The Overnight Report: Here We Go Again

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This story features DOMINO'S PIZZA ENTERPRISES LIMITED, and other companies.
For more info SHARE ANALYSIS: DMP
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

Bad News

The futures had ambitiously suggested up 20 points yesterday morning but the ASX200 never made it into the green, doing very little in the first hour of trade.

Then news came in from China, the US index futures began to fall and the ASX200 began a steady path downward, on negligible volume, to close on its low.

China’s covid cases are now rising at the fastest pace since May, with 2300 cases reported in the last seven days (population 1.45bn). Cases are rising again in Shanghai, albeit from a low base, while the worst affected is the steel, auto and computer producing province of Anhui.

Two more rounds of mass testing will begin in parts of Shanghai from today. Macau and its 30 casinos are shut down for one week.

It’s just what the global economy doesn’t need when hopes were growing inflation might be easing. More supply chain bottlenecks threaten if Shanghai in particular is once again shutdown.

Suffice to say the biggest sector fall in the ASX200 yesterday were materials (-2.8%), although energy held up (-0.1%) given news from Europe (more below).

Technology was the next biggest loser (-2.5%) as the Nasdaq took a turn on Friday night, and it was down sharply last night.

Consumer discretionary fell -1.9% to end its brief comeback from the depths. Domino’s Pizza ((DMP)) fell -6.3% on a broker downgrade after analysts had lauded the company’s inflation-proofing last week.

Costa Group ((CGC)) went into a temporary trading halt before providing a trading update, and then fell -8.0%.

EML Payments ((EML)) fell -24.6% after its CEO stepped down.

The index winners on the day were somewhat of a surprise, although not exactly high-flying. Investors clearly decided the insurers have been punished enough, given Suncorp Group ((SUN)) topped the boards with a 1.8% gain and Insurance Australia Group ((IAG) managed 1.1%.

The discretionary sector fell -1.8% but the other three of the top five winners were all retail REITs – Vicinity Centres ((VCX)), Shopping Centres Australasia ((SCP)) and Scentre Group ((SCG)), all up 1.1-1.6%.

This despite the Aussie ten-year yield rising 5 points to 3.53%.

The only sector to close in the green yesterday was healthcare (+0.1%).

So aside from waiting for Wednesday night’s US CPI result, we will now fret over whether Shanghai and other Chinese cities are destined to go back into lockdown.

The good news is Wall Street’s weakness last night reflected the same response we experienced yesterday, so our futures are up 18 points this morning.

Wasn’t very accurate yesterday though.

Another Nail

China accounts for one quarter of global manufacturing and a lot of that is tech-related (most things are these days). Musk decided to build his Asian gigafactory in Shanghai, which was previously locked down, and Tesla shares fell -6.6% last night to help lead the Nasdaq into another steep fall.

This despite Musk finally announcing the abandonment of his bid for Twitter, which fell -11.3%.

And despite the US ten-year yield falling -12 points to 2.98%, with the two-year falling to 3.06%.

Hopes for easing inflation? The latest poll of economists shows a consensus forecast of 8.8% for the June headline CPI, up from 8.6% in May – not down. Talk now is of a possibility the Fed could go a full 100 points if the result actually exceeds 9%.

The world’s largest asset manager – BlackRock – last night warned “there’s no Goldilocks scenario ahead of us,” implying you’re kidding yourself if you think the Fed can bring the US economy in for a soft landing.

France's finance minister warned on Sunday that Russia is likely to totally shut off its supply of natural gas to Europe. Last night Russia turned off the Nord Stream 1 natural gas pipeline to Germany for ten days of maintenance. European leaders fear the pause will become a permanent shutdown.

The EU accused Putin of blackmail after Russia cut off its gas supply to Poland and Bulgaria in April in response to sanctions.

The euro has almost fallen to parity with the US dollar for the first time since 2002. The dollar index is up another 1% overnight, further threatening the earnings outlook for US multinationals.

On Thursday night the earnings season will kick off with the first of the big banks.

According to data from Refinitiv, S&P500 earnings are forecast to have risen by 5.7% (year on year) in the June quarter, but take out the energy sector, and that number falls to -3%. Energy may only be 5% of the S&P but earnings are forecast to have risen 239%.

So far from it being quiet ahead of CPI and earnings, Wall Street is fretting once more.

Commodities

The only surprise here is the minimal fall in oil prices, but they are tied into gas prices.

The surging greenback and falling commodity prices have the Aussie plunging -1.2% to US$0.6737.

Today

The SPI Overnight closed up 18 points or 0.3%, in consideration of yesterday’s -1.1% fall for the ASX200.

The NAB business confidence survey for June is out today.

Metcash ((MTS)) goes ex.

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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