The Overnight Report: Mixed Responses

This story features DOMINO'S PIZZA ENTERPRISES LIMITED, and other companies. For more info SHARE ANALYSIS: DMP

World Overnight
SPI Overnight	7313.00	+ 19.00	0.26%
S&P ASX 200	7339.70	+ 33.30	0.46%
S&P500	4567.46	+ 12.82	0.28%
Nasdaq Comp	14144.56	+ 85.69	0.61%
DJIA	35438.07	+ 26.83	0.08%
S&P500 VIX	13.86	– 0.05	– 0.36%
US 10-year yield	3.91	+ 0.06	1.43%
USD Index	101.29	– 0.09	– 0.09%
FTSE100	7691.80	+ 13.21	0.17%
DAX30	16211.59	+ 20.64	0.13%

By Greg Peel

Here We Go?

A 41 gain for the futures ahead of yesterday’s trade looked ambitious, but proved a lucky call. The ASX200 hit a high of up 38 before some late square-up ahead of today’s CPI and tonight’s Fed decision.

Strength would not have been forthcoming during the session were it not for Beijing, which announced the government would move toward supporting the struggling economy. A stimulus package would be needed to deal with "new difficulties and challenges".

What that package will be was not outlined, but iron ore jumped up on the news and the materials sector surged 2.7%. Energy rose 1.2%, but oil prices continue to rise, Chinese stimulus or not.

Overnight, base metal prices have leapt up in London.

If Beijing can successfully get China back on a growth path then the risk of recession here is lower than the 50% chance some economists have pencilled in, if not much lower. Aussie bond yields ticked up yesterday, with the twos and tens both back over 4%. No sign of inversion, although the two are neck and neck.

It was all about China and resources yesterday because aside from a flat session for industrials, all other sectors closed lower.

Consumer discretionary was hardest hit (-0.8%) led by a chart-topping -5.0% fall for Domino’s Pizza Enterprises ((DMP)) after Domino’s Pizza Inc reported earnings in the US which were not that flash, and Goldman Sachs downgraded the local franchise to Sell.

The banks provided the biggest offset to resources (-0.5%), likely more caution ahead of the CPI than anything else.

And that was probably the case for the rest of the market, with staples, healthcare, technology and real estate all -0.3-0.4% lower.

The top five winners of the day were all miners of course, other than mining services company Monadelphous ((MND)), which rose 5.4% after securing a contract with Albemarle for the expansion of the Kemerton lithium processing plant which it now owns all of, following a sell-down the day before by Mineral Resources ((MIN)).

Albemarle didn’t muck around.

With Wall Street yet again higher overnight, and metals prices fired up, our futures are up a hesitant 19 points this morning ahead of the 11am drop of the CPI data.

This morning, aftermarket Mega Tech earnings results in the US brought mixed responses.

Maybe Not

The Dow once again snuck in with a gain last night, taking its winning streak to twelve days. One more up-session tonight will equal the record set in 1987.

However, it may prove difficult.

Microsoft has reported in the aftermarket and is currently down over -4%. While it’s a bit of a lark considering the stock is up around 57% year to date, it’s still a big move for a big company and will be a big hit to the Nasdaq and S&P tonight.

Market cap is nonetheless irrelevant for the Dow, but Microsoft has the second highest nominal share price among the 30 stocks so it will still provide a considerable drag. Fourth highest is Visa, and after also reporting in the aftermarket its currently down -1%.

On the other hand, Google has reported and is currently up 6%. Google is not in the Dow, but will provide a clear offset to Microsoft in the Nasdaq and S&P.

All is of course incumbent upon investors not changing their views overnight, but tonight’s Fed decision will be another factor in determining whether the Dow can tie the record. If the Fed hikes, no one will blink. It all depends on what Powell has to say at the press conference.

It’s unlikely he’ll say “that’s all folks”, although many assume that will prove the case. He will more likely leave the door open for another hike in September, depending on the ensuing data.

In other news last night, remember the regional bank crisis? Just when we thought it had all gone away, Banc of California last night moved to acquire beleaguered PacWest Bancorp, which back at the time appeared set to be the next SVB.

Banc of California rose 11% and PacWest fell -27%.

Which is the wrong way around in a takeover situation. That’s because it was apparently a “take-under”, meaning rather than enjoying a typical takeover premium, PacWest is being acquired at a discount to valuation (subject to approval).

But wait. In the aftermarket, Banc of California is up another 10% and PacWest has rebounded by 34%. Something is strange, but that’s as yet unclear.

The point is the regional banking crisis has not gone away. But Wall Street is heartened that the “rescue”, if that’s what it is, of PacWest did not involve the Fed, or a JPMorgan, but rather represents the sort of consolidation the sector could use.

In other results news, Snap (ie Snapchat) has reported and is copping an all too familiar -18% drubbing in the aftermarket. Spotify reported during the session and fell -14% after better than expected subscriber growth failed to translate into matching revenue growth.

Commodities

Go China.

The Aussie is understandably up 0.8% at US$0.6794.

Today

The SPI Overnight closed up 19 points or 0.3%.

CPI at 11am. Fed statement at 4.30am tomorrow, if you’re keen.

Rio Tinto ((RIO)) reports fist half earnings today, but I assume that will be after the close.

Beach Energy ((BPT)), Iluka Resources ((ILU)), Mineral Resources and Perseus Mining ((PRU)) provide production reports today.

ALS ((ALQ)) holds its AGM.

Spot Metals,Minerals & Energy Futures
Gold (oz)	1964.50	+ 10.40	0.53%
Silver (oz)	24.65	+ 0.34	1.40%
Copper (lb)	3.87	+ 0.06	1.62%
Aluminium (lb)	0.99	+ 0.02	1.76%
Nickel (lb)	9.94	+ 0.43	4.49%
Zinc (lb)	1.10	+ 0.05	4.63%
West Texas Crude	79.63	+ 0.89	1.13%
Brent Crude	83.35	+ 0.58	0.70%
Iron Ore (t)	115.32	+ 2.58	2.29%

The Australian share market over the past thirty days…

Index	25 Jul 2023	Week To Date	Month To Date (Jul)	Quarter To Date (Jul-Sep)	Year To Date (2023)
S&P ASX 200 (ex-div)	7339.70	0.35%	1.89%	1.89%	4.28%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
CIP	Centuria Industrial REIT	Upgrade to Outperform from Neutral	Macquarie
CLW	Charter Hall Long WALE REIT	Downgrade to Underperform from Neutral	Macquarie
CNI	Centuria Capital	Downgrade to Neutral from Outperform	Macquarie
CQR	Charter Hall Retail REIT	Downgrade to Neutral from Outperform	Macquarie
FLT	Flight Centre Travel	Upgrade to Buy from Hold	Ord Minnett
HMC	HMC Capital	Downgrade to Neutral from Outperform	Macquarie
MND	Monadelphous Group	Upgrade to Buy from Neutral	Citi
NST	Northern Star Resources	Downgrade to Hold from Accumulate	Ord Minnett
PMV	Premier Investments	Downgrade to Neutral from Outperform	Macquarie
SCG	Scentre Group	Downgrade to Underperform from Neutral	Macquarie

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

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