The Overnight Report: Pause For Thought

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

By Greg Peel

Everything at Once

Yesterday’s local trade was a mix of the macro and the micro, fundamentals and technicals. And it was a game played in two halves.

I suggested yesterday that a -0.6% fall indicated by the futures pre-open looked underdone against a -2.1% drop in the S&P500 overnight, but indeed the market did fall around -0.6% in the morning and valiantly hung on to that level – just above 7000 – through to lunchtime.

But alas, the index couldn’t hold. A break of 7000 spurred another leg down to a -1.2% close.

From the fundamental aspect, it was a case of the micro of the day’s earnings results meeting the macro of weakness on Wall Street.

Wall Street was largely responsible for a -2.0% plunge in the banks. Investors have now clearly decided higher rates are bad for the banks (higher bad loan risk) rather than good (higher interest margins). With the US ten-year yield regaining 3% on Monday night, our equivalent rose by 6 points yesterday to 3.57%.

It’s not every day you see consumer staples – the defensive investor’s defensive – drop -3.8%. But Endeavour Group ((EDV)) fell a sobering -12.3% on result and the supermarkets also took a hit.

On the plus side, energy rose 1.3% to buck the trend on higher oil prices, and utilities tagged along with 0.2%. Materials held on for -0.1% with strength seen in a lot of smaller miners.

Amazingly, technology fell only 0.2% when the Nasdaq had fallen -2.6% overnight, but sentiment was buoyed by a 19.7% leap for Altium ((ALU)). The stock had garnered no such response when it actually reported on Monday, but positive broker assessments and an upgrade to Overweight from Macquarie brought in the punters.

That said, EML Payments ((EML)) dropped -11.6% after having reported on Monday.

Beyond the above-mentioned sectors, falls were fairly even and largely reflecting Wall Street weakness and the technical break. But there were some other big movers on earnings reports.

Ansell ((ANN)) rose 8.6% and Monadelphous ((MND)) 5.9%.

Outside of the index, Service Stream ((SSM)) fell -16.7%, Kogan ((KGN)) -6.6% and Judo Capital ((JDO)) -6.2%.

Today’s list of reporting stocks is the longest in the season to date, rivalling Super Thursday tomorrow. Wall Street has closed relatively flat, so we’ll get a better handle on result responses today without macro noise.

The futures are up 15 points this morning – not enough to get us back to 7000.

Not Exactly

Well, we can’t quite call it a Turnaround Tuesday, but at least the pullback on Wall Street stalled somewhat last night, with the S&P500 falling only -0.2% and the Nasdaq closing flat. The US ten-year yield ticked up 2 points to 3.05%.

Perhaps investors decided enough damage had been done, and enough speculative debate exhausted, ahead of Jerome Powell’s speech at Jackson Hole on Friday night.

However, we do have two more sessions to get through before then.

The Fed funds futures had earlier been pricing in a 50 point hike in September as the shortest odds, but with Fed presidents having poured cold water on any notion of an easing in pace from the FOMC ever since, the odds of a 75 point hike are back to 50/50.

Inflation prints in Europe have also spooked Wall Street. Citi economists have forecast UK CPI inflation to hit 18% next year.

We can but only wait for Friday night.

In economic news, an estimate of the US manufacturing PMI for August showed a drop to a 25-month low 51.3 from 52.2 in July – slower but still expanding. However, the estimate for the services PMI is a 27-month low 44.1 from 47.3 – heavy contraction.

US new homes sales fell -12.6% in July.

The tech sector was somewhat heartened last night by an earnings result from cyber-security firm Palo Alto, which drove a 12% gain.

But lockdown champion Zoom fell -16.5% on its result, and is now basically back where it started pre-covid.

Commodities

Saudi Arabian Energy Minister Prince Abdulaziz bin Salman said yesterday “extreme” volatility and lack of liquidity mean the oil futures market is increasingly disconnected from fundamentals. As such, OPEC-Plus may be forced to cut production.

Base metal markets are trying to come to terms with global recession fears and a soaring US dollar on the one hand, and two rate cuts from the PBoC in a week when all about are hiking.

The greenback actually fell -0.4% last night. The Aussie is up 0.7% at US$0.6928.

Today

The SPI Overnight closed up 15 points.

The US will see July durable goods orders tonight.

Today’s list of earnings reporters includes Coles Group ((COL)), Domino’s Pizza ((DMP)), Northern Star Resources ((NST)), Tabcorp Holdings ((TAH)), Worley ((WOR)), Zip Co ((ZIP)) and many, many more.

Fisher & Paykel Healthcare ((FPH)) holds its AGM.

Telstra ((TLS)) 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.

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