The Overnight Report: Profit-Taking

This story features WISETECH GLOBAL LIMITED, and other companies. For more info SHARE ANALYSIS: WTC

The company is included in ASX50, ASX100, ASX200, ASX300, ALL-ORDS and ALL-TECH

This story has been re-published to correct projections about RBA rate hikes in 2023.

By Greg Peel

Stalled

The ASX200 popped its head above 7500 from the open yesterday and had it shot off, leading to a -31 point drop, before recovering to close down -12. The futures had said up 12. Which was right in the first eight minutes, but clearly the end-of-month sellers were ready and waiting.

7500 is proving a formidable barrier, and with profit-taking apparent on Wall Street overnight, another attempt may have to wait.

Technology was the best performing sector yesterday (+2.3%) with some help from WiseTech Global ((WTC)), which rose 5.2%. That put WiseTech 12^th on the ASX300 winners’ list, with almost every stock ahead arguably tinged with green – lithium, uranium, rare earths and applications thereof.

Quarterly reports dominated the session which didn’t prove successful for Champion Iron ((CIA)), which fell -7.1%, and ResMed ((RMD)), down -6.8%. The big iron ore miners were also off a bit so materials closed down -0.4% despite the efforts of aforementioned juniors.

Healthcare fell -0.7%.

Also falling -0.7%, to be the worst performer, were staples, after being the best performer on Friday.

The insurance companies warned of their exposure to Auckland yesterday. Suncorp Group ((SUN)) fell -2.0% and Insurance Australia Group ((IAG)) -3.7%. Financials fell -0.3%.

REA Group ((REA)), which is not in the real estate sector (+0.6%), rose 2.8% ahead of its result at week’s end. Communication services gained 1.1%.

Solid sessions for technology and communication services mimicked Wall Street, even though the stocks therein do not. Those sectors were sold off on Wall Street last night.

Looking ahead to next week’s RBA meeting, market consensus has a 25 point hike forthcoming and then nothing more for a peak of 3.35%. Others have pencilled in 3.85%, suggesting three more 25s (two more after next week's).

Yesterday, Deutsche Bank posted a forecast of 4.10%, following 25 point hikes in February, March and May, and then another in August. This implies the RBA would go two more then pause in April, see that it was not enough, go again in May and then pause in June-July, and then go again.

Wow. Australia might still be seeing rising inflation, but elsewhere in the world – most notably the US – it is falling. And recent data show the house price pullback across the country is gaining pace.

Wall Street saw predictable profit-taking last night, but our futures are only down -10 points this morning.

Lock It In

There is an old adage on Wall Street that where goes January, so goes the year. Like all old adages it doesn’t always work, and sometimes the complete opposite is true. Looking way back, this was the case in 2022.

It is also common for January to see investors piling back into those stocks that were hardest hit in the year before – justifiably or not. This has certainly been the case in 2023, with tech/growth/cyclicals leading the S&P500 up 5% and the Nasdaq up 9% for the month.

One might argue it makes sense to take some risk off ahead of this week’s Fed decision, and earnings reports representing 20% of the S&P, including those of Meta, Apple, Amazon and Google. But while that may be true, the -1.3% fall for the S&P last night and -2.0% for the Nasdaq smacks more of locking in profits after a bit of new year euphoria.

The S&P has not managed to crack 4100, and nor has it managed to consolidate gains above the downtrend line. It’s still hard to find a commentator who does not see January as just another bear market rally, following so many in 2022.

The Fed might be able to provide a spark, but no one much expects a sudden change of heart from its “more to do” mantra, despite clear signs of inflation having peaked.

The EV market is hotting up, with Tesla having a strong month after a shocker 2022 (as much about Twitter as EVs), while Lucid investors all seem rather confused by a spike and pullback in past days.

Tesla had previously announced it would drop prices and ramp up production for its offerings and last night Ford (Dow) followed suit, for its Mustang Mach-E crossover. Ford fell -2.9%.

A Mustang SUV? Steve McQueen would be turning in his grave.

Commodities

China is back, but doesn’t seem to be in a mood for buying, despite the reopening. We might have to give it time, and metals prices have already had a good run.

China’s reopening should boost oil demand but as I have noted before, China is buying from Russia, so I don’t see the impact on WTI/Brent, particularly when Russia is selling well below WTI/Brent prices.

Expectations of further central bank interest rates are otherwise leading to assumed tepid oil demand.

The Aussie has come off sharply after flirting with 71c, down -0.6% at US$0.7061, with the US dollar up 0.3%.

Today

The SPI Overnight closed down -10 points.

We’ll see numbers for all-important December retail sales today, along with private sector credit.

China will report January PMIs.

The eurozone will learn its December quarter GDP result tonight.

The last of the quarterly reports land today in the local market ahead of results season dominating February. Reporters include Beach Energy ((BPT)), IGO ((IGO)) and Megaport ((MP1)).

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

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