The Overnight Report: Back In Tech

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This story features ZIP CO LIMITED, and other companies.
For more info SHARE ANALYSIS: ZIP
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

Green on Screen

It’s been a while since we’ve seen every sector in the ASX200 post a gain in the session but that was the response yesterday to a solid rally on Wall Street. Hopes are growing that the worst has now been seen and the last bottom might have been the bottom.

The jury’s still out on that one.

The good news is we are seeing some positive quarterly trading updates heading into the August reporting season.

While a leading rally for technology yesterday was always a given after a strong session for the Nasdaq, the 3.8% gain included a 23.0% chart-topping pop for Megaport ((MP1) after the company silenced the critics with its update. And the bold saw reason to jump back into near-death BNPL, with Zip Co ((ZIP)) rising 12.7%.

The materials sector has been weighed down recently not just by reversing commodity prices but also fears of inflationary impacts on mining costs, no more evident than in reports from the biggies BHP Group ((BHP)) and Rio Tinto ((RIO)), but with several miners reporting quarterly numbers yesterday, materials posted a solid 2.5% gain.

The exotics were back in favour again (until the next day when they may not be), with Paladin Energy ((PDN)) up 10.5% and Liontown Resources ((LTR)) up 10.4%.

While a “risk on” theme was indicated by a 1.8% rally for consumer discretionary against only 0.4% for staples, real estate jumped 2.2% despite another incremental rise in bond yields. Brokers have recently been climbing over themselves to issue sector reports suggesting REIT selling on rising rates has been overdone.

Among the other “defensives”, telcos and utilities rose 1.6%, and healthcare 0.8%.

It didn’t take much to get onto the top five losers’ board yesterday. A case in point is Kelsian Group ((KLS)), which came in fourth with only -0.5%, but the stock has lost -9% in a week which likely reflects its London bus operation, as they’re all whining over there as usual as if 40 degrees was hot.

The banks gained 1.4%, with Westpac ((WBC)) announcing a pre-emptive further hike in its mortgage rates, on a day in which the RBA governor actually sounded a little less hawkish.

Lowe did say that the board had “more work to do”, and suggested “maybe we’ve gone past the point of full employment,” which implies an inflation issue is brewing in wages, but he also said “we don’t need to return inflation to target [2-3%] immediately,” and it needs to be done in “a way in which the economy continues to grow and unemployment remains low”.

On Tuesday the deputy governor had suggested the much discussed “neutral rate” was 3%, but yesterday Lowe pegged it at 2.5%.

Either way, markets have locked in a 50 point hike next month, unless next week’s June quarter CPI result is a lot worse than already assumed. (Note: UK printed 9.4% last night).

Stranger Things

While only 12% of S&P500 companies have reported to date, for a net 68% beat-rate, the theme so far has been more of not-as-bad-as-feared rather than specifically good. A case in point is Netflix, which reported after the bell on Tuesday and last night rallied 7% because it only lost one million subscribers in the quarter instead of two.

Tesla reported after the bell this morning and while margins did come in lower than forecast (Chinese gigafactory lockdown), it was still an earnings beat. The stock was up over 3% initially until someone pointed out Elon had sold 75% of his bitcoin holding in the quarter, which brought in a cool US$950m, so currently the stock is only slightly positive.

It will be money he might need if, as feared, he ends up with a US$5-10bn legal bill following his ridiculous Twitter foray. If so, he will have to sell Tesla shares.

The Netflix result nevertheless heartened the tech-heads such that everything ephemeral that has been beaten into submission this year saw solid gains last night. It was a sunny day in the cloud.

The Nasdaq was also boosted by the semiconductor sector, which rallied on news the long-awaited “Chips Act” had passed its first step through Congress with bipartisan support. The act provides subsidies and incentives for chip manufacturing capacity to be built in the US, so to match similar policies in China and Europe.

The US currently supplies only 2% of the chips purchased by US companies. The R&D and design is done state-side, but some 90% of US chips are manufactured in Taiwan.

And you thought it was the Taiwanese people the US was worried about were China to invade.

So last night was all about the Nasdaq, with the Dow bungling along the flatline all session. Both the Nasdaq and S&P500 have now risen above their 50-day moving averages, suggesting (but not guaranteeing) that the downtrend has now been broken.

In US economic news, existing home sales fell by an annual rate of -5.4% in June, which was the worst result since March 2020, providing further evidence the US housing market has rolled over. The hope now is that rents – the largest and stickiest component of CPI – can also roll over.

All eyes are on the ECB tonight, from whom the first rate hike in eleven years is expected. It might be 25 points or it could be 50, which would take the cash rate up to…drum roll…0%.

US earnings results will continue to flow.

Commodities

More green on screen, but the pundits warn it could be little more than a relief rally from oversold conditions. And Shanghai could go back into lockdown at any moment.

The gold bugs must be very frustrated. The gold price barely moved as US bond yields retreated and the US dollar came off its highs, but now the ten-year is back above 3% once more and the dollar ticked up again last night, so gold was sold.

WTI crude slipped back on data showing higher than expected US gasoline inventories, suggesting the high cost of fuel is curbing demand in the summer driving season.

The Aussie is down -0.2% at US$0.6890.

Today

Following the big rally yesterday, the SPI Overnight closed down -33 points or -0.5%.

Both the Bank of Japan and ECB hold policy meetings today/night.

Gold miners and gas giants will be in the frame today, with quarterlies due from Newcrest Mining ((NCM)), Evolution Mining ((EVN)), Woodside Energy ((WDS)) and Santos ((STO)).

SaaS company Ansarada Group ((AND)) reports earnings.

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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