The Overnight Report: Technically Speaking

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This story features FORTESCUE LIMITED, and other companies.
For more info SHARE ANALYSIS: FMG
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Not Buying It

When a new CEO takes over the reins at a listed company it is not unusual for the new guy to reset expectations lower, thus if performance is better than those expectations he looks good but if it’s weak, he can blame the last guy.

Enter Jim Chalmers. The new treasurer yesterday laid out a doom-and-gloom scenario for the Australian economy, preparing the country for what will likely be an unpopular budget in August. Classic first year stuff – act tough now with an election far off and blame the last lot.

In the first eight minutes of trade yesterday, the ASX200 was up 66 points, following on from a strong rally on Wall Street, driven by a belief the Fed may have now hit peak-hiking. But then Chalmers opened his mouth and by late morning the index was up only 19 points.

One of Chalmers most dour predictions is that inflation will hit 7.75% by year-end. On Wednesday the June quarter CPI print came in lower than expected, prompting suggestions inflation may have peaked.

By the close, the index was up 66 points.

It was once again all about resources, with materials up 2.4% and energy 1.3%. Fortescue Metals’ ((FMG)) June quarter update noted record iron ore shipments for the third year running, and a lift in outlook. Also providing updates on the day were Mineral Resources ((MIN)), which rose 9.0%, and gold miner St Barbara ((SBM)), which rose 10.2%, noting the USD gold price is back on the move on a lower US dollar and bond yields.

But yesterday investors did not draw down from their bank exposures to buy resources. Financials gained 0.8%.

It was an interesting day in consumer discretionary. Kogan ((KGN)) also provided an update, and it ticked up 50%. Shades of Zip, given Kogan had fallen -80% from its 2021 high. Zip Co ((ZIP)) incidentally, rose yet another 22%.

The stories are similar for the likes of Redbubble ((RBL)), up 22% yesterday, PointsBet Holdings ((PBH)), up 20%, and Temple & Webster ((TPW)), up 13.5%.

The ASX200 discretionary sector rose only 0.6%, as none of the above (except Zip) is in the index. Zip, Kogan, Temple & Webster and PointsBet are all heavily shorted.

Note that yesterday’s data showed retail sales rising only 0.2% in June – the weakest growth this year.

These spectacular moves are of course all off low bases, and mimic similar action on Wall Street in the beaten down tech/discretionary space.

Otherwise, all sectors closed in the green except healthcare (flat) and utilities (-1.8%), after AGL Energy ((AGL)) fell -2.4% and Origin Energy ((ORG)) -1.0% on a government pledge to bring down power prices.

Is it all just classic bear market rally stuff? Well we’ll soon find out as the reporting season steps into gear from next week.

Meanwhile, following another strong session on Wall Street, our futures are up 70 points this morning.

So What?

OMG, the US economy is in recession. Buy everything.

The US GDP contracted by -0.9% in the June quarter, following a -1.6% contraction in the March quarter. Technically, that’s a recession.

The timing is interesting given only a day earlier Jerome Powell suggested the US could not go into recession with unemployment so low. But like many, the Fed will likely dismiss the “technical” definition.

They include Treasury Secretary, and Powell predecessor, Janet Yellen:

“Most economists and most Americans have a similar definition of recession – substantial job losses and mass layoffs, businesses shutting down, private sector activity slowing considerably, family budgets under immense strain,” Yellen said last night. “That is not what we’re seeing right now when you look at the economy. Job creation is continuing, household finances remain strong. Consumers are spending and businesses are growing.”

Powell also hinted on Wednesday night that future rate hikes will be at a slower pace than July’s 75 points. Whether or not the Fed fobs off the GDP numbers, they do support slower tightening.

For months now market consensus has been that the Fed will go hard to fight the inflation surge it missed, before slowing, or pausing, rate hikes as evidence of a slowdown materialises. By 2023, the Fed will be forced to cut, many believe, because of recession. It is also notable that many a US CEO has already claimed “we are in a recession”.

But Wall Street had priced in a recession, so if the Fed is going to ease off, it’s time to buy. That’s why Wall Street was strong again last night following Wednesday night’s pop.

Every S&P500 sector bar one closed in the green. Communication services fell -0.7% because Facebook fell -5% post result.

Utilities was unusually the best performer (+3.5%), because Senator Manchin bowed to Biden’s proposed legislation to tackle climate change, which sent solar companies flying over 20%.

Technology also got a boost from the passing of the “Chips Act”, which opens the door for the government to provide subsidies, as is the case in China and Europe, to bring chip manufacturing back to the US for the purposes of national security.

One such beneficiary, which actually has plans for the new factory ready to go, is Intel (Dow). But it has posted a shocker of a result in the aftermarket this morning and is currently down -8%.

Another aftermarket shocker is streaming platform Roku, which has been “snapped” down -25% (advertising).

But – and it’s a significant but – also reporting after the bell were Amazon and Apple (Dow). Currently Apple is up 3% and Amazon 14%.

Commodities

Last night base metals responded to Wednesday night’s Fed rhetoric.

The US ten-year yield fell -5 points to 2.68%, the dollar came off -0.3%, and gold is finally crawling back into the sunlight.

The Aussie is unchanged at US$0.6994.

Today

The SPI Overnight closed up 70 points or 1.0%.

Today we’ll see the June quarter PPI, along with monthly private sector credit.

The US will see PCE inflation and consumer sentiment.

The eurozone reports its June quarter GDP.

Quarterly reports are due today from Insignia Financial ((IFL)), PointsBet Holdings and Origin Energy.

Janus Henderson ((JHG)) reports earnings and Link Administration ((LNK)) holds its AGM.

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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