The Overnight Report: The Hiking Craze

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

By Greg Peel

Like you didn’t know

There was little doubt in anyone’s mind the RBA would hike by 50 points yesterday, but when it did, the ASX200 fell -30 points.

The session had begun positively, with the index up 36 points at 11am despite the opening handicap of some large dividends. But it then fell back to the flatline ahead of the RBA release.

It seems investors weren’t that thrilled with the June quarter current account numbers, despite showing a surplus for a record 13^th consecutive quarter, and blowing out to $18.3bn from $2.8bn in the March quarter.

The bottom line is the world is paying more for our exports than we’re paying for imports, despite inflation. Export value surged on both prices and volumes, and reopened borders also helped on the services front. But the net income deficit (government’s interest bill net of offshore dividends) also blew out, to -$24.8bn or -4.1% of GDP, which is above the long run average of -3.0%.

It was nevertheless the RBA hike that sent the index into the red. Could it be the last double-hike?

The statement no longer refers to taking steps toward “normalising policy,” ANZ Bank economists point out, which suggests the cash rate is now approaching neutral. The statement now says the board is “committed to returning inflation” to target, whereas the August statement placed simply “a high priority on the return of inflation” to target.

ANZ’s conclusion is the RBA will continue to hike rates but perhaps at a slower pace, ie 25 point hikes, until the cash rate is above 3% (now 2.35%). So for borrowers it’s a case of being roasted slowly rather than quickly.

Suffice to say most sectors closed in the red yesterday, but ex-divs were influential. Communication services and real estate were minimally positive, while tech rose 0.7% and energy 0.5% having leapt on Monday. But oil prices fell overnight.

Materials was down -0.7% despite, once again, almost every stock in the ASX300 winners’ list being a miner, albeit of lithium and uranium more so than iron ore/base metals. BlueScope Steel ((BSL)) went ex.

Utilities fell -1.8% because Origin Energy ((ORG)) went ex.

Consumer discretionary lost -0.6% and Super Retail ((SUL)) was the worst ASX200 performer on the day, falling -6.2%, because it went ex.

Healthcare -0.4%, which was a pretty good effort considering both CSL ((CSL)) and Sonic Healthcare ((SHL)) went ex.

You’re probably sensing a theme by now. The banks nevertheless fell -0.4%, which seems more representative of the 50 point hike.

So who do we need to watch out for today?

On today’s ex-dividend list are Amcor ((AMC)), Insignia Financial ((IFL)), Medibank Private ((MPL)) and Seek ((SEK)), among others.

Yielding to the inevitable

A mere 50 point rate hike in Australia went unnoticed on Wall Street last night where concern is for the ECB meeting on Thursday night, at which a possible 100 point hike will be announced.

While the view is any US recession will only be mild there’s little doubt Europe is heading for a potentially deep contraction from winter, when consumer heating bills will skyrocket (the choice is shaping up to be “heat or eat”) and industries may have to shut down due to the lack of/cost of gas.

With rate hikes flowing across the globe and in the US, the US ten-year yield rose 15 points last night to 3.34%. But the two year/ten year inversion is now back to 16 points having been up to 40 when US recession fears were more pronounced. This implies the market sees higher rates ahead, but the risk of US recession is lower.

The US services PMI for August showed a rise to 56.9 from 56.7 in July when economists had forecast 55.5.

That result had Wall Street higher from the open but as bond yields rose, and the US dollar index hit 110, stocks sunk.

There was some recovery from the lows by the close but the S&P500 chopped up and down around the 3900 level all session, closing at 3908. So far it’s holding, which is positive, but looking vulnerable to any unexpectedly bad news.

The swing factor may well be next week’s US CPI.

Commodities

US energy market traders returned from the long weekend last night to take a different view on the OPEC-Plus production cut. Oil prices rose slightly on Monday night but last night fell -2-3%.

The conclusion is the production cut of a mere -100,000 barrels per day is just a drop in the ocean, and the looming global recession (Europe, locked down China, maybe US) will have more impact on the demand side than lower supply will counter.

Just to underscore that yesterday’s 50 point hike was well anticipated, the Aussie is down -0.9% at US$0.6739.

Today

The SPI Overnight closed down -37 points or -0.5%.

It’s GDP day today.

Both China and the US will release trade numbers.

Today’s ex-divs have been noted.

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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