The Overnight Report: Setting The Stage

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            [8] => ((ALD))
            [9] => ((MIN))
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This story features BHP GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: BHP
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Take the money and run

The most notable element of the ASX200’s -2% plunge yesterday was that it all happened on the open. The index barely moved for the rest of the day.

This put the spotlight squarely on three big ex-dividend moves, which of course are purely zero-sum, as shareholders receive the equivalent amount of cash. In the weeks ahead, fund managers will need to reinvest that cash back into the market.

The big one, of course, was BHP Group ((BHP)), which fell -7.6% on the day. How much of that was dividend? Well, rival Rio Tinto ((RIO)) fell -2.1%. Whitehaven Coal ((WHC)) also went ex, and all-up the materials sectors lost -4.9%, next worst being utilities on -3.0%, as AGL Energy ((AGL)) went ex.

Of course, these were not isolated moves, as metal prices, and iron ore in particular, had been down on a weak Chinese PMI and down again on news the city of Chengdu, capital of the Sichuan province and one of China’s most economically important cities, will go into lockdown. Just some 21 million people.

Nine of the thirteen worst performers in the ASX300 yesterday were miners.

The situation was no different for oil prices. Energy fell -2.2%.

Overlaying was a generally weak sentiment across the market, thanks to another night of weakness on Wall Street. The ASX200 had belied Wall Street weakness on Wednesday and tried hard to retake the 7000 level, but it all fell apart yesterday. Those dividends didn’t exactly help.

So every sector closed in the red yesterday bar one. In times of trouble, supermarkets and pubs are safe havens. Staples rose 1.0% thanks to gains in Coles Group ((COL)), Woolworths ((WOW)) and Endeavour Group ((EDV)), along with a2 Milk ((A2M)).

Healthcare was the other sector to play defensive, down only -0.2%, and while a -1.3% drop for the banks would stand out any other day, yesterday it was one of the lesser falls. Still impactful nonetheless in market cap terms.

Welcome to September.

Wall Street managed to square up by the close last night ahead of tonight’s US jobs report. We may see a similar move to neutralise today after yesterday’s carnage, with our futures up 20 points.

Long way back.

Hoping for bad news

China was all over the news on Wall Street last night. First there was the new lockdown.

Then there was the independent Caixin Chinese manufacturing PMI, which yesterday showed a fall last month to 49.5 from 50.4, implying contraction, ahead of the latest lockdown. Toyota, for one, builds cars in Chengdu.

Then there was news the US government will ban exports of freshly-designed AI chips to China, for fear of them ending up with the military. Nvidia fell -7.7%, and led all chip stocks lower.

The news was not much better on the home front either.

The US manufacturing PMI for August remained steady at 52.8 – still expanding. And last week’s new jobless claims fell to a nine-week low. All fodder for the Fed to maintain the rage.

Which brings us to tonight’s jobs number. Wall Street will be praying it’s not another surprise to the upside as it was in July.

On that note, the Dow was down -300 points early in the session but when the S&P500 hit 3900, it bounced. The major indices then rallied back and a late kick saw the S&P back in the green.

The 3900 level is technically significant – again not just because it’s a round number. It is on the trend-line established during the July rally and also the May low.

So hitting that level was as good a reason as any other to square up ahead of a jobs number that no one can really predict.

US bond markets were also on the move last night, thanks to all of the above. The ten-year rose 13 points to 3.27% and the two-year pushed above 3.5%. The US dollar rallied 0.8% to yet another multi-decade high.

Rising yields are not good for growth stocks but last night a company called Okta – one of the many cloud-based enterprise SaaS companies – reported earnings and fell -33%, citing issues with integrating an acquisition. That might be company-specific, but all enterprise/cloud stocks sunk in sympathy.

Atlassian fell -4.9%. That’s a whole farm in the Southern Highlands.

Commodities

See: Chinese lockdown/PMI.

Not helping was a survey of the Chinese steel market released in Shanghai yesterday. It indicated end-demand for steel to show only mild recovery in September, despite it being the traditional peak season.

Most companies suggested that under current financial conditions, they will only be restocking to meet existing demand rather than stocking up as usual. In the medium term, only 21% of the sample companies indicated there will be an increase in new projects in the next three months.

Oil prices have now fallen below January levels.

Gold’s retreat is steady but relentless, as US yields and the dollar weigh.

The Aussie has matched the greenback gain in falling -0.9% to US$0.6789.

Today

The SPI Overnight closed up 20 points or 0.3%.

The US will see numbers for factory orders tonight as well as jobs.

Hold onto your hats – there are more ex-divs today. Biggies include Ampol ((ALD)), Coles Group and Mineral Resources ((MIN)).

S&P/ASX will announce quarterly index changes today, to become effective a week later.

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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