The Overnight Report: September Has Arrived!

This story features CLEARVIEW WEALTH LIMITED, and other companies. For more info SHARE ANALYSIS: CVW

By Chris Weston, Head of Research, Pepperstone

Good morning.

Well, September got off to a lively start and the air of portfolio de-risking as the US cranked back up after the Labor Day holiday was seen across all areas within the capital markets.

Growth concerns were the key theme on the day, with cyclical-sensitive assets smacked and hedges laid down aggressively.

Risk and growth-sensitive assets were looking heavy going into the US ISM Manufacturing report, with bubbling concerns on China’s growth dynamic, reports that Libya is imminently due to bring back 500k barrels to the market, and the S&P Global US manufacturing report revised down to 47.9 (from 48.0) also in the mix – but it was the US ISM Manufacturing report that dominated the headlines, and it was poor.

The headline print came in at 47.2, with the new orders sub-component sliding to 44.6 and this paints to a poor picture of future demand.

Make of the ISM survey what you will the ISM survey does have its critics but the market is the market, and you can’t really criticise the collective weight of capital that has reacted to the outcome.

I had gone into the week seeing a higher probability of a move higher in a number of major equity markets, but that view, at this stage, seems well off the mark and incorrect.

Obviously, the new news around the growth data points coming in softer has seen the market speak out. So, we react and when the facts change and sentiment evolves, we change.

And sentiment, while fickle, has evolved, and the platform has been laid to suggest a very low tolerance to any further downside surprises in the US, and to an extent China’s upcoming economic data flow.

Ugly scenes if we see a miss in the NFP report

If markets do remain heavy into NFP, then a miss in Friday’s US jobs report (relative to consensus) and it could get pretty ugly out of there, and the changing market environment will mean traders have to have to make sure their approach to risk management and position sizing is on point.

The cross-market reaction on the day

The de-risking and risk aversion was noticeable across the entire market.

S&P500 futures printed a bearish daily reversal, where a subsequent breakthrough of 5616.75 in the session ahead will confirm the reversal.

The intraday tape of S&P500 futures shows a steady bleed through European and US trade and with 1.82m futures contracts traded there was solid volume traded here, as we also saw in the US cash equity.

72% of S&P500 stocks closed lower, with tech, energy and comms services all taken down hard, although there were some pockets of brightness, with rotation seen into staples and REITS.

Nvidia naturally get the headlines though with the share price falling -9.5% and seeing the biggest loss of market cap for a company ever. The NAS100 saw its biggest one-day drop since July.

Commodities have come into full focus, with Brent crude -5% and WTI crude -4.5% and breaking the multi-month range lows, with the moves attracting solid client flows.

Copper is nearly -3% lower at $4.09 p/lb. and looking like it may test the 7 August low of US$3.92 p/lb. Dalian iron ore sits -1.8% in the overnight session. Gold went on a whippy intraday ride, trading into US$2473, before finding better buyers, with spot now US$2492.

US Treasuries have seen good buying interest, with yields lower by -5-7bp across the curve. US interest rate swaps markets, however, have seen little movement and expectations for the September FOMC see little change on the day, with -32bp of implied cuts for the meeting clearly the NFP print may alter that pricing.

Further out, and US swaps markets have added an additional -4bp of cuts out to 12 months. In credit markets, high-yield credit spreads have widened 16bp punchy, and something to monitor.

Looking ahead Our opening calls for Asia equity indices look shaky, where notably the NKY225 is called -2.8%. The ASX200 eyes an open towards 8000, with BHP likely to open around -1.6% lower, and it clearly won’t be a good day to be long ASX200 tech or energy plays.

Let’s see how the market fares from around 10:30 AEST, as it will tell us a lot about sentiment that is, once we’ve had the shake-out of the morning orders, we look to see whether the buyers step in with calmer head prevailing or whether funds liquidate further, pushing the ASX200 through 8k.

 By way of upcoming event risk, China Caixin PMIs are due (11:45 AEST) and given the refocus on growth this survey has the potential to impact sentiment.

We also navigate Aussie Q2 GDP (11:30 AEST), US JOLTS job openings and the Bank of Canda meeting, where we will almost certainly get a -25bp cut.

On the calendar today:

-Australia 2Q GDP

-US July factory orders

-Clearview Wealth ((CVW)) ex-div 1.7c (100%)

-Fortescue ((FMG)) ex-div 89c (100%)

-Helia Group ((HLI)) ex-div 15c (100%)

-Lifestyle Communities ((LIC)) ex-div 5c (100%)

-Medibank Private ((MPL)) ex-div 9.4c (100%)

-Newmont Corp ((NEM)) ex-div 26.54c

-Nuix ((NXL)) investor briefing

-Pro Medicus ((PME)) ex-div 22c (100%)

-Praemium ((PPS)) ex-div 1c (100%)

-Seek ((SEK)) ex-div 16c (100%)

-Sonic Healthcare ((SHL)) ex-div 63c

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

Corporate news in Australia:

-Aussie Broadband ((ABB)) has sold its 12% stake in Superloop ((SLC)) for $99.8m after a Federal Court order to reduce its stake

-Myer’s ((MYR)) new chief Olivia Wirth will shut most Sass & Bide boutiques, bringing the fashion label exclusively into its department stores ahead of a proposed merger with apparel brands owned by Solomon Lew’s Premier Investments ((PMV))

-A research update on the lithium sector by Citi states every Australian lithium mine is losing money except for WA’s low-cost Greenbushes while an update by UBS is forecasting over-supply for longer with African supply ramping up

-Blackstone has come out the winner from the AirTrunk auction with a $23.5bn deal ((MQG)) ((GDC))

The Australian share market over the past thirty days

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

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author’s and not by association FNArena’s – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms