The Overnight Report: Everest Conquered

Array
(
    [0] => Array
        (
            [0] => ((SBM))
            [1] => ((A2M))
            [2] => ((CPU))
            [3] => ((CBA))
            [4] => ((NAB))
            [5] => ((ANZ))
            [6] => ((DMP))
            [7] => ((AMP))
            [8] => ((MGR))
            [9] => ((QBE))
            [10] => ((TLS))
            [11] => ((WDS))
            [12] => ((RIO))
        )

    [1] => Array
        (
            [0] => SBM
            [1] => A2M
            [2] => CPU
            [3] => CBA
            [4] => NAB
            [5] => ANZ
            [6] => DMP
            [7] => AMP
            [8] => MGR
            [9] => QBE
            [10] => TLS
            [11] => WDS
            [12] => RIO
        )

)

This story features ST. BARBARA LIMITED, and other companies.
For more info SHARE ANALYSIS: SBM
The company is included in ALL-ORDS

By Greg Peel

Bit Nervous

I noted yesterday morning our futures were down an oversized -0.6% beyond the S&P500’s -0.4% ahead of yesterday’s open on the ASX, and suggested this likely implied a big sell-order was set to hit the market in the morning, or maybe it just reflected some squaring up ahead of the critical US CPI result due last night.

Essentially we saw both.

The futures said down -36 and in the first 15 minutes the ASX200 was down -44. The buyers immediately stepped in and by 12.30pm the index was back to square. The afternoon then saw anticipated squaring up, and by the close the index was down -37.

Well done early buyers – the futures are up 70 points this morning. We closed slightly below 7000 yesterday but now we’re back on track.

For the record, nervousness had materials down -1.0% despite some stronger metals prices. Worst index performer on the day was gold miner St Barbara ((SBM)), which fell -11.6% on yet another cut to production guidance.

Consumer sectors have flip-flopped all week and yesterday discretionary fell -1.0% and healthcare -1.5%. Staples only fell -0.2%, although a2 Milk ((A2M)) lost -6.7% after the FDA deferred its decision on a2’s offer to sell infant formula to the US.

It was never going to be a good day for technology given the Nasdaq had underperformed overnight, but a -3.8% fall included a -4.6% drop for sector heavyweight Computershare ((CPU)) following a disappointing result.

Only two sectors closed in the green, being utilities (+0.9%) and the banks (+0.5%), the latter in the wake of Commonwealth Bank’s ((CBA)) earnings report.

CBA actually fell -0.3% while Westpac and National Bank ((NAB)) each rose 1.4% and ANZ Bank ((ANZ)) 3.4%. With CBA’s result now in the bag, time to switch across to the others which report in September.

Can one sell coal to Newcastle? In an interesting development yesterday, Domino’s Pizza's ((DMP)) US parent announced it had thrown in the towel and will shut down its franchise in Italy. Apparently the local pizzerias decided they too could offer delivery, and of actual pizzas.

We recall that Starbucks similarly gave up on Australia, and that the fastest growing coffee choice in the world now is the flat white.

Blow-Off Top?

Having risen 1.3% month on month in June, the US CPI rose by 0.0% in July. The annual rate fell to 8.5% from 9.1%.

OMG, buy everything!

The headline CPI was always expected to come down, mainly due to lower oil prices. Economists had forecast 8.7%, so in a converse way, this was a beat. There was concern that the core CPI, which doesn’t include energy, might still tick up, but on a 0.3% month on month gain, compared to 0.7% in June, the annual rate remained unchanged at 5.9%.

Breaking down the headline numbers, energy prices fell -4.6% in July, and gasoline -7.7%. Used car prices and airfares saw meaningful falls. Overall goods inflation fell -0.5%.

But services inflation rose 0.3%, rents rose 0.5%, and food inflation rose a significant (for one month) 1.1%. Wages rose 0.5%.

In other words, we can’t afford to see another spike in the oil price, back over US$100/bbl or worse again, if inflation can truly be said to have peaked. Unfortunately, in current geopolitical circumstances anything could happen. And food prices are beholden to the Russians. And rents don’t go down in any hurry.

The S&P500 has now bounced 15% off the June low – about as far as your common or garden bear market rally typically achieves. The index is back to a level last seen in May, has recovered half of the 2022 fall, and is approaching its 200-day moving average.

September is historically the worst month of the year for stocks, and October the scariest. Fear of another 75 point Fed rate hike, driven by the strong July jobs report, have now receded, and the market expects only 50 in September.

There’ll be another jobs report and CPI report before then. Rate rises aside, the Fed’s quantitative tightening will ramp up from September as more bonds and mortgage-backed securities are not replaced on the balance sheet. The last time the Fed “tapered” its balance sheet, in 2014, it started long before the first post-GFC rate rise.

This time it’s a double-whammy.

So suffice to say, the CPI result has done nothing to sway those who insist that while the S&P500 could still close higher than its June low this year, it may still need to go back and test it first. History is on their side.

There is also a suggestion 8.5% is not nearly low enough to stop the Fed going another 75 in September.

Inflation? Disney (Dow) has reported in the aftermarket, and having risen 4% during the session is up another 6.7% currently. Disney Plus now has more subscribers than Netflix. To celebrate, Disney is raising the price of its ad-free streaming service to US$10.99 per month from US$7.99.

Commodities                                                                                                                                                                                                                                                                                               

No great joy in metals markets on the CPI result. Notably, the US dollar dropped a full percent and US bond yields eased, but this didn’t have an impact either.

Interestingly, the best performing sector on the S&P500 last night, in a session that saw all sectors rally, was materials (+2.9%).

On the dollar’s drop, the Aussie is up 1.6% at US$0.7081.

Today

The SPI Overnight closed up 70 points or 1%.

The US July PPI is out tonight.

AMP ((AMP)), Mirvac Group ((MGR)), QBE Insurance ((QBE)), Telstra ((TLS)) and Woodside Energy ((WDS)) report earnings today.

Rio Tinto ((RIO)) goes ex-div by -$3.84 per share.

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.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms