The Overnight Report: Break Up?

This story features CORONADO GLOBAL RESOURCES INC, and other companies. For more info SHARE ANALYSIS: CRN

World Overnight
SPI Overnight	7426.00	+ 25.00	0.34%
S&P ASX 200	7457.30	+ 5.10	0.07%
S&P500	4019.81	+ 47.20	1.19%
Nasdaq Comp	11364.41	+ 223.98	2.01%
DJIA	33629.56	+ 254.07	0.76%
S&P500 VIX	19.81	– 0.04	– 0.20%
US 10-year yield	3.53	+ 0.04	1.18%
USD Index	102.11	+ 0.10	0.10%
FTSE100	7784.67	+ 14.08	0.18%
DAX30	15102.95	+ 69.39	0.46%

By Greg Peel

January Joy

Yes hello, happy New Year, hope you all had a nice holiday break. Clearly not everyone’s been on the beach the whole time – the ASX200 is up 5% since Christmas, on a combination of a 4% rally for Wall Street and China’s reopening.

The ASX200 is now a mere -2.2% from its April 2022 (all-time) high.

Not much to say about yesterday, however. A 20 point spike in the morning for the index, on Wall Street strength, became an almost -20 point drop an hour later, before the market settled in for an otherwise dull session.

In a shortened week, with a cheeky long weekend on offer, a CPI result due tomorrow and RBA meeting next week (and Fed meeting too), and China closed for the week, a bit of a stall after such a strong month is hardly surprising.

Technology led the sectors yesterday (+1.3%), as the Nasdaq continues to rediscover its mojo after 2022’s shocker, while energy rose 0.9% on higher oil prices. Utilities were the only real drag (-0.5%) but among the bigger sectors, there was little to report.

On the subject of oil prices, there is a fear China’s reopening will lead to a renewed demand-push that threatens a return to the higher prices seen last year, and hence a further underpinning of headline inflation and cost of living pressures. Last I looked, China was buying its oil from Russia, which seems to have plenty to sell, so the impact on Brent prices may not be so severe.

But inflation is clearly in the spotlight, and UBS had a bit to say on the subject yesterday.

Firstly, food prices at the supermarket rose an average 9.2% in the December quarter, following 8.2% in the September quarter. While the war kicked off steep food inflation last year, everywhere you look across the globe at present it seems there are drought or floods or heatwaves, as well as locally. So food prices are not something monetary policy can control.

The RBA focuses on core inflation anyway (ex food & energy). We left 2022 feeling the RBA might have paused its rate hike cycle as early as December, but it didn’t. It paused in January, by not having a meeting, and next week will decide its next move. While a stubbornly tight labour market has consensus expecting more than one more rate hike in 2023, UBS is forecasting one and done.

UBS has cut its quarter-on-quarter headline CPI forecast to 1.7% from a prior 2.0%, taking its annual rate to 7.6%, up from 7.3% but below the RBA’s year-end forecast of 8.0%. UBS expects the RBA to lower its inflation peak forecast in next month’s Statement on Monetary Policy.

Anyway, the starting point is tomorrow’s CPI release.

State of Confusion

Since the beginning of December, the range for the S&P500 has been one of tenuous support above 3800 and a brick wall of resistance at 4000, with traders cutting off its head each time if deigned to exceed this level. The index hit 3999 on January 13 and was back at 3900 by January 19.

Last night the S&P closed at 4019 – not yet convincing, given the high of the day was 4039 (when the Dow was up over 400), but an apparent break-up through the downtrend beginning a year ago.

The Fed meeting is not until next week, but Wall Street is building in some risk. It is not quite clear, however, whether Wall Street is cheering on a recession, or believes a soft landing actually is achievable. Last night’s data showed a -1.0% fall in US leading economic indicators, when Wall Street had forecast -0.7%.

Throw in the steeply inverted yield curve, and the signals are all flashing red. But Wall Street believes the Fed will thus be forced to pause its rate hikes, as recession becomes apparent, or will go too far and have to start cutting in the second half.

It will, of course, come down to inflation, and Wall Street has been buoyed by a drop in the headline CPI into the sixes from the nines. But with wage price inflation continuing to run above average in a tight US labour market, it is believed the next three percentage points of disinflation required to get down to the threes will take a lot longer than the first three percentage points.

China’s reopening, as noted, may also prove a drag on disinflation.

Yet there is also a camp suggesting the odds of a US recession are actually low, or at least below 50%, and more than one survey has shown a reduction in recession expectations over the past few months. Wage growth is solid, and the consumer is proving resilient. As to whether consumers will prove resilient in 2023 is another matter. Card companies are reporting an increase in credit card use.

So take your pick. On Friday night we’ll see the December PCE inflation data, and then the Fed meets next week. Consensus has only a 25 point hike, after a drop to a 50 point hike in December following three 75s. It then comes down to how many more 25s may yet be forthcoming.

And, of course, the US earnings result season is just firing up, with Big Tech in the spotlight this week.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1928.80	+ 2.50	0.13%
Silver (oz)	23.34	– 0.57	– 2.38%
Copper (lb)	4.20	– 0.01	– 0.26%
Aluminium (lb)	1.29	+ 0.02	1.42%
Lead (lb)	0.96	– 0.01	– 1.02%
Nickel (lb)	12.80	+ 0.10	0.80%
Zinc (lb)	1.53	– 0.00	– 0.17%
West Texas Crude	81.54	– 0.10	– 0.12%
Brent Crude	88.01	+ 0.38	0.43%
Iron Ore (t)	122.15	– 0.01	– 0.01%

Pretty quiet with China absent.

The Aussie has nonetheless jumped 0.8% despite a slight rise in the dollar, to US$0.7025.

Today

The SPI Overnight closed up 25 points or 0.3%.

Today we’ll see the NAB business confidence survey for December.

Flash estimates of PMIs are due across the globe.

China remains closed until next week.

There are quite a few miners providing quarterly reports today, including Coronado Resources ((CRN)), Evolution Mining ((EVN)) and Sandfire Resources ((SFR)).

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ALD	Ampol	Downgrade to Neutral from Outperform	Credit Suisse
AMC	Amcor	Downgrade to Hold from Accumulate	Ord Minnett
ANZ	ANZ Bank	Upgrade to Outperform from Neutral	Macquarie
ARB	ARB Corp	Downgrade to Equal-weight from Overweight	Morgan Stanley
AWC	Alumina Ltd	Upgrade to Lighten from Sell	Ord Minnett
		Downgrade to Sell from Neutral	Citi
BOQ	Bank of Queensland	Downgrade to Underperform from Neutral	Macquarie
CBA	CommBank	Downgrade to Underperform from Neutral	Macquarie
CGF	Challenger	Downgrade to Sell from Neutral	Citi
CWP	Cedar Woods Properties	Downgrade to Hold from Add	Morgans
FPH	Fisher & Paykel Healthcare	Downgrade to Neutral from Buy	Citi
GPT	GPT Group	Upgrade to Equal-weight from Underweight	Morgan Stanley
HCW	HealthCo Healthcare & Wellness REIT	Downgrade to Neutral from Outperform	Macquarie
HVN	Harvey Norman	Downgrade to Lighten from Buy	Ord Minnett
IAG	Insurance Australia Group	Upgrade to Equal-weight from Underweight	Morgan Stanley
ILU	Iluka Resources	Downgrade to Hold from Buy	Ord Minnett
MGR	Mirvac Group	Downgrade to Neutral from Outperform	Macquarie
NAN	Nanosonics	Downgrade to Hold from Add	Morgans
		Downgrade to Lighten from Hold	Ord Minnett
RBL	Redbubble	Downgrade to Hold from Add	Morgans
S32	South32	Downgrade to Hold from Buy	Ord Minnett
SCG	Scentre Group	Upgrade to Overweight from Equal-weight	Morgan Stanley
SUN	Suncorp Group	Upgrade to Overweight from Equal-weight	Morgan Stanley
VCX	Vicinity Centres	Upgrade to Equal-weight from Underweight	Morgan Stanley
VEA	Viva Energy	Downgrade to Accumulate from Buy	Ord Minnett
WBC	Westpac	Downgrade to Underperform from Neutral	Macquarie

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