The Overnight Report: Chinese Doldrums

Array
(
    [0] => Array
        (
            [0] => ((BPT))
            [1] => ((BEN))
            [2] => ((CAR))
            [3] => ((BSL))
            [4] => ((GPT))
            [5] => ((JBH))
            [6] => ((NEA))
            [7] => ((BHP))
            [8] => ((CGF))
            [9] => ((GMG))
            [10] => ((JHX))
            [11] => ((SCP))
            [12] => ((SEK))
            [13] => ((SGM))
            [14] => ((CPU))
        )

    [1] => Array
        (
            [0] => BPT
            [1] => BEN
            [2] => CAR
            [3] => BSL
            [4] => GPT
            [5] => JBH
            [6] => NEA
            [7] => BHP
            [8] => CGF
            [9] => GMG
            [10] => JHX
            [11] => SCP
            [12] => SEK
            [13] => SGM
            [14] => CPU
        )

)

This story features BEACH ENERGY LIMITED, and other companies.
For more info SHARE ANALYSIS: BPT
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

She’ll Be Right

Data released out of China yesterday showed retail sales grew 2.7% year on year in July, down from 3.1% in June and missing forecasts of 5.0%.

Industrial production grew 3.8% having grown 3.9% in June, with forecasts at 4.6%. Fixed asset investment rose 5.7% year to date when 6.2% was forecast.

The numbers came as surprise, as clearly economists had assumed the Chinese economy would pick back up with the easing of lockdowns in the month. Other data showed average house prices down -28% year on year, and youth unemployment climbing to a record high 19.9%.

The PBoC surprised by responding with an interest rate cut, to 2.0% from 2.1%. Hardly a grand gesture, but a surprise because of China’s debt crisis in real estate. It was assumed the PBoC would not want to throw any more fuel on that fire, particularly given Chinese are boycotting mortgage payments on undelivered apartments.

The Australian stock market nevertheless took the data in its stride. There was a bit of choppiness around the release, but the ASX200 managed to close up 31 points having peaked up 44, with earnings results attracting more focus.

And what a difference a day makes.

On Friday, the Aussie ten-year yield jumped 12 basis points and the Aussie dollar shot up over US71c. The real estate sector fell -2.0%, technology -1.8% and discretionary -1.2%.

Yesterday the Aussie ten-year fell back -6 points, the Aussie dollar has crashed back down towards US70c, real estate jumped 2.0%, technology 1.3% and discretionary 1.4%.

Most sectors closed in the red on Friday and most in the green yesterday. Energy (-0.8%) and the banks (-0.2%) were the only two losers yesterday, thanks to an -11.1% drop for Beach Energy ((BPT)) and -8.3% for Bendigo & Adelaide Bank ((BEN)) on earnings results.

Positive responses to results were enjoyed by Carsales ((CAR)), up 5.8%, BlueScope Steel ((BSL)), 3.9%, and GPT Group ((GPT)) 5.3%. JB Hi-Fi ((JBH)) increased its dividend on a solid sales result but fell -1.0%.

Can’t please everyone.

Nearmap ((NEA)) announced it had private equity sniffing around and jumped 25%.

Last night Wall Street fell initially on the Chinese numbers but recovered to resume its rally. Commodity prices felt the brunt of the data nevertheless – oil in particular – and the US dollar jumped 0.8% on safe haven flows, with global recession fears again ignited.

Our futures have backed Wall Street, up 22 points this morning.

There are some big names reporting earnings today, and BHP Group ((BHP)) is one of them.

Buy the Dips

Aside from the weak Chinese data, Wall Street took note last night of a fall in the US housing market sentiment index to 49, implying pessimism for the first time since the initial covid lockdowns of 2020.

The Dow opened down -180 points, but in the current overriding mood of FOMO, this was seen as an opportunity rather than a warning signal.

The Chinese data may have heightened fears of a global recession, but Wall Street continues to bank on the belief the US economy itself will not fall into recession, or at the least see only a mild and brief recession, based on the strong July jobs numbers and lower CPI and PPI results.

The Dow has now posted its longest winning streak since May. A new low was then seen in June.

Just saying.

For those who have held the belief this will be nothing more than a classic bear market rally, and that the June low will be retested, there’s a bit of shift now to suggesting maybe there won’t be a new low, but there will still likely be a pullback from this runaway rally.

The market is assuming the recent data will result in the Fed slowing its pace of tightening, hiking only 50 points in September.

But the Fed is continuing to rail against inflation, so many believe another 75 point hike is coming in September at least. And let’s not forget it is in September that the rundown of the Fed balance sheet steps up a gear.

In the nearer term, Wall Street awaits this week’s swag of earnings results from US retailers, starting with Dow names Walmart and Home Depot tonight.

Commodities

Commodity prices copped somewhat of a double-whammy of weak Chinese data and a 0.8% surge in the US dollar index following the PBoC rate cut. Note that the renminbi is not in the dollar index, but that does not prevent flows from the weaker economies of Europe and Japan on global recession fears.

Although we note Japan saw 2.2% GDP growth in the June quarter after only 0.1% in March.

Of course, while lower commodity prices are not helpful for miners and drillers, they do suggest inflation can continue to fall, and the US CPI result for August will be out ahead of the September Fed meeting.

The Aussie had put its head above US71c, but it was quickly cut off. On the Chinese data and US dollar surge, it’s down -1.5% at US$0.7016.

Today

The SPI Overnight closed up 22 points or 0.3%.

The minutes of the July RBA meeting are out today.

The US will see July industrial production.

Aside from BHP, Challenger ((CGF)), Goodman Group ((GMG)), James Hardie ((JHX)), Shopping Centres Australasia Property ((SCP)), Seek ((SEK)) and Sims ((SGM)) are among today’s reporters.

Computershare ((CPU)) goes ex.

FNArena’s Corporate Results Monitor provides both a calendar of upcoming result releases and a summary of all reports to date; https://www.fnarena.com/index.php/reporting_season/

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