The Overnight Report: Is That It?

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

By Greg Peel

Quiet Day

The futures said up 70 points, the ASX200 opened up 85, and closed up 78 without doing much in between. Yesterday’s local response to the weaker US CPI result was always going to be well received.

Sector-wise it was nevertheless a bit of a case of the haves and have nots.

Consumer discretionary won the day (+2.2%) given a slight dip in US inflation implies everything’s about to become so, so cheap, which is great for the retail landlords. Real estate rose 2.0%.

Other winners were the banks (+1.0%), healthcare (+1.2%), technology (+1.3%) and materials (+1.5%).

The gain in materials was net of a -3.9% fall for Rio Tinto ((RIO)) as it went ex-dividend.

Not as flash were staples (+0.3%), industrials (+0.3%) and communication services (+0.6%). In the latter case, Telstra ((TLS)) delivered a dividend increase for the first time in seven years and fell -1.4%. Its profit went backwards.

The only loser was utilities (-1.5%), with Origin Energy ((ORG)) and AGL Energy ((AGL)) both down slightly and gas pipeline operator APA Group ((APA)) down -2.2%. With energy prices very much in the government’s (and the opposition’s) cross-hairs, perhaps not a good risk at present.

The energy sector also only managed a 0.5% gain on a small rise in oil prices.

Among the day’s earnings reporters, which included Telstra, QBE Insurance ((QBE)) rose 3.3% and Mirvac Group ((MGR)) 3.8%, while AMP ((AMP) fell -0.9%.

If you’re wondering why the technology sector only put in a tepid 1.3% gain when the Nasdaq had shot up 2.9% overnight it’s because Computershare ((CPU)) saw selling for the second day post-result (-5.1%) to be the worst index performer.

On a positive day overall, Rio’s ex-div put it in second place.

The excitement continued on Wall Street overnight as a weaker PPI followed Wednesday night’s weaker CPI, but not for long, leading commentators to suggest the US market is starting to look toppy.

Our futures are down -20 points this morning.

Wholesale Joy

The US headline producer price index fell -0.5% month on month in July – the first negative month since April 2020. Economists had forecast a 0.2% increase. Annually the PPI dropped to 9.8% growth from 11.3% in June.

The core PPI (ex food & energy) rose 0.2% to be up 5.8% annual, down from 6.4%.

The standout in the headline was a -9.0% fall in energy prices, after having risen 9.4% in June. Note the WTI crude has fallen from US$102/bbl at end-July to US$88 in the first week of August but has since rallied back to US$94.

The Dow shot up 200 points from the open and the S&P500 over 1% to peak at 4257 less than an hour into the day, but from there the indices began to roll over. The S&P closed at 4207.

When the rebound rally began from the lows of mid-June, many an analyst had pencilled in 4200 as a potential target for a bear market rally. Once exhausted, the next target would be 3500-3700. The June low was 3666.

So, apart from a bit of a pullback following a solid one-way street 15% rally off the low, what would get Wall Street back to the low?

The obvious driver would be a Fed unmoved by an apparent peaking of inflation, determined to push rates rapidly higher with a 2% (core PCE) inflation target required. Another 75 point rate hike in September when Wall Street wants 50 would be a test.

Before then we’ll see the July PCE, August CPI/PPI and August jobs, along with other data.

Another risk is simply that inflation goes back up again. Oil prices may be off their highs but anything can happen with regard Russia-Ukraine.

And then anything could happen with regard China-Taiwan.

The minutes of the July Fed meeting are out next week, which may not prove as dovish as Jerome Powell appeared to be at his last press conference.

Next week brings the Jackson Hole symposium, made famous as the soapbox of choice for Ben Bernanke to announce his QE plans.

And then there are simply signs that the US economy is spiralling into recession.

We can only play it cautiously from here.

Commodities

Miners will struggle to expand operations in the US in record time to meet a deadline for sourcing key minerals domestically or from select countries as set out by the Inflation Reduction Act likely to be passed through the House on Friday, companies and industry watchers said last night (Mining.com).

The requirement is part of the sweeping bill that includes climate and clean energy policies and rules on EV battery materials such as cobalt, lithium, nickel and graphite.

Oil prices moved higher last night after the International Energy Agency raised its forecast for global oil demand growth as summer heatwaves in Europe and tight natural-gas supplies prompt more oil use for power generation.

The US dollar has dipped another -0.1% and the Aussie is up another 0.4% at US$0.7108. Seems like just yesterday it was at 68, but we’ve been seeing these rapid fluctuations all year.

Today

The SPI Overnight closed down -20 points or -0.3%.

The UK will report its June quarter GDP tonight.

The US will see a Michigan Uni consumer sentiment survey, the prime focus at present being the inflation expectations component.

Insurance Australia Group ((IAG)), ResMed ((RMD)) and GPT Group ((GPT)) are among those reporting earnings today.

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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