The Overnight Report: Cool

This story features BENDIGO & ADELAIDE BANK LIMITED, and other companies. For more info SHARE ANALYSIS: BEN

By Greg Peel

Bank On It

After a strong session on Wall Street on Monday night, our futures were up 49 points yesterday morning. After a stumbling start this came to pass, with the ASX200 surging through resistance at 7200 to be up 48 around 11am.

The index then drifted down to the close. At the end of the day, we could pretty much put the 22 points rally (0.3% to the S&P500’s 1.4% overnight) down to just one stock.

Bendigo & Adelaide Bank ((BEN)) doesn’t count as a “major”, but yesterday a trading update revealing a 22% year on year earnings increase, on the back of a rising net interest margin, set the whole sector alight. The stock rose 6.9% and the bank sector rose 1.4%.

Rising margins are, of course, courtesy of RBA rate hikes passed through to loans in full but not to deposits.

The rally in the banks was largely offset by falls in miners on lower commodity prices, as well as UBS downgrading BHP Group ((BHP)) and friends, sending materials down -1.4%.

Iron ore miners Fortescue Metals ((FMG)), Champion Iron ((CIA)) and Mineral Resources ((MIN)) all made the top five index losers.

Materials was the only sector to close in the red, hence gains in the likes of technology (+1.7%), industrials (+1.6%) and utilities (+1.0%) ensured a positive close. Energy failed to pop (+0.2%) on the oil price bounce because it had already done so on Monday.

Bendalaide topped the index winners list, followed by the ever-rising Megaport ((MP1)), which has spent the week putting together a Phoenix-like 16% gain.

So take out Bendalaide and the index likely would not have closed the session above 7200, and at 7203 it’s pretty tenuous anyway. Following the news the world wanted to hear overnight, our futures are up 16 points this morning.

Which is not that convincing.

In encouraging pre-Christmas news for retailers, Westpac’s consumer confidence index has come off its low to rally 3% this month to 80.3, thanks to the RBA beginning to ease off the pedal.

Mind you, 80 is still way pessimistic on a 100-neutral scale, and if retailers sold all their Christmas inventory at a discount on Black Friday, bad luck.

If it is a bumper Christmas, enjoy it while it lasts. According to NAB business confidence survey for November, the gap between business conditions (now) and business confidence (next year) has never been greater, other than at the beginning of the pandemic. The former index is at +20 and the latter at -4.

Yeah We Knew That

The US headline CPI plunged to 7.1% in November from 7.7% in October, when forecasts were for 7.3%. The core rate came in at 6.0% when 6.1% was forecast.

The Dow jumped 700 points.

With under an hour to go, it was back to flat. Why? Let me count the ways:

The Dow was up 500 points on Monday night in anticipation. The Fed is going to hike by 50 points tonight anyway. The S&P500 yet again rallied to the 2022 downtrend line and could not penetrate. And, inflation is still on the rise.

Forecasts were for a month on month headline increase of 0.3%, and core of 0.3%, and they came in at 0.1% and 0.2%. Gasoline prices, used cars, airfares were among the lower prices, but food and shelter (rent) continue to creep up, not to mention wages.

The annual rate of inflation is easing from its level one year ago, but it’s still at 7.1%. Not until the month on month numbers actually turn negative will the Fed feel its policy is gaining traction.

Tonight the Fed will publish its quarterly dot plots, and Wall Street will be watching specifically for the average terminal (peak) rate prediction. The market is pricing in 5%.

When it’s all said and done, Wall Street has shifted attention away from today to look ahead to next year, when a recession is expected. Inflation was the 2022 story, in 2023 it will be economic growth, or lack thereof.

What we’re in is still just a bear market rally, most believe.

US bond yields nevertheless tumbled, although recovered somewhat towards the close. The ten-year is down -11 points at 3.50% and the two-year -17 to 4.23%, slightly un-steepening the steep yield curve inversion.

The US dollar index fell -1%. These falls did ultimately allow Wall Street to put in a healthy gain on the day. At 4019, the S&P is poised at that trend line.

Commodities

The US dollar down, US bond yields down, commodity prices up. Except for iron ore.

And for nickel, but that metal is currently un-tradable on the LME and should be ignored.

Great news for Aussie gold miners with gold rising US$30/oz, except that the Aussie is up 1.6% at US$0.6860.

Today

The SPI Overnight closed up points or 0.2%.

Fed statement, dot plots and press conference tonight.

Westpac ((WBC)), Orica ((ORI)) and Magellan Financial ((MFG)) hold AGMs today.

The Australian share market over the past thirty days…

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