon Americans are going to go all-out for this year’s Thanksgiving and Christmas after two years of muted celebration and minimal family gathering, like some sort of death row meal, and then batten down the hatches in 2023.

Research has revealed the standard Thanksgiving meal of turkey and all the trimmings will cost 20% more this year than last.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1752.00 + 13.40 0.77%
Silver (oz) 21.54 + 0.48 2.28%
Copper (lb) 3.61 – 0.01 – 0.40%
Aluminium (lb) 1.18 – 0.01 – 0.42%
Lead (lb) 0.95 – 0.00 – 0.15%
Nickel (lb) 11.62 + 0.33 2.95%
Zinc (lb) 1.32 – 0.00 – 0.34%
West Texas Crude 77.41 – 3.62 – 4.47%
Brent Crude 84.74 – 3.63 – 4.11%
Iron Ore (t) 91.94 + 0.49 0.54%

There is much confusion around the EU/G7 oil price cap on Russian exports due to come into force on December 5. Last night it was suggested the cap price will be US$65-70/bbl.

The point of the cap is to reduce Russia’s war funding capacity. But currently Russia is selling its oil at US$60/bbl – well above its cost of production — so what’s the point?

The point is the cap applies not to EU/G7 countries, it applies to other countries, such as China and India, who are buying Russian oil.

The EU/G7 will from December 5 ban Russian imports altogether. If you’re wondering why China et al don’t just give Europe the finger, Europe controls some 95% of global maritime services – shipping and insurance – and those services will be sanctioned. In other words unless you comply, you can buy it, but you can’t get it.

Confusion had oil prices down last night, as US$65-70/bbl seemed pointless.

Coincidence? Russia is threatening to reduce Europe’s gas supply through the pipeline that runs via Ukraine from next week, accusing Ukraine of syphoning off gas meant for Moldova. Temperatures in Europe have begun to fall.

Maybe Ukraine is taking some gas, in an agreement with Moldova, given Russia continues to destroy its energy infrastructure. No one believes anything out of Moscow.

Gas prices in Europe are on the rise again, nonetheless. US domestic gas prices also shot up 8% last night as the weather bureau warned of cold ahead.

Otherwise, the big drop in the US dollar did not provide any boost to commodity prices last night. China has moved to increase movement restrictions in Beijing and Shanghai.

The Aussie is up 1.3% at US$0.6734.

Today

The SPI Overnight closed up 5 points.

There is another sizeable list of companies holding AGMs today.

Strike Energy ((STX)) reports earnings and New Hope Corp ((NHC)) provides a quarterly.

ALS Ltd ((ALQ)) and Nufarm ((NUF)) go ex.

Wall Street is closed tonight.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ABY Adore Beauty Downgrade to Neutral from Buy UBS
HLS Healius Downgrade to Lighten from Hold Ord Minnett
LOV Lovisa Holdings Upgrade to Buy from Neutral UBS
MND Monadelphous Group Downgrade to Hold from Accumulate Ord Minnett
NAN Nanosonics Upgrade to Add from Hold Morgans
Downgrade to Hold from Add Morgans
NHF nib Holdings Upgrade to Accumulate from Lighten Ord Minnett
PME Pro Medicus Downgrade to Hold from Add Morgans
SFR Sandfire Resources Downgrade to Neutral from Buy Citi
Downgrade to Sell from Hold Ord Minnett
SGR Star Entertainment Downgrade to Neutral from Outperform Macquarie
TNE TechnologyOne Downgrade to Hold from Add Morgans

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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CHARTS

ALQ GOZ NHC NUF QAN SGR STX WTC

For more info SHARE ANALYSIS: ALQ - ALS LIMITED

For more info SHARE ANALYSIS: GOZ - GROWTHPOINT PROPERTIES AUSTRALIA

For more info SHARE ANALYSIS: NHC - NEW HOPE CORPORATION LIMITED

For more info SHARE ANALYSIS: NUF - NUFARM LIMITED

For more info SHARE ANALYSIS: QAN - QANTAS AIRWAYS LIMITED

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

For more info SHARE ANALYSIS: STX - STRIKE ENERGY LIMITED

For more info SHARE ANALYSIS: WTC - WISETECH GLOBAL LIMITED