The Overnight Report: Don’t Mention The R-Word

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World Overnight
SPI Overnight	7351.00	– 15.00	– 0.20%
S&P ASX 200	7354.40	+ 70.20	0.96%
S&P500	4076.57	– 3.54	– 0.09%
Nasdaq Comp	11482.45	+ 14.45	0.13%
DJIA	34395.01	– 194.76	– 0.56%
S&P500 VIX	19.84	– 0.74	– 3.60%
US 10-year yield	3.53	– 0.17	– 4.70%
USD Index	104.80	– 1.06	– 1.00%
FTSE100	7558.49	– 14.56	– 0.19%
DAX30	14490.30	+ 93.26	0.65%

By Greg Peel

Find Rudolph

The ASX200 shot up 90 points in the first hour yesterday before settling to a close of up 70. Unlucky if you wanted to get on. The index is now at a level last seen in May.

It was all about Jerome Powell firing up Wall Street with as good as confirmation this month’s Fed hike would only be 50 points, even though that’s been the expectation for weeks.

Having risen on Wednesday, Aussie bond yields fell back yesterday, with the ten-year dropping -5 points to 3.48%. Hang on to your hats today, US yields have crashed overnight.

Lower yields were good for utilities (+1.2%), real estate (+1.1%) and discretionary (+1.0%) and not bad for the banks (+0.7%). But while lower rates suggest less loan default risk, the banks must also now be thinking their own rate hike bonanza has probably run its course.

Now they’ll have to start competing on deposits.

The big winner on the day was materials (+2.7%), on a double-whammy of China and the US. China’s moves to step up vaccinations and to provide property market stimulus is good for commodities, while a big fall in the US dollar thanks to Powell helped prices.

The same can be said for oil, but yesterday that sector got a “Stop, you’re going the wrong way” sign in falling -0.8%.

The problem is Woodside Energy ((WDS)), which on Wednesday issued updated production guidance that fell well short of consensus forecasts, due to project delays, and also increased capex guidance to above consensus. The stock fell -1.7% yesterday.

Rival Santos ((STO)) will learn this morning if the court will overturn a halt on its Barossa gas project which was based on environmental concerns. Bad for the grapes it seems. Oh, I see Barossa is actually offshore from Darwin near the Tiwi islands.

Healthcare also bucked the trend yesterday (-0.4%) after Cochlear ((COH)) lost -0.5%. The ACCC has questioned the company’s proposed acquisition of Octicon Medical, we hear.

HMC Capital ((HMC)) was the standout loser on the ASX200 in falling -7.3%, following a capital raising via options issue.

Domino’s Pizza ((DMP)) is in a trading halt ahead of its own capital raising to fund more mozzarella.

Or is it bratwurst?

A funny thing happened on Wall Street last night. The PCE inflation number came in below expectation and Wall Street could not get the least bit excited.

Is this the next peak? No point in finding Rudolph if it is.

On Balance

The US personal consumption & expenditure rate in inflation rose 0.3% in October, to be up 6.0% year on year compared to 6.2% in September. The Fed’s preferred inflation measure, the core PCE, rose a lower than forecast 0.2% to be up 5.0%, down from 5.2%.

In the current climate it would be obvious the S&P500 would surge on the news, but it didn’t. It rose modestly then fell back.

The PCE data merely corroborated the CPI data released last month, which sparked the initial inflation-relief surge. Did the market need to go higher still?

Not when the day’s manufacturing data are taken into consideration. The US manufacturing PMI for November fell to 49.0 from 50.2 in October, confirming contraction. Within the components, prices paid fell to 43.0 – contracting fast – while employment also fell into contraction at 48.4.

This should be great news, as this is exactly what the Fed is trying to force – lower demand and an easing of labour market tightness. It means the Fed is justified in easing the pace of hikes this month.

But it is also evidence of what most are expecting – taming inflation will send the US economy into recession.

The US ten-year yield plunged -17 points to 3.53 and the two-year -12 points to 4.25%.

This should be good news for the Nasdaq, and it was, but only to the tune of 0.1%, bearing in mind the Nasdaq gained 3.7% on Wednesday night.

The Dow, where manufacturing lives, fell -0.6%. The S&P500 split the difference in being down slightly – unable to break up through the 2022 downtrend line.

Is this the next peak? The S&P snapback rally similarly fizzled out in August when it reached the 200-day moving average, before Jerome Powell delivered his infamous Jackson Hole rant.

There are very few economists out there who do not believe the US will see a recession next year. The Fed has all but admitted if it has to happen, it has to happen. The hope is the recession will be only short and shallow, but not all are convinced.

Relief on interest rates might be good news for the stock market, but lower earnings growth or earnings contraction, due to recession, is not.

Which will make tonight’s November jobs numbers interesting. A couple of months ago, a lower than expected number would have been great news. Now, well maybe not so great. Forecasts are for 200,000, down from 261,000 in October.

The crunch in yields suggests the bond market has now moved into recession expectation mode. Seasonally, the stock market should be gearing up for a Santa rally right now, heading into December. It doesn’t happen every year though.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1801.80	+ 32.10	1.81%
Silver (oz)	22.73	+ 0.56	2.53%
Copper (lb)	3.74	+ 0.05	1.28%
Aluminium (lb)	1.22	+ 0.01	1.18%
Lead (lb)	0.98	+ 0.02	1.65%
Nickel (lb)	12.26	+ 0.12	1.02%
Zinc (lb)	1.38	+ 0.04	3.22%
West Texas Crude	81.36	+ 0.68	0.84%
Brent Crude	86.98	+ 1.55	1.81%
Iron Ore (t)	93.25	0.00	0.00%

For Australia, the big news is that gold has shot up US$32/oz but the Aussie is only up 0.2%. Yesterday gold stock gains were a big part of the material sector’s winning session, with gold up US$20/oz but the Aussie up 1.7%.

So on an AUD gold price basis, gold stocks should rip today.

And metal prices are all up again as well.

And oil.

(Note the front month iron ore futures contract expired last night and info services are yet to update for the new month.)

The Aussie is at US$0.6814.

Today

The SPI Overnight closed down -15 points.

We’ll see October housing finance data today.

Jobs night in the US.

OPEC-Plus is expected to cut production quotas when it meets on Sunday night.

Premier Investments ((PMV)) holds its AGM today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
BOQ	Bank of Queensland	Downgrade to Neutral from Outperform	Credit Suisse
CCX	City Chic Collective	Downgrade to Equal-weight from Overweight	Morgan Stanley
DMP	Domino's Pizza Enterprises	Downgrade to Underperform from Neutral	Macquarie
FMG	Fortescue Metals	Downgrade to Sell from Neutral	Citi
NHC	New Hope	Upgrade to Neutral from Sell	Citi

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

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