The Monday Report – 05 September 2022

Array
(
    [0] => Array
        (
            [0] => ((MIN))
            [1] => ((ALD))
            [2] => ((COL))
            [3] => ((CVN))
            [4] => ((TYR))
            [5] => ((360))
            [6] => ((SYA))
            [7] => ((EML))
            [8] => ((PBH))
            [9] => ((ZIP))
            [10] => ((CMM))
            [11] => ((KAR))
            [12] => ((BEN))
            [13] => ((FMG))
            [14] => ((NHF))
            [15] => ((RHC))
        )

    [1] => Array
        (
            [0] => MIN
            [1] => ALD
            [2] => COL
            [3] => CVN
            [4] => TYR
            [5] => 360
            [6] => SYA
            [7] => EML
            [8] => PBH
            [9] => ZIP
            [10] => CMM
            [11] => KAR
            [12] => BEN
            [13] => FMG
            [14] => NHF
            [15] => RHC
        )

)

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

By Greg Peel

Playing it safe

Wall Street had been weak on Thursday night but had rebounded sharply from its low of the session, which provided enough positive sentiment for the ASX200 to be up 26 points at its high on Friday. But at 2.30pm someone must have decided not to carry risk across a US long weekend, and with 15 minutes to go the index was down -25.

It bounced back slightly to the close.

Materials was always going to be the worst performing sector on the day (-1.9%) as metals and minerals prices had fallen sharply on the news of the new Chinese lockdown. The fall was aided by Mineral Resources ((MIN)), which fell -6.5% after going ex-dividend.

Utilities was similarly affected (-1.2%) by Ampol ((ALD)) going ex and falling -5.0%.

The moves were countered by the banks finding some renewed buying (0.7%) following last week’s Powell reset.

Healthcare did its bit (+0.5%) and last week’s winning sector overall, staples, managed a 0.1% gain despite Coles Group ((COL)) also going ex. Coles closed up 0.5%.

Other sector moves were inconsequential but for technology (-1.5%).

Among individual stocks, Carnarvon Energy ((CVN)) rose 20.0% despite no announcement. Last week’s high-flyer Tyro Payments ((TYR)) fell -10.1%.

A couple of interesting moves to note were those of Life360 ((360)), which rose 5.6% but is ever-volatile, and lithium aspirant Sayona Mining ((SYA)), which fell -7.1% in line with all exotics.

I point these out because after the bell on Friday S&P/ASX announced Life360 will be kicked out of the ASX200 next week and Sayona Mining will come in.

Also getting the boot are EML Payments ((EML)) and Pointsbet Holdings ((PBH)), as well as, unsurprisingly, Zip Co ((ZIP)) after its near -100% fall from grace.

Also coming in are Capricorn Metals ((CMM)) and Karoon Energy ((KAR)). I sense a theme – tech out, good old resource stocks in. This is Austra-li-a.

The risk-off play noted above on Friday afternoon has proven sensible. Wall Street took another turn for the worse on Friday night but despite the S&P500 closing down -1.1%, our futures were only down -16 points on Saturday morning.

Played in two halves

The US added 315,000 new jobs in August. The only shock here is that economists had forecast 318k, and getting it right is almost unheard of.

The unemployment rate jumped up to 3.7% from 3.5%. This is good news, because it’s what the Fed wants to see. However, the unemployment rate did not rise because more people were unemployed, but because more people registered as unemployed, meaning they are looking for work. Shouldn’t be hard to find given there are currently two job vacancies for every one unemployed.

So this is still good news, the other way around, because it shows the US economy is still pretty strong, hence a deep recession is less likely. And while 300k job additions is a strong result in isolation, it’s well down on July’s 500k-plus. Thus poor old Goldilocks was dragged back onto the stage again.

So relieved was Wall Street that the Dow rallied 400 points.

Then the news hit that Russia would be unable to fix the “leak” in the Nord Stream gas pipeline to Europe any time soon. The news comes as the G7 is debating a cap in the price of Russian crude oil exports.

While no one believes the “leak” story for a moment, the energy market is aghast that the G7 would assume capping Russian oil prices would have any affect other than opposite to what they’re hoping to achieve.

As if Russia would agree to sell its oil at a lower price than it can get from China or India. If Russia responds by shutting off oil exports to Europe as well, then oil prices will be heading back to US$120/bbl and likely well beyond.

Clearly Russia is not desperate for the money, or it wouldn’t shut off the gas. Nord Stream was already only running at 20% capacity.

Suffice to say by the afternoon, the Dow was down -450 points. It recovered somewhat to the close. The S&P500 once again fell to 3900, but again managed to hold and recover to 3924.

It should also be noted that US factory orders fell -1.0% in August when economists had forecast a 0.2% gain. That news was somewhat lost amongst the porridge, but did not go unnoticed.

Pundits also pointed out that it is typical for Wall Street to take risk off the table ahead of a long weekend, and particularly the Labor Day long weekend which signals the end of summer vacations. On Tuesday night everyone should be back at work and ready to reassess their strategies.

For now, the 50-day moving average for the S&P500 has held, twice, and 3900 also represents a -50% retracement of the July rally, which was a 50% retracement of the 2022 fall to June.

If it breaks, look out.

Commodities

European gas futures markets had closed before the Nord Stream news hit the market. Prices had actually closed down substantially on the assumption the announcement from Russia would be that the “leak” had been fixed.

So Monday night’s response will be telling.

The fall in the zinc price is attributed to announced rising inventories in Shanghai.

The US jobs news prompted a -7 point fall in the US ten-year yield to 3.19%, allowing gold some relief for once.

The Aussie is steady at US$0.6783.

The SPI Overnight closed down -16 points or -0.2% on Saturday morning.

The Week Ahead

Our June quarter GDP result is out on Wednesday, as old as it is. We’ll see lead-in numbers today for company profits and inventories and tomorrow the current account.

We’ll see numbers for August job ads today and the July trade balance on Thursday.

The RBA will hike by 50 points tomorrow.

China will report trade and inflation numbers this week.

The US is closed tonight and will also see trade numbers this week.

OPEC-Plus meets tonight. It is thought a production cut may be forthcoming, or an admittance the production increase previously flagged is unattainable, which implies a production cut anyway.

The highlight of the week for the local stock markets will be ex-divs – lots of them.

Today’s list includes Bendigo & Adelaide Bank ((BEN)), Fortescue Metals ((FMG)), Iluka Resources, nib Holdings ((NHF)) and Ramsay Health Care ((RHC)).

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