The Overnight Report: Nervous Anticipation

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This story features TYRO PAYMENTS LIMITED, and other companies.
For more info SHARE ANALYSIS: TYR
The company is included in ASX300, ALL-ORDS and ALL-TECH

By Greg Peel

Fighting Back

We’ll likely have to wait until Friday to determine whether this week’s market action is an attempt to find a bottom, or just an attempt to push up returns to year-end. Yesterday the ASX200 fell close to -100 points by midday, following Wall Street’s lead, before closing down -63.

And that was actually not as bad as it looks, given the bulk of REITs, infra and other funds, property developers, pipeline owners and toll collectors went ex-dividend. Hence real estate fell -3.8%, utilities -1.2% and industrials -0.6%.

Otherwise it was a bit of a mixed bag, with financials, staples and energy all up slightly but materials giving back -1.5% after Tuesday’s rebound.

Tech fell -2.8%, following the Nasdaq, and Tyro Payments ((TYR)) fell -16.7% after its CEO was poached by Star Entertainment ((SGR)). Star rose 3.3%.

Healthcare dropped -1.5%, with Imugene ((IMU)) pulling back another -14.0%.

Communication services fell -2.2%, with Carsales ((CAR)) down -12.1% on an acquisition and raising.

That just leaves discretionary, down -0.9%, despite May retail sales coming in at 0.9% growth when 0.4% was forecast. A lot of that is price inflation, of course, but ANZ Bank economists noted volumes do remain solid. It was the second consecutive month of 0.9% growth, and sales are up 10.4% year on year.

In the winners’ circle, lithium miner Liontown Resources ((LTR)) rose 5.2% after signing an offtake deal with Ford. Someone took a substantial holding in Aurizon Holdings ((AZJ)) and it rose 3.2%. Coal has been the one commodity holding up in price recently and Whitehaven Coal ((WHC)) rose 1.8%.

If you can’t afford to fill the car, perhaps try your luck with pokies in New Zealand (or Adelaide). SkyCity Entertainment ((SKC)) rose 3.9% and Aristocrat Leisure ((ALL)) 1.9%.

Aside from attempting to window-dress returns, fund managers will also be shuffling around their portfolio allocations this week ahead of the new year, adding to the aforementioned mixed bag.

The last day of the year is not quite shaping up as a thriller as yet. The futures are down -1 point this morning.

What to do?

There was not much sign of urgent window-dressing on Wall Street last night, although the indices did close with a minor kick-up, after they had spent all session bungling along the flatline following two sessions of steep volatility.

On that subject, one researcher has found that current Wall Street volatility, as measured by the number of 5% or more plus/minus daily stock price moves in the period, is as high as it’s been since 1928.

That sounds a bit ominous, but it seems 1929 was a bit of an outlier as history suggests such elevated volatility comes towards the end of the bear market.

That said, it is still nigh on impossible to find anyone who doesn’t think Wall Street still has further to fall, and that the trigger for further falls will be next month when current earnings forecasts are proven to be too optimistic, as most everyone believes. Forecasts are for over 4% year on year net S&P500 earnings growth for the June quarter and over 10% for the second half.

When you look back at the rally of 2021, the numbers do seem rich in the current inflationary environment. It will all come down to pricing power. There is no doubt everyone’s costs have risen, it’s just a matter of how much of that has been successfully passed through to consumers when consumer sentiment is at an historically low ebb.

That 4% is also distorted by expected excessive growth in energy company earnings, despite the energy sector being only 5% of S&P market cap.

And, of course, a lot will depend on how the big boys fare, with the likes of Apple, Amazon, Microsoft, Facebook and co all been marked down hard this year.

There were a couple of early, and diverse, indicators last night.

Consumer food company General Mills beat on earnings and revenues and rose 6.4%. We’ll call that a staple.

Bed, Bath & Beyond, which we’ll call discretionary, posted a big miss and fell -24%, as the CEO fell on his sword. The company also owns a brand called Buybuy Baby. Apt.

The energy sector was actually the worst S&P performer last night as oil prices pulled back ahead of tonight’s OPEC-Plus meeting. But then the energy sector has been either the best or worst performer in most sessions recently.

Talk about volatility.

Little volatility overall last night nonetheless, as Wall Street looks towards tonight’s May PCE inflation release.

Commodities

Can’t read much into metals prices at the moment.

The oils have slipped in case the Saudis and friends decide to increase their production quotas at tonight’s meeting. But it’s just a safety trade, as no one believes there is sufficient OPEC capacity to make any real difference, and Russia’s selling its oil at a discount to China and India.

The US dollar is on a tear once more as the world turns to the global safe haven, with last night’s 0.6% gain taking it to highs not seen since 2002. That will be another problem to consider for US earnings results.

The Aussie is down -0.4% at US$0.6883.

Today

The SPI Overnight closed down -1 point.

We’ll see private sector credit numbers today.

China will report June PMIs.

OPEC and the PCE will keep Wall Street on its toes.

CSR ((CSR)) holds its AGM today.

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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