The Overnight Report: Cat Still Breathing

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            [1] => ((RIO))
            [2] => ((AMC))
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            [1] => RIO
            [2] => AMC
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This story features BHP GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: BHP
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Patience

There was a lot of fiddling about on the ASX yesterday as investors set themselves ahead of the RBA statement release. The ASX200 swung between down -26 and up 51 before deciding to settle near 7000 by 2.30pm.

On the release, the index shot up to be up 72 but by the close had settled back to near 7000 again.

Thanks for playing.

“The Board is prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve.”

In other words, we’re not going to go barrelling in with rate hikes, a la Fed. The RBA left the cash rate at 0.1% for now but will this month end further bond purchases (QE). The board still needs to see inflation not just between 2-3%, but sustainably between 2-3%.

“There are uncertainties about how persistent the pick-up in inflation will be as supply side problems are resolved.”

As expected, preventing the RBA from being more bullish is wages growth.

“Wages growth also remains modest and it is likely to be some time yet before aggregate wages growth is at a rate consistent with inflation being sustainably at target.”

The conclusion? Probably no rate hike until September, economists assume, unless the December quarter wage price index and GDP numbers come in hotter than expected, in which case maybe kick-off will be in June. So for now, the market can rest easy.

Every sector closed in the green yesterday bar one, however a -1.2% fall in materials is misleading as due to argy-bargy going on around BHP Group’s ((BHP)) solo listing. BHP’s -3.1% drop was enough to top the index losers list, with Rio Tinto ((RIO)) taking bronze on -2.4%, as fund managers adjusted their weightings.

Over in the bond market, the response to the RBA was muted. The ten-year yield rose one point to 1.90%. It was different for the Aussie. It jumped another 0.8% to US$0.7127, having been under 70c only two sessions ago. Yet there was nothing hawkish about the RBA statement.

Largely ignored on the day were the December retail sales numbers. Sales fell -4.4% in the month when -2.0% was expected. Apart from the RBA distraction, gains of 4.9% in October and 7.3% in November indicate a shift to early Christmas shopping in the face of possible supply shortages, as was the warning at the time.

So nothing to be concerned about.

Another day, another rally on Wall Street. Our futures are up 55. Do we now wave 7000 goodbye?

Back to Normal?

It is unclear as to why US exchanges bother opening at 9.30am. They might as well just wait until 3.30pm – that’s when it all happens.

So it was last night when having opened a bit lower, it looked for all the world like the major indices would close flat on the first day of February as an exhausted market reflected on a wild ride in January. But no, the indices all jumped up around 0.7% in the last half hour.

This suggests the bounce-back from the January lows may perhaps not be “dead cat”, but it’s early days.

The end result in January was Dow down -3.3%, S&P500 -5.3% and Nasdaq -9.0%.

There is an old adage in the market that how goes January so goes the rest of the year. In terms of reliability, it’s right up there with “Sell in May”, ie not.

There was distinct focus last night on the US manufacturing PMI for January and particularly the numbers therein. The pace of manufacturing growth slipped to a 14-month low of 57.6% due to covid impacts, but 57.6% is still a healthy pace.

The component index of prices paid rose to 76.1%, up from 68.2% in December, which is concerning and reflective of stubborn inflation, but backlogs were down in five of the past six months, delivery times declined for a third straight month and new orders fell for a second consecutive month.

These could be signs supply-side constraints are easing.

Either way, the Fed now seems pretty well set on its new course.

Exxon Mobil (Dow) jumped 6.4% on its earnings result last night, while parcel service UPS gained 14%.

Google has reported in the aftermarket, and as I write is up 6.7%. Not so flash for PayPal, down -13%.

Commodities

Another fall in the US dollar prompted gains in base metals, exacerbated by a thin market with China absent.

And as expected, iron ore has now stalled.

If anything, yesterday’s RBA statement could have prompted a fall in the Aussie, but on only a -0.3% fall in the greenback it shoots up another 0.8% to US$0.7127.

Still short, those forex traders.

Today

The SPI Overnight closed up 55 points or 0.8%.

The RBA governor will speak today.

The US will see January private sector jobs tonight.

Amcor ((AMC)) reports earnings today.

Happy Richie Benaud Day (2/2/22).

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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