The Overnight Report: Not Going Anywhere

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            [3] => ((BPT))
            [4] => ((SUN))
            [5] => ((AZJ))
            [6] => ((MP1))
            [7] => ((NWS))
            [8] => ((REA))
            [9] => ((NAB))
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            [9] => NAB
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This story features BHP GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: BHP
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

The Wizards at OZ

The ASX200 again ran away from the 7000 level early yesterday in dropping -30 points from the open, in a choppy first couple of hours. But then news hit BHP Group ((BHP)) had taken a swing at OZ Minerals ((OZL)).

Having offloaded its oil & gas business, BHP has made it clear it wants to expand capacity in copper and nickel production, looking toward an EV boom. OZ fits the bill. With this in mind, the OZ board swiftly rejected the offer at $25 and refused due diligence access.

As you would. OZ is the perfect fit, so you’re unlikely to grab the first offer that comes along, and no doubt BHP has not made its best offer upfront. That’s what the market believes anyway, given OZ closed at $25.59, up 35.3%. The offer is also seen as opportunistic given copper and nickel prices have come well of their highs on global recession fears.

BHP itself rose 0.8%, implying investors see it as a good idea, but then the iron ore price was up so it’s not so clear. The offer nevertheless lit a fire under metal stocks in general, and OZ Minerals’ smaller peer Sandfire Resources ((SFR)) rose 6.4%.

The materials sector rose 1.8%.

In other news, Beach Energy ((BPT)) signed a sale & purchase agreement with BP Singapore and rose 6.5%. The energy sector rose 1.9%.

It was just as well, as all other sectors closed in the red except for utilities (+1.4%), riding off the back of energy, and financials, which closed flat on a balance of moves.

The consumer sectors that made the hard yards on Friday – staples, discretionary, healthcare – all went the other way yesterday. Taking a lead from the US, the Aussie ten-year yield jumped 12 points to 3.20%.

The banks may have enjoyed the yield bounce, but Suncorp Group ((SUN)) posted a weak result for which La Ninja was blamed and fell -4.6%, to be the worst performer on the day.

Aurizon Holdings’ ((AZJ)) weak result was blamed on lower freight volumes and the cost of acquiring OneRail in the period. It fell -3.5%.

Not a great start to the earnings season, but we’ve only just begun.

By the close, the index held over 7000 for the second day, closing at 7020. But it would have been different without BHP. The rest of the market didn’t look so flash.

The second day of closing with only a slight change also reflects the fact tomorrow night’s US CPI numbers will be critical to global markets.

So risk-taking will be subdued until then. With Wall Street again largely flat once more, our futures are down -8 points this morning.

When the chips are down

Last week US Congress passed the CHIPS Act, which provides subsidies and incentives for US semiconductor companies to de-globalise and bring their chip manufacturing back home to America, thus reducing supply chain reliance on the likes of China and particularly any nearby islands that may soon be Chinese.

It hasn’t come fast enough for sector heavyweight Nvidia, which last night posted a revenue miss and warned of even weaker revenues to come in the September quarter. Supply chain issues were blamed, along with a drop-off in gaming chip demand “post-covid”.

I’m not sure why we keep calling it that.

Nvidia fell -6.3% and dragged down the chip sub-sector, ensuring the technology sector was the worst performer on the day, with some of the chip-reliant Mega-Techs, such as Apple and Microsoft, also dragged down.

But, on the weekend Congress passed Biden’s so-called Inflation Reduction Act through the Senate, and it’s now likely to sail through the House. Despite much dispute about the name, the act will provide subsidies and incentives for any company aiding the fight against climate change, such as alternative energy. US solar stocks went for a run last night.

That news had the Dow up 300 points early in the session, before Wall Street faded back to the flatline. Friday night’s session saw an initial fall in the indices on the strong jobs number, before they pushed back to the flatline.

Again, flatlines are reflective of the risk around Wednesday night’s CPI.

We’ll see where we go beyond that, but otherwise the debate continues as to whether the 13% bounce for the S&P500 so far is no more than a classic bear market rally. One feature of a bear market rally is a build-up in FOMO as the rally progresses. And to that end we note: the meme stocks are back!

Rallies have been seen these past couple of sessions in GameStop and AMC Entertainment, and last night another of that group from early 2021 – Bed, Bath & Beyond – jumped 40% for no reason.

Meanwhile, the big spike in US yields seen on Friday post-jobs eased off last night, with the ten-year yield dropping back -8 points to 2.77%. The two-ten spread blew out further to 45 points.

And perhaps the Yanks were watching the Aussie market yesterday, because the best sector performers were materials and energy.

BHP doesn’t have to buy local.

Commodities

I noted yesterday a spike in the nickel price due to reduced smelter production driven by high costs – well, apparently, lead is also seeing the same problem.

Gold has bounced back following Friday’s night’s fall as bond yields eased.

The US dollar index also eased back by -0.2%, but having been crunched by the strong greenback on Friday night, last night the Aussie shot straight back up 1% to US$0.6984.

Where do you go for commodities?

Today

The SPI Overnight closed down -8 points.

NAB will release its business confidence survey for July today.

Megaport ((MP1)), News Corp ((NWS)) and REA Group ((REA)) are among today’s earnings reporters.

National Bank ((NAB)) will provide a quarterly update.

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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