The Monday Report – 16 October 2023

This story features HARVEY NORMAN HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: HVN

World Overnight
SPI Overnight	7045.00	– 30.00	– 0.42%
S&P ASX 200	7051.00	– 40.00	– 0.56%
S&P500	4327.78	– 21.83	– 0.50%
Nasdaq Comp	13407.23	– 166.99	– 1.23%
DJIA	33670.29	+ 39.15	0.12%
S&P500 VIX	19.32	+ 2.63	15.76%
US 10-year yield	4.63	– 0.08	– 1.76%
USD Index	106.65	+ 0.08	0.08%
FTSE100	7599.60	– 45.18	– 0.59%
DAX30	15186.66	– 238.37	– 1.55%

By Greg Peel

Some Resilience

It started out looking like a Capitulation Friday as the ASX200 plunged -1% from the open, but the index quickly bounced and was down only -20 points mid-session. With bond yields rising and a weekend of uncertainty looming, we drifted lower again to the close.

The Aussie ten-year jumped back 9 points, following Wall Street’s response to the US CPI. This proved to be a general drag, sending technology and real estate each down -1.9% when things had just started to look brighter.

Communication services and discretionary each lost -1.0%, but discretionary was net of Harvey Norman ((HVN)) going ex and losing -4.4%, so not quite as bad as it looked.

Staples fell -0.6%, with Bega Cheese ((BGA)) topping the index on a 3.2% gain after Vanguard confirmed a 5% equity stake.

The banks fell -0.6%. It will be interesting to see if we follow the US banks today, which we so often do, as early reporters posted better than expected numbers on an otherwise macro-influenced Wall Street on Friday night.

Materials and energy (each -0.2%) were relatively quiet. That will not be the case today, with oil up 5% and gold up over US$60/oz on Friday night.

Utilities was one of only two sectors to close in the green (+0.4%), with Origin Energy ((ORG)) set to be taken over. Healthcare gained 0.5% after investors returned to CSL ((CSL)) following Thursday’s sharp fall.

Through all the turmoil, the ASX200 closed up 1.8% for the week, with healthcare the only sector not to post a weekly gain due to the Ozempic/Wegovy factor.

With the situation in the Middle East looking more strained, Wall Street played a cautious hand on Friday night, albeit it was more about US consumer confidence data than Gaza that sent stocks south.

Our futures were down -30 points on Saturday morning, which suggests 7000 is not quite in the firing line yet. But the world is a messy place at the moment.

Confidence Fading

Perhaps the most chilling development over the weekend was a warning from Iran that if Israel invades Gaza there will be “serious consequences”.

Oil prices jumped 5% on Friday night and gold shot up US$64/oz on the safe haven trade.

While the new war provided for a cautious backdrop on Friday night, Wall Street opened higher on the back of better than expected results for all of JPMorgan (Dow), Citigroup and Wells Fargo. UnitedHealth (Dow) also posted a solid result.

While the Big Bank reports traditionally kick off US earnings season, there have actually been 32 S&P500 companies reporting to Friday night. They have registered 90% beats and net earnings growth of 8%.

But just as Wall Street was getting excited about earnings, out came the Michigan Uni consumer sentiment report.

Consumer sentiment dropped sharply, to 63.0 from 68.1 at end-September, to be at its lowest level since May. Economists had forecast 67.4. More worrying were one-year inflation expectations, which rose to 3.8% from 3.2% to mark the highest level since April.

We can likely look to the 30% rebound in oil prices in the past three months as a culprit.

Rising inflation expectations are a primary concern for the Fed, as they tend to be self-fulfilling in the form of businesses raising prices. Higher expectations suggest the Fed may yet have more to do.

Weak consumer sentiment nonetheless threatens the backbone of the US economy, which is why the US ten-year yield fell -8 points to 4.63%, although we can probably add some safe haven element to the move as well.

Yet despite lower yields, Big Tech went the other way on Friday night, dragging down the Nasdaq and the S&P500.

Speaking after the result release, JPMorgan CEO Jamie Dimon said the bank delivered “solid” results against a tough macroeconomic backdrop now complicated by another war, adding, “This may be the most dangerous time the world has seen in decades”.

Yet if earnings results can continue on a solid trajectory, the seasonal end-of-year rally that typically begins in the second half of October is still on the cards.

This week brings more Big Bank results, and that of Netflix, with a handful of Dow names such as American Express tonight.

The following week is when the Mega Tech results drop. They will be the key.

Commodities

The oils are pricing in the risk of Middle East escalation, as neither Israel or Palestine are oil producers.

Lower US yields will typically support gold, but Friday night’s pop is clearly a safe haven play.

Despite the benefits to Australia, the Aussie is down -0.1% at US$0.6306.

The SPI Overnight closed down -30 points or -0.4% on Saturday morning.

The Week Ahead

Spot Metals,Minerals & Energy Futures
Gold (oz)	1932.50	+ 64.10	3.43%
Silver (oz)	22.73	+ 0.93	4.27%
Copper (lb)	3.58	– 0.02	– 0.51%
Aluminium (lb)	0.98	– 0.00	– 0.42%
Nickel (lb)	8.33	– 0.02	– 0.27%
Zinc (lb)	1.10	+ 0.00	0.03%
West Texas Crude	87.69	+ 4.17	4.99%
Brent Crude	90.89	+ 4.50	5.21%
Iron Ore (t)	118.57	+ 1.15	0.98%

It’s a busy week for global economic data this week.

The US will see retail sales and industrial production, housing market sentiment, housing starts and existing home sales, and the Empire State and Philly Fed activity indices.

On Wednesday, China reports September quarter GDP, along with monthly retail sales, industrial production and fixed asset investment numbers.

New Zealand reports September quarter CPI.

CPI data are also due from the UK, eurozone and Japan.

In Australia we’ll see the minutes of the October RBA meeting and September jobs numbers.

After a quiet period post the August results season, the local corporate calendar heats up from this week. We dive headlong into what these days we could call “quarterly reporting season” as well as AGM season.

Stockland ((SGP)) and Treasury Wine Estates ((TWE)) hold their AGMs today while CSL holds a capital markets day.

The Australian share market over the past thirty days…

Index	13 Oct 2023	Week To Date	Month To Date (Oct)	Quarter To Date (Oct-Dec)	Year To Date (2023)
S&P ASX 200 (ex-div)	7051.00	1.39%	0.03%	0.03%	0.17%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
BBN	Baby Bunting	Downgrade to Neutral from Buy	Citi
BGA	Bega Cheese	Upgrade to Buy from Hold	Bell Potter
BOE	Boss Energy	Downgrade to Sell from Hold	Shaw and Partners
BOQ	Bank of Queensland	Upgrade to Neutral from Sell	Citi
BSL	BlueScope Steel	Downgrade to Underweight from Overweight	Morgan Stanley
DMP	Domino's Pizza Enterprises	Upgrade to Buy from Neutral	Citi
IAG	Insurance Australia Group	Upgrade to Add from Hold	Morgans
LYC	Lynas Rare Earths	Upgrade to Buy from Neutral	UBS
NTD	National Tyre & Wheel	Upgrade to Add from Hold	Morgans
PTM	Platinum Asset Management	Downgrade to Sell from Hold	Bell Potter
REG	Regis Healthcare	Upgrade to Accumulate from Hold	Ord Minnett

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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