The Overnight Report: Bottom Identified?

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By Greg Peel

Holding Fast

The ASX200 had every excuse to crash through 7000 yesterday after a steep fall on Wall Street overnight but instead fell only -36 points before bouncing hard off 7002 and retracing its steps. Once again, the buyers are trying their best.

One might argue the US problems of shutdown, strikes and student loans are US-centric issues but the overriding macro headwinds of rising oil prices and bond yields are not confined to the US.

And so it was the August CPI came in at 5.2% as expected, up from 4.9% in July, driven mostly by a 9.1% increase in fuel costs. The 11.30am release sent the index southward once more.

Buyers returned in the afternoon, noting the core rate of 5.6% was unchanged from July. Hence, there is no reason the RBA should need to change its on-hold stance at next week’s meeting. More critical will be the September quarter CPI data, due later in October.

Aussie bond yields slipped a couple of points on the release. The Aussie dollar is down sharply, but that’s all to do with the greenback.

The feature of yesterday’s trade were the banks (+0.1%) and materials (-0.1%) not having their usual influence.

Technology ignored the rest of the market and followed the Nasdaq, falling -1.0%. Real estate was the best on ground, rising 0.4% on some bargain hunting. It’s not often you see the likes of Dexus ((DXS)) and Charter Hall long WALE REIT ((CLW)) among the top five winners.

Healthcare fell -0.7% despite ResMed ((RMD)) continuing to find favour after its correction (+4.8%).

The banks and real estate were the only sectors to close in the green, and while most of the down-moves were modest at best, a mere 0.1% gain for the banks was still enough to provide for a relative flat index close.

Energy fell -0.4% but that will spin today on overnight oil prices.

Star Entertainment ((SGR)) came back on the boards yesterday post its capital raising and fell -16% on dilution.

Wall Street staged a mid-session reversal last night, of the likes we saw here earlier in the week, to a flat close for the S&P500, but our futures are down -13 points this morning.

Gold miners will be under pressure today after a tumble through US$1900/oz last night but a -0.7% fall in the Aussie does compensate.

Oversold

On the subject of oil prices and bond yields, last night oil prices jumped 3% on a larger than expected drawdown of weekly US crude inventories. US bond yields rose 6-7 points across the curve because it was a day ending in the letter Y.

Wall Street crumbled again, and early afternoon the Dow was down over -300 points. The S&P500 came within 1% of its 200-day moving average, and investors didn’t wait for it to hit before jumping in.

It seems, for now at least, we’ve found the bottom for the S&P.

The comeback was well received but is not that convincing in the bigger picture. Short term technical signals were screaming oversold so a bounce was unsurprising.

Investors are now counting the sleeps to the end of seasonally weak September. The risk remains they’ll enter October with a government shutdown and ongoing UAW strike, while previously forgiven student loan repayments will recommence.

If Wall Street plays by the script, early October will remain volatile before the bottom is found mid-month and the traditional rally into year-end begins. Which is exactly what happened last year.

Yet last night’s turnaround was led primarily by Apple, which had been falling for days. Apple still closed down -0.9%, but off its lows and all of the Mega Caps saw similar comebacks.

It meant that breadth was not supportive. Where goes Apple goes Wall Street, in index terms, but only in index terms.

Commodities

Last night’s rise in US bond yields had the US dollar up 0.5% to put pressure on commodity prices and send gold crashing through US$1900/oz.

Oil prices scoff at the currency.

The Aussie is down -0.7% at US$0.6356, staring down the barrel of Banana Republic territory if US bonds can’t also bounce.

Today

The SPI Overnight closed down -13 points.

More fodder for the RBA today with local retail sales numbers for August.

The US will once again revise its June quarter GDP result tonight.

Dividends will be paid out today by BHP Group ((BHP)), Commonwealth Bank ((CBA)), Domino’s Pizza ((DMP)), Fortescue Metals ((FMG)), Insurance Australia Group ((IAG)), IGO Ltd ((IGO)), Santos ((STO)), Telstra ((TLS)) and Woodside Energy ((WDS)).

We’ll all be rolling in it.

Brickworks ((BKW)), Soul Pattinson ((SOL)), Premier Investments ((PMV)) and Bellevue Gold ((BGL)) report earnings today.

Lake Resources ((LKE)) provides a trading update and Imugene ((IMU)) holds an EGM.

The Australian share market over the past thirty days…

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