The Overnight Report: Hanging In

Daily Market Reports | Jan 25 2023

This story features GOODMAN GROUP, and other companies. For more info SHARE ANALYSIS: GMG

World Overnight
SPI Overnight 7425.00 – 12.00 – 0.16%
S&P ASX 200 7490.40 + 33.10 0.44%
S&P500 4016.95 – 2.86 – 0.07%
Nasdaq Comp 11334.27 – 30.14 – 0.27%
DJIA 33733.96 + 104.40 0.31%
S&P500 VIX 19.20 – 0.61 – 3.08%
US 10-year yield 3.47 – 0.06 – 1.59%
USD Index 101.94 – 0.17 – 0.17%
FTSE100 7757.36 – 27.31 – 0.35%
DAX30 15093.11 – 9.84 – 0.07%

By Greg Peel

Bad News!

According to NAB’s December business confidence survey, business conditions have deteriorated, with the index falling -8 points to +12. Oh woe is us. But the numbers within the numbers made the bad news good.

Labour costs are down to 2.0% quarter on quarter, compared to 2.8% qoq in November and a July peak of 4.6% qoq. Purchase costs dropped to 2.5% qoq, compared to 3.9% qoq in November and July’s 5.4% qoq peak. And retail and selling prices fell -0.5 percentage points and -0.4ppt to 2.3% qoq and 1.5% qoq respectively.

These results suggest downside risk to current inflation forecasts. Hopes may yet be dashed or boosted by today’s December quarter CPI data, but as of yesterday, the market was prepared to take the punt.

Being little changed at 11.30am when the NAB survey hit, the ASX200 shot up 40 points, coming face to face with 7500. It then became a little frightened, and slipped back to a 33 point gain on the close.

The RBA is widely expected to hike by another 25 points next week but views are split as to whether March might bring another 25bp, or a pause. Clearly the latest inflation indications are critical. Leading the sectors yesterday was real estate (+1.8%) – one of the most beaten-up sectors of 2022 on rising rates. Flagship Goodman Group ((GMG)) rose 2.5%.

Other rate-sensitive sectors joined in, with utilities up 0.9%, consumer discretionary up 0.9% and technology up 1.3%. Technology clearly followed the Nasdaq as well; BNPL player Block ((SQ2)) gained 5.7%.

Which ties in to discretionary. Breville Group ((BRG)) provided a trading update and revealed a new major shareholder and jumped 7.5% to top the index. Speaking of trading updates, metal detector-maker Codan ((CDA)) hit the mother lode and jumped 17.9% to top the ASX300.

The banks fell -0.3% on the prospect of an end to rate rises and weakening business conditions. NAB’s business confidence index actually rose 3 points, but only to -1.

Outside of the interest rate world, materials gained 1.3% thanks to ongoing strength in lithium and gold.

So we now await today’s CPI numbers, ahead of tomorrow’s holiday, and Friday’s might-as-well-take-a-holiday.

And next week’s RBA meeting. And Fed meeting.

Mixed Signals

Breaking news: Microsoft (Dow) has just reported and is up 4% in the aftermarket.

The day’s earnings results on Wall Street were otherwise mixed, with Dow stocks 3M falling -5% on a miss, while announcing -2500 in layoffs, Johnson & Johnson flat on a beat, and Verizon down -2% on an in-line result.

Google fell -2% after the DoJ announced an antitrust suit against the company due to uncompetitive ad market domination.

The day began on Wall Street with a glitch in the NYSE system that sparked an erroneous tumble, sending the Dow down -300 points. Many of those opening trades will be cancelled, and indices managed to fight all the way back by the afternoon. The S&P500 closed slightly down, but still above 4000.

The Nasdaq closed a little weak, but after a solid run and impacted by Google’s fall. The highly volatile US ten-year bond yield fell -6 points to be back below 3.50%, having risen by a similar magnitude on Monday night.

Flash estimates of US January PMIs had manufacturing up to 46.7 from 46.2 and services up to 46.6 from 44.7. The moves are positive, but anything under 50 still implies contraction.

A note out from Goldman Sachs last night showed that at present, “hard” economic data, meaning real numbers such as jobs and retail sales, are leaning to the positive, while “soft” data, such as confidence surveys and the like, are quite negative on the US economy. This again only confuses the issue of recession or no recession.

Or mild recession or deeper recession – the latter forcing the Fed to cut rates. Either way, if there is a recession it will be the most anticipated in living memory.

While a lot of attention is given to the inverted US yield curve from the two-year to the ten-year yield (currently around -70 basis points), the purists prefer to point to the spread between the three-month and ten-year yield which, at over -120 points, has eclipsed the widest spreads seen in the 1980s.

To recap, every US recession has been preceded by an inverted yield curve, but not every inverted yield curve has led to a recession.

Commodities

Anything China’s interested in remains static (except lithium), but gold is scaling rare heights.

Reports suggest those US flash PMI numbers – still in contraction – prompted some selling in the oils.

Today

The SPI Overnight closed down -10 points.

Locally we’ll see December quarter CPI numbers today.

And blow me down, New Zealand will have its numbers ready today as well, just as The Hipster is sworn in.

The local market will see another list of quarterly reporters today among resources, including Fortescue Metals ((FMG)), Mineral Resources ((MIN)), Newcrest Mining ((NCM)) and Woodside Energy ((WDS)).

Spot Metals,Minerals & Energy Futures
Gold (oz) 1937.50 + 8.70 0.45%
Silver (oz) 23.65 + 0.31 1.33%
Copper (lb) 4.20 – 0.00 – 0.12%
Aluminium (lb) 1.29 – 0.00 – 0.03%
Lead (lb) 0.94 – 0.02 – 2.05%
Nickel (lb) 12.82 + 0.02 0.13%
Zinc (lb) 1.53 – 0.00 – 0.03%
West Texas Crude 80.02 – 1.52 – 1.86%
Brent Crude 86.07 – 1.94 – 2.20%
Iron Ore (t) 121.97 – 0.18 – 0.15%
BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AMC Amcor Downgrade to Hold from Accumulate Ord Minnett
ANN Ansell Downgrade to Neutral from Outperform Macquarie
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
AX1 Accent Group Downgrade to Equal-weight from Overweight Morgan Stanley
BEN Bendigo & Adelaide Bank Downgrade to Neutral from Buy UBS
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
FCL Fineos Corp Downgrade to Accumulate from Buy Ord Minnett
FPH Fisher & Paykel Healthcare Downgrade to Neutral from Buy Citi
HCW HealthCo Healthcare & Wellness REIT Downgrade to Neutral from Outperform Macquarie
HVN Harvey Norman Downgrade to Neutral from Buy Citi
IAG Insurance Australia Group Upgrade to Equal-weight from Underweight Morgan Stanley
ILU Iluka Resources Downgrade to Hold from Buy Ord Minnett
KMD KMD Brands Downgrade to Equal-weight from Overweight Morgan Stanley
MCR Mincor Resources Downgrade to Neutral from Outperform Macquarie
MGR Mirvac Group Downgrade to Neutral from Outperform Macquarie
MIN Mineral Resources Upgrade to Buy from Neutral UBS
NAN Nanosonics Downgrade to Hold from Add Morgans
Downgrade to Lighten from Hold Ord Minnett
PLS Pilbara Minerals Upgrade to Neutral from Sell UBS
PMV Premier Investments Upgrade to Overweight from Equal-weight Morgan Stanley
S32 South32 Downgrade to Hold from Buy Ord Minnett
SUN Suncorp Group Upgrade to Overweight from Equal-weight Morgan Stanley
VEA Viva Energy Downgrade to Accumulate from Buy Ord Minnett
WBC Westpac Downgrade to Underperform from Neutral Macquarie
WHC Whitehaven Coal Downgrade to Neutral from Buy UBS

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)

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CHARTS

BRG CDA FMG GMG MIN NCM SQ2 WDS

For more info SHARE ANALYSIS: BRG - BREVILLE GROUP LIMITED

For more info SHARE ANALYSIS: CDA - CODAN LIMITED

For more info SHARE ANALYSIS: FMG - FORTESCUE METALS GROUP LIMITED

For more info SHARE ANALYSIS: GMG - GOODMAN GROUP

For more info SHARE ANALYSIS: MIN - MINERAL RESOURCES LIMITED

For more info SHARE ANALYSIS: NCM - NEWCREST MINING LIMITED

For more info SHARE ANALYSIS: SQ2 - BLOCK INC

For more info SHARE ANALYSIS: WDS - WOODSIDE ENERGY GROUP LIMITED