The Overnight Report: All Yield

This story features TPG TELECOM LIMITED, and other companies.
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The company is included in ASX200, ASX300 and ALL-ORDS

World Overnight
SPI Overnight	7360.00	– 39.00	– 0.53%
S&P ASX 200	7450.70	+ 40.30	0.54%
S&P500	4576.73	– 12.23	– 0.27%
Nasdaq Comp	14283.91	– 62.11	– 0.43%
DJIA	35630.68	+ 71.15	0.20%
S&P500 VIX	13.93	+ 0.30	2.20%
US 10-year yield	4.05	+ 0.09	2.32%
USD Index	102.18	+ 0.30	0.29%
FTSE100	7666.27	– 33.14	– 0.43%
DAX30	16307.64	– 139.19	– 0.85%

By Greg Peel

Mind the Lag

“Interest rates have been increased by 4 percentage points since May last year. The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so. In light of this and the uncertainty surrounding the economic outlook, the Board again decided to hold interest rates steady this month. This will provide further time to assess the impact of the increase in interest rates to date and the economic outlook.”

The ASX200 was up 23 points just before 2.30pm yesterday, largely driven by materials, and then up 60 on the above RBA decision, before drifting back to close up 40.

Wall Street closed slightly lower last night and commodity prices fell back, so our futures are down -39 this morning.

Thanks for playing.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon the data and the evolving assessment of risks”. [My emphasis]

Those words are new, and imply the RBA is content to go into wait-and-see mode given the “uncertainty surrounding the economic outlook”. The board is paying heed to the time lag of rate hikes to economic impact.

Board will “continue to pay close attention to developments in the global economy,” which would include China as well as the US.

Following on from weak official Chinese PMIs on Monday, yesterday the independent Caixin manufacturing PMI showed a fall into contraction in July to 49.2 from 50.5 – a six-month low.

Never fear, all China needs is some food festivals.

All sectors closed in the green yesterday. While technology topped the percentages (1.1%), materials was a major contributor (0.8%), albeit not as much as was so earlier in the session. Staples like rate pauses (0.9%), as does discretionary (0.8%).

Communication services rose 0.8% on an 11.6% jump for TPG Telecom ((TPG)) after the telco confirmed it was in talks with Vocus.

In discretionary, Baby Bunting ((BBN)) topped the ASX300 with a 21.3% pop after releasing its earnings results early. Couldn’t wait to get the news out.

Going the other way was Credit Corp ((CCP)), which fell -12.6% on its result. Abacus Property ((ABP)) fell almost -50%, but only because it spun off Abacus Storage King REIT ((ASK)).

While Aussie bond yields fell back -8-9 points, the banks, real estate, utilities and industrials all posted more modest gains. The Aussie dollar plunged, but healthcare only managed 0.3%.

It looks like we’re back down towards the 7400 level once again today.

Fore!

US Labor Department data last night showed job openings dropping slightly to 9.58m in June, down from 9.61m in May. The number of quitting workers nudged lower to 3.8m, down from 4m. The numbers confirm a still-tight jobs market.

The US manufacturing PMI rose to 46.4 from 46.0 in July, and construction spending rose 0.5% in June. While both numbers missed forecasts, and manufacturing remains in contraction, they are at least in the right direction, unlike China.

Commentators point to Biden’s Inflation Reduction Act as turbocharging construction in the years ahead in areas such as decarbonisation. New and bigger data centres will be required to cope with AI, and the push to on-shore manufacturing to avoid covid-style supply chain issues in future will conspire to support the US economy.

Already investors have shifted firmly into the “soft landing” camp. Even the Fed’s starting to think it might pull it off. The bond market is heading that way – last night the ten-year yield rose 9 points to 4.05%.

However, the 4% mark has this year triggered selling in stocks, and so was the case last night. But not by much. It’s been a long time since the S&P500 fell -1% in a session, and hitting 4% has prompted that in the past.

The Dow bucked the trend thanks to a 9% jump for Caterpillar on its earnings result. The Tonka toy manufacturer is considered a bellwether for cyclical stocks, and cyclical stocks are not supposed to perform well in a recession.

Investors are also holding their breath this week for results from Apple and Amazon on Thursday night and the July jobs report on Friday night, seen as possible market-turners in this rarefied air.

For now, seeing a boost from earnings beats is proving difficult. Caterpillar has bucked the trend but many positive results have been met with sell-the-fact responses. Uber reported its first ever profit last night, and fell -5.7%.

The problem is Uber was up over 80% year to date beforehand.

And you’ll never guess what the latest meme stock is. Last night Tupperware Brands jumped 27%, fresh from rising 434% in July. Like many meme stocks, Tupperware has been hanging on to life in recent times, and is presumably heavily shorted.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1944.00	– 21.50	– 1.09%
Silver (oz)	24.26	– 0.46	– 1.86%
Copper (lb)	3.89	– 0.06	– 1.44%
Aluminium (lb)	0.99	– 0.00	– 0.20%
Nickel (lb)	10.03	+ 0.20	1.99%
Zinc (lb)	1.14	– 0.01	– 1.00%
West Texas Crude	81.37	– 0.43	– 0.53%
Brent Crude	85.77	+ 0.21	0.25%
Iron Ore (t)	108.32	– 0.64	– 0.59%

Life is again being sucked out of commodity prices, thanks to the weak Caixin PMI and what is seen as pop-gun stimulus promises from Beijing when a bazooka is required.

Talk of stimulus on Monday had commodity prices rising, and I suggested it was bold of traders to push the Aussie up 1% ahead of the RBA. The Aussie is down -1.5% this morning at US$0.6620.

Today

The SPI Overnight closed down -39 points or -0.5%.

New Zealand reports June quarter unemployment today.

The US sees private sector jobs numbers for July.

BWP Trust ((BWP)) and Pinnacle Investments ((PNI)) are two stocks reporting today.

Appen ((APX)) holds an EGM.

The Australian share market over the past thirty days…

Index	01 Aug 2023	Week To Date	Month To Date (Aug)	Quarter To Date (Jul-Sep)	Year To Date (2023)
S&P ASX 200 (ex-div)	7450.70	0.64%	0.54%	3.43%	5.85%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
BBN	Baby Bunting	Upgrade to Neutral from Sell	Citi
DHG	Domain Holdings Australia	Downgrade to Neutral from Buy	Citi
FCL	Fineos Corp	Upgrade to Buy from Neutral	Citi
GOR	Gold Road Resources	Upgrade to Outperform from Neutral	Macquarie
IPD	ImpediMed	Upgrade to Speculative Buy from Hold	Morgans
MMS	McMillan Shakespeare	Upgrade to Outperform from Neutral	Macquarie
PGC	Paragon Care	Downgrade to Hold from Buy	Bell Potter
RRL	Regis Resources	Downgrade to Hold from Add	Morgans
SIQ	Smartgroup Corp	Upgrade to Outperform from Neutral	Macquarie
ZIP	Zip Co	Upgrade to Neutral from Sell	Citi

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

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