Daily Market Reports | Dec 13 2022
This story features ORIGIN ENERGY LIMITED, and other companies. For more info SHARE ANALYSIS: ORG
| World Overnight | |||
| SPI Overnight | 7233.00 | + 49.00 | 0.68% |
| S&P ASX 200 | 7180.80 | – 32.40 | – 0.45% |
| S&P500 | 3990.56 | + 56.18 | 1.43% |
| Nasdaq Comp | 11143.74 | + 139.12 | 1.26% |
| DJIA | 34005.04 | + 528.58 | 1.58% |
| S&P500 VIX | 25.00 | + 2.17 | 9.51% |
| US 10-year yield | 3.61 | + 0.04 | 1.23% |
| USD Index | 105.06 | + 0.25 | 0.24% |
| FTSE100 | 7445.97 | – 30.66 | – 0.41% |
| DAX30 | 14306.63 | – 64.09 | – 0.45% |
By Greg Peel
It’s a Gas
On a wet and windy winter’s day in summer, the ASX200 closed down -32 points, having been as low as down -57 late morning yesterday. The topic of the day’s conversation were the government’s gas and coal price caps.
We recall a Brookfield-EIG Group consortium has made a $9.00/share bid for Origin Energy ((ORG)) subsequent to due diligence, which the pair is currently undertaking. On the back of the government’s announced energy caps, Origin fell -7.8% yesterday, to some -20% below the bid price – the market assuming the buyers would now pull out.
Which would also assume they never saw this coming. Energy price caps have been on the cards for months. I’m sure the buyers have had their eyes open.
Macquarie reiterated its Outperform rating on Origin yesterday, suggesting the caps would not have a material impact on margins. Credit Suisse upgraded to Outperform last week, believing price caps would not prevent the deal going ahead.
AGL Energy ((AGL)) is expected to be less impacted by the caps and is not currently being suited. It fell -2.6% and the utilities sector fell -4.3%.
In other takeover news, Westpac ((WBC)) completed its due diligence on Tyro Payments ((TYR)) and actually did say yeah, nah. Tyro fell -19.5%.
The banks had a small win yesterday, as did real estate and technology, despite the Aussie ten-year yield gaining 9 points to 3.38%.
On the other side of the gas equation, energy rose 1.2% on the beginning of a turnaround for oil prices yesterday after falling -11% from the last high.
Energy price caps good for consumers? Well, not if us taxpayers have to fund compensation to the states. Higher bond yields typically aren’t favourable and discretionary fell -0.4% and staples -1.1%.
Here’s a tip. It’s not too early to buy the prawns – they’re frozen on the boat anyway.
Materials was the other major loser (-1.5%) in another day of up-down commodity price moves. Prices are mostly weaker again overnight, except for oil.
Wall Street has decided tonight’s going to be a good night, and our futures are up 49 points this morning.
Inflated Hopes
Even if tonight’s CPI comes in hot, it is assumed the Fed will hike by only 50 points tomorrow night. What will thus be important in the Fed release will be the quarterly “dot plots”, or individual FOMC member forecasts of where the Fed funds rate will (might) peak.
Somewhere in the range of 5.00-5.50% is the guess, and a 50 point hike will take the rate to 4.25-4.50%, suggesting anywhere from 50 to 100 more points in 2023. It will be this factor that Wall Street will respond to.
But investors weren’t mucking around last night.
The Federal Reserve Bank of New York’s Center for Microeconomic Data released its November 2022 Survey of Consumer Expectations last night. No I wasn’t aware of this survey either. But it did show a significant drop in inflation expectations in all of the one, three and five year time horizons.
Inflation expectations in November will not impact the actual November CPI, but they will provide food for thought for the Fed regarding the peak rate issue. Inflation can be self-fulfilling, leading to an upward spiral.
Which is likely one reason Wall Street took off last night. Not that it’s that unusual to rally ahead of a Fed meeting.
Notwithstanding Wall Street had suffered a five-day losing streak ahead of Friday, and was arguably due a bounce.
Speaking of bounces, WTI jumped up 3% last night. More on that below, but energy was the best performing sector on the S&P500.
A bit of M&A activity in the health sector, in an otherwise understandably weak year for corporate activity, also lifted spirits. Private equity is said to be sitting on loads of cash, and is looking for targets among the year’s near-wipeouts.
So the stage is set, and tonight brings the support act.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1780.40 | – 17.50 | – 0.97% |
| Silver (oz) | 23.28 | – 0.18 | – 0.77% |
| Copper (lb) | 3.80 | – 0.02 | – 0.65% |
| Aluminium (lb) | 1.19 | – 0.03 | – 2.16% |
| Lead (lb) | 1.00 | + 0.01 | 0.57% |
| Nickel (lb) | 13.11 | + 0.09 | 0.70% |
| Zinc (lb) | 1.48 | + 0.02 | 1.57% |
| West Texas Crude | 73.32 | + 2.30 | 3.24% |
| Brent Crude | 78.12 | + 2.02 | 2.65% |
| Iron Ore (t) | 109.47 | – 1.01 | – 0.91% |
Last Wednesday the Keystone oil pipeline connecting the US and Canada sprung a leak in Kansas. Last night it was determined fixing the leak may take longer than first assumed.
Better call in the cops.
This, and Putin’s declaration on Friday that Russia could cut production and would refuse to sell oil to any country that imposes a “stupid” price cap on Russian exports, provided the impetus for oil prices to bounce.
Otherwise, despair over how China is going to handle the growing wave of covid cases following its about-face reopening continues to keep a lid on other commodities.
The country with a 1.4bn population has all of 60,000 ICU beds.
Equity traders might have applauded the New York Fed’s survey last night but the US ten-year yield rose 4 points to 3.61% and the two-year 8 points to 4.41%, impacting on gold.
The US dollar also rose and the Aussie is down -0.6% at US$0.6749.
Today
The SPI Overnight closed up 49 points or 0.7%.
Locally the NAB business confidence survey for November is out today along with the Westpac consumer confidence survey for December.
Later, the US CPI.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| 29M | 29Metals | Downgrade to Underweight from Equal-weight | Morgan Stanley |
| AKE | Allkem | Downgrade to Underweight from Equal-weight | Morgan Stanley |
| BHP | BHP Group | Downgrade to Hold from Add | Morgans |
| DOW | Downer EDI | Downgrade to Neutral from Outperform | Macquarie |
| Downgrade to Neutral from Buy | UBS | ||
| ORG | Origin Energy | Upgrade to Outperform from Neutral | Credit Suisse |
| RIO | Rio Tinto | Downgrade to Hold from Add | 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.)
(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)
All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com
FNArena is proud about its track record and past achievements: Ten Years On
Click to view our Glossary of Financial Terms
CHARTS
For more info SHARE ANALYSIS: AGL - AGL ENERGY LIMITED
For more info SHARE ANALYSIS: ORG - ORIGIN ENERGY LIMITED
For more info SHARE ANALYSIS: TYR - TYRO PAYMENTS LIMITED
For more info SHARE ANALYSIS: WBC - WESTPAC BANKING CORPORATION