The Overnight Report: China, Chips & Crude Oil

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A profit warning from ASM Lithography, in combination with weaker oil prices and ongoing uncertainty/disappointment from Chinese authorities was simply too much to bear for equities overnight.

SPI futures locally are indicating the Aussie market is poised to follow the trend into weakness today.

Meanwhile, the local AGM season is heating up and investors will be braced for more market updates with WEB Travel Group ((WEB)) and Ampol ((ALD)) having disappointed in recent days.

By Chris Weston, Head of Research, Pepperstone

Good morning.

On the day both macro and bottom-up factors worked concurrently to negatively impact price action across markets, with the news flow coming in thick and fast from varying equity sectors and geographies.  

The net effect has been solid intraday trader flows playing out in crude, NAS100 and Nvidia, US banks and Chinese/HK indices.

 At a stock level, earnings reports stepped up a gear with numbers and guidance dropping from Bank of America (BAC), Goldman Sachs, J&J, United Health, Citi, Charles Schwab, LVMH and ASML.

The US banks saw a mixed reaction in terms of share price moves, with Citi seeing the biggest move on the day (-5.1%) with Q3 net interest income missing the mark.

BAC opened on the front foot trading into US$43.36, but immediately saw sellers push the stock back to US$42.33, before flatlining for most of the session and closing +0.6%.

 The bigger influence came from the news and the subsequent punchy reaction in LVMH ADR and ASML ADR.

Both have seen quite violent reactions in the respective share prices, where the moves have influenced other plays in their sectors.

What’s interesting in both reports was the weaker demand from China impacting revenue, which was a central theme in both reports.

LVMH reported Q324 group sales well below consensus at -3% y/y, with weakness in sales in its fashion division falling 5% y/y cooling demand in Asia clearly evident.

 ASML reported numbers a day earlier than expected, and they have struck a chord with shareholders who have dumped the stock hard on the day – reporting Q3 orders at EUR2.6bn, around half of what the street was looking for.

Guidance on sales and gross margins were also well under consensus expectations, and while somewhat expected, given the recent capex cuts from the likes of Intel, many see the weakness in orders as the red flag and analysts have been scratching their heads over this one clearly, the street has missed something here and the market has been positioned well offside.

AMSL ADRs have closed -15.6% lower, with the read-through into other US and global AI and tech plays quite apparent.

Sizeable selloffs have been seen across the space in ASM International, ARM, AMD, Broadcom, and Nvidia.

Nvidia also feeling headwinds from regulatory affairs, with the Biden administration reviewing capping sales to the Persian Gulf not a region Nvidia currently source any notable revenue from, but caps here could close a future growth region and naturally, investors will be questioning if it could lead to further regions also being affected.

At an index level, the S&P500 and NAS100 cash markets closed -0.8% and -1.4% respectively, with both markets settling close to session lows.

 Tech took out the points, while energy was the clear underperformer, driven by a weaker crude price that has looked to price out the threat of reduced Iranian crude output.

We can see the intraday tape of S&P500 futures, and when the index broke the Asia & EU session lows of 5902, it was one-way selling into 5850.

US Treasuries saw solid buying in the long end of the curve, with 10s and 30s -7bp and -9bp lower respectively, resulting in a solid bull flattening. 

China continues to get great attention, with traders working the various China/HK equity indices to the downside yesterday, where clearly the measures announced on Saturday are seen as a medium-term driver and not one that inspires conviction longs at this point in time.

News from LVMH and ASML won’t do sentiment towards the region any favours today either and our opening equity index calls here suggest a tougher day at the office for longs, with the NKY225 notably set to underperform.

By way of event risk, on the docket, we get NZ CPI, which could influence pricing on -50bp v -75bp November RBNZ rate cut debate and could impact the NZD.

We also get UK CPI, with expectations that headline CPI pulls back to 1.9% y/y and core CPI falls 20bp to 3.4% – so, unless we get a big upside surprise the numbers should play firmly into a -25bp cut from the BoE in the November meeting.

On the calendar today:

-New Zealand 3Q CPI

-Japan Aug machine orders

-UK Sept CPI & PPI

-Bapcor ((BAP)) AGM

-Bank of Queensland ((BOQ)) earnings report

-CommBank ((CBA)) AGM

-Challenger ((CGF)) Q1 report

-Clinuvel ((CUV)) AGM

-Evolution Mining ((EVN)) Qtrly report

-Orora ((ORA)) AGM

-Origin Energy ((ORG)) AGM

-Redox ((RDX)) AGM

-Rio Tinto ((RIO)) Qtrly update

Corporate news in Australia:

-Challenger ((CGF)) reaffirmed FY25 net profit guidance between $440m and $480m. Total Life sales have fallen -14% to $2.4bn

-Pilbara Minerals ((PLS)) has secured a $1bn credit facility, repaying two existing debt facilities to increase financial flexibility

-ASIC probes Super Retail’s handling of whistleblower complaints as two former executives sue over allegations of misconduct and dysfunction

-Energy Resources of Australia ((ERA)) to move ahead with $880m capital raise

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.

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