The Overnight Report: Rebound

Array
(
    [0] => Array
        (
            [0] => ((IFL))
            [1] => ((RMD))
            [2] => ((ASX))
            [3] => ((MND))
            [4] => ((PPT))
            [5] => ((WDS))
            [6] => ((SIG))
            [7] => ((AMC))
        )

    [1] => Array
        (
            [0] => IFL
            [1] => RMD
            [2] => ASX
            [3] => MND
            [4] => PPT
            [5] => WDS
            [6] => SIG
            [7] => AMC
        )

)

This story features INSIGNIA FINANCIAL LIMITED, and other companies.
For more info SHARE ANALYSIS: IFL
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

Wash Out

While Wall Street was weaker overnight, yesterday’s -1.4% fall for the ASX200 far exceeded both the S&P500’s -0.4% fall and the futures which had suggested only down -37. Solid falls across almost all sectors imply a kick-on from the impact of Tuesday’s 50 point RBA rate hike, even though that hike was well anticipated.

The sudden wash-out has nevertheless came ahead of a solid bounce on Wall Street last night. That said, our futures are only up 29 points this morning.

The index hit its lows in the first hour, so it was nothing to do with the day’s GDP result, which came in as expected.

Australia’s GDP grew 0.9% in the June quarter, following 0.7% growth in March, to be up 3.6% annually. The key driver of growth was household consumption (+2.2%), not on goods, which fell -0.1% as inflation made its mark, but on services (+3.6%), as covid restrictions eased. Dining out, travel, recreation all saw strong gains.

Wages rose 2.4%, still well below inflation, so consumers dipped into their lockdown savings, with a fall in the savings ratio to 8.7% from 11.1% in March, and from 19.8% a year ago in the delta lockdowns. Given rising interest rates, this trend is beginning to worry economists.

Among the sectors, the standout fall yesterday was a full -2.0% for financials after falling only -0.4% on Tuesday’s rate hike. Insignia Financial ((IFL)) didn’t help in dropping -7.1% ex-dividend.

Also not inspiring confidence was a fourth consecutive 50 point rate hike from the RBNZ yesterday, to 3.0%. New Zealand is being seen as a valuable case study for Australia, given the RBNZ started hiking in October when the RBA left it to May, so the fallout is being closely watched.

And it’s not over yet. The RBNZ is forecasting a peak cash rate of 4.1%, expecting that inflation will not return to target until 2024.

Energy fell -2.9% on lower oil prices overnight, which were much lower again last night, and utilities fell -2.1%. Materials dropped -2.1% — more so than moves in commodity prices overnight suggested.

But it wasn’t a total Sell Everything session.

Healthcare rose 0.2% thanks both to defensiveness and an index-topping 4.2% gain for ResMed ((RMD)), following the stock’s gain on Wall Street overnight. Competitor Philips from the Netherlands cannot get its act together, or so it seems. The primary defensive – staples — fell -0.7%. The GDP numbers showed lower supermarket spending.

Technology decided not to get involved, rising 0.3%.

The S&P500 bounced 1.8% off support last night, which is not reflected in a 0.4% gain in our futures to this morning.

However, today’s is the longest list of ex-dividends to date. While most are smaller names, there are some reasonable payouts from the likes of ASX ((ASX)), Monadelphous ((MND)) and Perpetual ((PPT)).

The big one is the mega-payout from Woodside Energy ((WDS)), which will already be under pressure following a -5% crash in oil prices overnight.

Oversold

Having chopped around the significant technical level of 3900, and twice closed just above, the S&P500 rebounded strongly last night, reminiscent of the bounce off the June low. Market commentators agreed Wall Street had again become oversold.

The debate remains as to whether the Fed’s commitment to conquer inflation with rate hikes, and quantitative tightening, had been fully priced in. And, of course, whether this is the beginning of just another bear market bounce.

The -5% fall in oil prices nevertheless provided a glimmer in the inflation battle.

There were also raised eyebrows following a speech from Fed governor and 2IC Lael Brainard.

“We are in this for as long as it takes to get inflation down,” said Brainard, sticking to the party line established by her boss last week. However, she added that the FOMC will still need to be data-dependent and conscious of overdoing the tightening.

Wall Street quickly clutched at this little straw of dovishness.

Having risen 15 points on Tuesday night, the US ten-year yield fell back -8 points last night to 3.26%. While yields remain net higher, this small break in the upward trend provided the green light for the Nasdaq, which had fallen for seven sessions in a row, to rebound.

The US dollar also fell back -0.6% after hitting a new twenty-year high on Tuesday night.

Jerome Powell is due to participate in a debate, and may yet shoot down Brainard’s comments, but the US interest markets are still expecting the Fed to stop hiking rates early next year.

Last night the Bank of Canada hiked by another 75 points to 3.25%, following a prior 100 point hike.

The ECB meets tonight. A 75 point hike is expected, and maybe even 100.

Commodities

Analysts are forecasting US crude inventories will have risen last week. Add in an assumed recession afoot in Europe, Chinese lockdowns, and the breach of a technical level last night, and crude prices took a dive.

Metals prices continue their downward trend (good for the inflation picture, but not so much for Australia’s economy).

Lower yields and US dollar had gold bouncing.

The Aussie is up 0.5% at US$0.6774.

Today

The SPI Overnight closed up 29 points or 0.4%.

The RBA governor speaks today.

We’ll see July trade numbers.

The ECB meets tonight.

Sigma Healthcare ((SIG)) reports earnings today.

Amcor ((AMC)) holds an investor day.

Ex-dividend stocks 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.

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