The Overnight Report: Consolidation

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

By Greg Peel

A Tad Unfortunate

The futures had said up 46 and the ASX200 closed up 47 but it was a slow grind all day to get there, suggesting a little bit of scepticism of the move to a seven-week high.

Unfortunately, the biggest gains were in the energy and utilities sectors, both up 1.9%, on the back of an oil price rise. Commodity prices were all stronger on Friday night on news of impending Chinese infrastructure stimulus.

But on Sunday, China’s manufacturing PMI for July showed a fall into contraction at 49.0, down from 50.2 in June, when economists had forecast a rise to 50.4 after the main lockdowns had ended. The result is a -5% fall in oil prices last night.

The same response was not seen in base metal prices, with copper the only weaker metal in the session (-1%). The nickel price jumped 10% after Indonesia flagged a tax on nickel pig iron and ferronickel exports.

Healthcare gained 1.6% thanks to a 1.8% gain for CSL ((CSL)) and 3.3% for Sonic Healthcare ((SHL)). Healthcare has been a laggard in the rally to date as it is not typically a “risk on” sector, but perhaps caught up a bit yesterday despite the Aussie on the move back through US70c.

Staples rose 0.9%, suggesting maybe a similar theme. But yesterday United Malt Group ((UMG)) issued a profit warning and fell -17.2%. That money seems to have found its way into Elders ((ELD)), which rose 4.2%.

Telcos rose 1.4% on a 2.1% gain for Telstra, as brokers warm further to the stock.

Materials added 0.9% and the banks only 0.2%. The worst performer on the day was technology, down -0.4%. PointsBet Holdings ((PBH)) fell -14.2% after brokers suggested investors stay out of the stock until it proves it can make money.

The market showed no fear yesterday of today’s RBA rate decision. It’s pretty much a given that we’ll see another 50 point hike so there’s not much room for shock.

Wall Street has finally seen a session of consolidation, heading into the new month, and our futures are down -26 points this morning.

It will not be a great day for the energy sector.

August Breather

After July saw the best month for Wall Street since the 2020 covid rebound, it was no surprise August would open with some profit-taking. The Dow was down -200 points early in the session.

The index rallied back and all indices spent the afternoon shifting back and forward across the flatline. Some fresh inspiration is needed for another leg up.

The S&P500 closed at 4118 and commentators suggest it could get to 4200, which would be half way back from the year’s fall, before stalling out.

Maybe Pinterest’s earnings report after the bell last night could provide some inspiration.

Tech stocks have been the hardest hit in the downturn – most arguing to oversold levels – and as the earnings season has unfolded one theme has been a drop-off in advertising spend, hitting the likes of Snap and Facebook. But for a couple of exceptions, results have been the case of not-as-bad-as-feared.

Take Pinterest. The company that “allows people to find inspiration for their lives, including recipes, style and home inspiration, DIY, and others” missed on both revenue and earnings, and is up 22% in the aftermarket.

On the day, Boeing was the biggest Dow-driver in rising 6.1% after the company received approval from the FAA to resume deliveries of its 787s. There is a backlog of orders for the new planes, and Boeing has some 120 parked ready to go.

Otherwise it was a mixed bag of sector moves, with energy obviously a loser along with financials, after a tick down in the US ten-year yield and a tick up in the two-year pushed the two-ten inversion out to 30 basis points.

Bond markets continue to price in a recession – a real one, not just two negative quarters – and a subsequent move from the Fed next year to cut its cash rate after having rapidly hiked it this year.

The weak Chinese PMI was not too well received and Wall Street is holding its breath to see whether China will shoot down Nancy Pelosi’s plane before it lands in Taipei.

It is possible Wall Street will now consolidate this week up to Friday’s jobs report, but it’s never a given.

Commodities

Back in 2020, the Indonesian government became fed up with the country being a major exporter of nickel ore, to China in particular, rather than investing in value-add domestic nickel smelting, so it banned exports unless such investment was made.

Nickel miners simply switched to exporting nickel pig iron and ferronickel, which have a lower nickel content. So now the government has flagged a tax on NPI and ferronickel exports.

Base metal prices otherwise held up relatively well given the big drop in oil prices, which were attributed to China’s weak PMI.

As the US yield curve continues to invert, the US dollar index continues to pull back from its highs, down -0.5% last night.

The Aussie is up 0.6% at US$0.7032.

Today

The SPI Overnight closed down -26 points or -0.3%, matching the S&P500.

The RBA meets today and we’ll also see numbers for building approvals and housing finance.

Credit Corp ((CCP)), Centuria Office REIT ((COF)) and Temple & Webster ((TPW)) report earnings and Virgin Money UK ((VUK)) provides a quarterly.

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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