The Overnight Report: Risk Back On

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World Overnight
SPI Overnight	7469.00	+ 44.00	0.59%
S&P ASX 200	7476.70	– 5.00	– 0.07%
S&P500	4076.60	+ 58.83	1.46%
Nasdaq Comp	11584.55	+ 190.74	1.67%
DJIA	34086.04	+ 368.95	1.09%
S&P500 VIX	19.40	– 0.54	– 2.71%
US 10-year yield	3.53	– 0.02	– 0.62%
USD Index	102.10	– 0.16	– 0.16%
FTSE100	7771.70	– 13.17	– 0.17%
DAX30	15128.27	+ 2.19	0.01%

By Greg Peel

Sticker Shock

Wall Street saw month-end profit-taking on Monday night but there was going to be none of that malarkey on the ASX yesterday for the last day of January. The futures suggested down -10 and by 11.30am, the ASX200 was up 45. Fed meeting? Who cares!

Then the December retail sales numbers came out.

Sales fell -3.9% in December, having risen 1.7% in November, when economists had forecast a fall of -0.2%. What went horribly wrong?

The obvious factor is the exploitation of America’s Black Friday, which now sees retailers discounting their Christmas inventory in November and sucking the life out of what was forever the Christmas shopping month of December. But sales only rose 1.7% in November – hardly matching December’s -3.9% fall.

We might otherwise argue economists simply underestimated the impact of higher mortgage rates and cost of living on households, which were always going to settle for an austere Christmas.

And we could note travel is not included as a retail sale, and that’s what Australian consumers spent more on in December than “stuff”.

Or we could consider that that -3.9% is seasonally adjusted, and if the ABS data since time immemorial seasonally adjusts for the traditional shopping month of December, not November, well that might just throw the whole series out of whack.

Whatever the case, December was not a great month for retail sales, and may yet be a harbinger of things to come. For what it’s worth, spending on household goods fell -7.8% in the month, fashion retail -13.1% and department stores -14.3%.

So who wins? Consumer staples. Bearing in mind that retail sales number reflects volume x price, a weak result can also imply falling prices, or lower inflation. It’s a rare day when you see Woolworth’s ((WOW)) top the index winners, up 3.8%, with Coles Group ((COL)) not far behind (2.4%).

I mentioned travel spending? Corporate Travel Management ((CTD)) took the silver with 2.7% and event company EVT Ltd ((EVT)) got bronze on 2.6%.

Consumer staples stole the show with a 2.3% gain on the day – next best healthcare on 1.4% on a similar theme.

If the weak sales number is enough to give the RBA pause for thought, that should be good for real estate (lower rates), except for the big retail landlords in this instance. That sector fell -1.1%.

It should also be good for technology, except that Megaport’s ((MP1)) update saw that stock plunge -24%, so technology fell -1.3%.

Late morning yesterday, the ASX200 looked like it could well hold above 7500 (7516), if not for the sales numbers. But after a bout of profit-taking on Monday night, it was back to business on Wall Street last night as the buyers piled back in.

Our futures are up 44 points this morning. Just like the ASX200 opened yesterday.

Fight the Fed

Expectation is that tomorrow night the Fed will raise by 25 points and reiterate its intention to continue to raise rates until it is confident inflation can be tamed, and then hold rates there for the rest of the year to ensure inflation cannot once again escape its cage. If this is the rhetoric, then Wall Street won’t be surprised.

Except that Wall Street begs to differ. Investors have indicated in January an assumption of a soft landing for the US economy, which the Fed will turn into a hard landing if it were to push too hard. Wall Street forecasts Fed rate cuts towards the end of the year after such signs become evident.

There is hence a risk Jerome Powell will deliver one of his infamous schoolmasterly rebukes to the market, telling investors they’re not the Messiah, they’re all just naughty boys. The Fed does not want “risk-on” in the context, as that is inflationary.

Or maybe Powell will acknowledge recent indications of inflation having peaked, and tone back the hawkishness. This would be a red rag to the market bulls. A rebuke might rattle some nerves, but we’ll see.

After a last day of the month rush into risk, the S&P500 has set itself in between the 4000 break-out level and the previous highs around 4100, ready to move either way.

Meanwhile, earnings results continue to roll in.

Last night’s winner was General Motors, up 7.7%, while Caterpillar (Dow) went the other way in losing -3.8%. Knocking it out of the park but falling short of exuberant hopes were Exxon, down -1.8% and McDonalds (Dow), down -1.6%.

PayPal is the latest tech company to announce lay-offs – 2000 in this case.

Surely the impact of widespread tech sector lay-offs will begin to show up in employment data shortly. We see the January numbers on Friday night.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1927.30	+ 5.70	0.30%
Silver (oz)	23.67	+ 0.10	0.42%
Copper (lb)	4.13	– 0.08	– 1.95%
Aluminium (lb)	1.26	– 0.02	– 1.25%
Lead (lb)	0.98	+ 0.00	0.22%
Nickel (lb)	13.24	– 0.19	– 1.42%
Zinc (lb)	1.55	– 0.02	– 1.54%
West Texas Crude	79.10	+ 1.33	1.71%
Brent Crude	84.49	– 0.24	– 0.28%
Iron Ore (t)	123.37	+ 0.29	0.24%

It seems the Chinese have not returned to business with any appetite for base metals. Iron ore remains steady nonetheless.

The disparity in oil price moves reflects the front-month contract expiry for Brent.

While the Australian stock market was shocked by the retail sales numbers, bond yields barely moved and the Aussie is only off a tad at US$0.7053, after a big fall on Monday night.

Today

The SPI Overnight closed up 44 points or 0.6%.

We’ll see January house price data today.

The world will report January manufacturing PMIs.

Yesterday China reported a return to manufacturing expansion (50.1 up from 47.0) for the first time since September, reflecting reopening.

The US will see private sector jobs numbers and construction spending ahead of the Fed statement and press conference.

Credit Corp ((CCP)) reports earnings today, while Nufarm ((NUF)) holds its AGM.

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
29M	29Metals	Downgrade to Hold from Accumulate	Ord Minnett
ABC	Adbri	Downgrade to Underperform from Neutral	Credit Suisse
ALG	Ardent Leisure	Downgrade to Lighten	Ord Minnett
BLD	Boral	Upgrade to Outperform from Underperform	Credit Suisse
BWP	BWP Trust	Downgrade to Sell from Neutral	UBS
CLW	Charter Hall Long WALE REIT	Upgrade to Buy from Accumulate	Ord Minnett
		Downgrade to Sell from Neutral	UBS
COL	Coles Group	Upgrade to Outperform from Neutral	Credit Suisse
		Downgrade to Sell from Hold	Ord Minnett
CPU	Computershare	Downgrade to Equal-weight from Overweight	Morgan Stanley
FBU	Fletcher Building	Downgrade to Neutral from Outperform	Credit Suisse
FMG	Fortescue Metals	Downgrade to Underperform from Neutral	Credit Suisse
GMG	Goodman Group	Upgrade to Buy from Neutral	UBS
GWA	GWA Group	Downgrade to Underperform from Neutral	Credit Suisse
JBH	JB Hi-Fi	Downgrade to Sell from Lighten	Ord Minnett
LIC	Lifestyle Communities	Downgrade to Hold from Accumulate	Ord Minnett
MGR	Mirvac Group	Downgrade to Neutral from Buy	UBS
MP1	Megaport	Upgrade to Add from Hold	Morgans
MYR	Myer	Downgrade to Lighten from Hold	Ord Minnett
NCM	Newcrest Mining	Upgrade to Add from Hold	Morgans
NHF	nib Holdings	Downgrade to Lighten from Accumulate	Ord Minnett
RHC	Ramsay Health Care	Downgrade to Neutral from Outperform	Macquarie
SCG	Scentre Group	Downgrade to Neutral from Buy	UBS
TAH	Tabcorp Holdings	Upgrade to Hold from Lighten	Ord Minnett
VCX	Vicinity Centres	Downgrade to Sell from Neutral	UBS
WDS	Woodside Energy	Downgrade to Neutral from Buy	Citi
WOW	Woolworths Group	Upgrade to Outperform from Neutral	Credit Suisse

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