The Overnight Report: At Least A Bounce

Array
(
    [0] => Array
        (
            [0] => ((FMG))
            [1] => ((A2M))
            [2] => ((TYR))
            [3] => ((ABB))
            [4] => ((HLS))
            [5] => ((IGO))
            [6] => ((LNK))
            [7] => ((WDS))
            [8] => ((DMP))
        )

    [1] => Array
        (
            [0] => FMG
            [1] => A2M
            [2] => TYR
            [3] => ABB
            [4] => HLS
            [5] => IGO
            [6] => LNK
            [7] => WDS
            [8] => DMP
        )

)

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

By Greg Peel

Bit Ugly

Stock markets around the world de-rated yesterday after the Fed chair put to bed any notion of a pause or pivot in the FOMC’s determination to fight US inflation. The implication is pressure is now on other central banks to hike their rates to protect their currencies, and that a global recession is now more likely if the Fed is happy to let the US economy become collateral damage.

The Australian two-year bond rate rose 12 points yesterday to 3.05% and the ten-year 9 points to 3.66%. The two-year is seen as a proxy for where the RBA cash rate will go; it’s currently at 1.85%.

While all sectors on the ASX closed in the red yesterday, there was a clear split between cyclicals/growth and defensives. No surprise, technology fell -4.4% but the real damage to the ASX200 came from a -2.2% fall for the banks (lower loan growth, higher default risk).

Materials fell -2.4%, exacerbated by a disappointing earnings report from Fortescue Metals ((FMG)), which fell -4.9%.

Among the defensives, utilities won the day with a -0.4% fall while staples fell -0.9% to discretionary’s -2.1% drop. Staples were aided by a2 Milk ((A2M)), which against the tide rose 10.0% on its earnings result.

Another earnings reporter bucking the trend was Tyro Payments ((TYR)), up 11.0%.

Industrials hung in there on -0.9% but communication services – now no longer just about defensive telcos – fell -1.8%. Outside of the index, Aussie Broadband ((ABB)) fell -15.3% on its result.

Real estate fell -1.8% on higher rates.

Oil prices had been higher overnight but that didn’t stop energy falling -1.6%. It will be different today however, as prices were up 4% last night.

Testament to the overall carnage is the day’s table of top twenty ASX300 winners and losers. Only 14 stocks managed gains, while you needed to fall at least -6.8% to make it into the top twenty losers.

The dust didn’t quite settle on Wall Street last night, but the indices did at least close off their lows. Our futures are showing up 18 points this morning.

The ASX200 quickly crashed through support at 7100 yesterday and then broker major support at 7000 – all in the first few minutes. At 6965 there’s 35 points to recover to be back at what now will be resistance.

200 to 50

It appears US bond traders decided to take the weekend to think about Powell’s eight minute tirade on Friday night, as bond yields barely moved in immediate response. Last night the US two-year yield hit its highest level since 2007, before the GFC, before settling back to be up 4 points at 3.43%, which is where it was when Wall Street hit the June low. The ten-year rose 8 points to 3.11%.

From the open, the Dow fell another -300 points on top of the -1000 on Friday night but when the S&P500 fell to its 50-day moving average, it bounced, and then all three major indices returned to be flat on the day.

They retreated again towards the close, but the bounce off the 50-day has for now established the range, bearing in mind the S&P500 first began retreating this month when it hit the 200-day on the upside.

Volumes on Wall Street remain summer-thin, and will do so until the Labor Day long weekend this coming weekend, which signals back-to-work.

The US jobs number is due on Friday night, and in a couple of weeks the US CPI will be released ahead of the next Fed meeting on September 21.

Wall Street will dearly like to see the US unemployment rate start to tick up, after the series of Fed rate hikes up to now, and will also be praying for the August CPI to show a further decline. But either way, the Fed will retain its determination until there is a meaningful retreat in inflation.

It doesn’t imply hikes all the way until inflation is back at 2%, but it does imply going hard now and then holding restrictive rates for a sustained period.

There remain those nevertheless who assume that having completely missed the boat on the way up, the Fed will overshoot too hard in response and send the US into a recession which will spark a policy rethink.

Much can happen between now and then.

Commodities

Last night was August bank holiday in the UK, hence the LME was closed.

Fighting has flared up again in Libya, putting oil production once more at risk. On top of last week’s threat from the Saudis to cut production, oil prices are back on the move once more.

Which doesn’t much help the inflation situation.

The Aussie is holding its ground, up 0.2% at US$0.6904.

Today

The SPI Overnight closed up 18 points or 0.3%.

We’ll see July building approvals today. Note that yesterday’s July retail sales result showed a 1.3% gain when 0.3% was forecast, following a period of weak numbers. A large inflow of tourists in the month was apparently the reason.

Not that it made any difference yesterday.

Hopefully we’ll see a calmer market today for today’s earnings reporters. The daily list is now beginning to taper off, but today we’ll see reports from Healius ((HLS)), IGO ((IGO)), Link Administration ((LNK)) and Woodside Energy ((WDS)), among others.

Today’s handful of ex-div includes a biggie from Domino’s Pizza ((DMP)).

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