The Overnight Report: Okay, We’re Ready

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        (
            [0] => ((WBC))
            [1] => ((NWS))
            [2] => ((DMP))
            [3] => ((MAF))
            [4] => ((ING))
            [5] => ((TPG))
        )

    [1] => Array
        (
            [0] => WBC
            [1] => NWS
            [2] => DMP
            [3] => MAF
            [4] => ING
            [5] => TPG
        )

)

This story features WESTPAC BANKING CORPORATION, and other companies.
For more info SHARE ANALYSIS: WBC
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Approaching Resistance

After three days of solid rally, driven by a combination of strength on Wall Street and renewed strength in commodity prices, the ASX200 closed yesterday at 6964 – 36 points shy of the significant 7000 level. The futures have this morning closed up 43 points, suggesting we’re set to get there.

We might note that the futures closed this morning smack on 7000. As the September contract expires on Thursday there is as good as no time value left. If the index is trading around 7000 on Thursday it could be a whippy session, as there is likely to be a hefty number of options positions at that level, which has proven a pivot point for the market since June.

Hence, tonight’s US CPI is even more critical. If Wall Street likes it, and the ASX200 rallies off 7000, then more upside is on the cards. If Wall Street doesn’t, then a fall back from 7000 will mean more downside is on the cards.

Yesterday the index closed where it opened. Materials were again the best performer, adding 2.2% on top of Friday’s 3.3%. But whereas resources did all the heavy lifting on Friday, yesterday’s rally was more broad-based, with only one sector (healthcare) closing in the red (-0.3%).

The most notable move was for the banks (+1.1%), after Westpac ((WBC)) became the last of the majors to pass the September RBA rate hike on in full.

Consumer discretionary put in a standout 1.5%, helped by a 5.0% rally for News Corp ((NWS)) and 4.4% for Domino’s Pizza ((DMP)).

Technology rose 1.5% on renewed strength in the Nasdaq, while utilities piped up 1.3% despite the energy sector rising only 0.1% after a solid couple of sessions.

While mining companies again littered the ASX300 winners list yesterday, there was a lot more diversity than in the past couple of sessions, suggesting greater breadth to the rally. Only one miner made it on to the ASX200 top five.

There were resources companies on the ASX300 losers list as well, so it’s not all beer and skittles.

Standing out atop the ASX300 losers list was a company called MA Financial ((MAF)), which fell -21.8% before being halted. The company provides services for holders of “significant investor visas”, which allow foreigners to stay here if they invest $5m-plus in something worthwhile.

The new government is reviewing the SIV system, hence the plunge, but MA Financial responded by pointing to its diversity and reaffirming guidance.

It’s always dangerous when your business relies on government policy.

Optimism Reigns

Critical CPI number? Wall Street isn’t fazed. The market is confident tonight’s headline CPI will show further contraction, if for no other reason that it is now cycling the big moves up last year, which were all about covid-led supply constraints.

As for core inflation, it’s not so clear, but while lower fuel costs will be a major driver of a lower headline CPI, the flow-through to other CPI components from lower fuel/transport costs should have an impact on the core as well.

Either way, Wall Street expects a 75 point rate hike from the Fed. Recent rhetoric all but confirms this and two consecutive CPI contractions are not going to make a difference. Wall Street has become comfortable with the notion.

Europe has also been bouncing recently, and in particular the euro following the ECB’s own 75 point rate hike. The US dollar index has come off its 20-year high and is down another -0.7% overnight. This, too, is providing some relief on Wall Street.

Behind the scenes, Ukraine had recently been making incremental progress in recapturing towns on the front line. Last night’s push was more than incremental as Ukraine launched a “lightning offensive” and recaptured a town vital to Russian supply lines. The Russians turned and ran, leaving their hardware behind.

While we can all cheer on the White Hats, and the boost in sentiment for investors, we’ve also been warned not to poke The Bear.

After four days of gains, we can also be concerned that Wall Street is now poised for disappointment. If the CPI numbers do not excite as expected, a big hole could open up. If the numbers are comforting, well, we’ve already seen four days of gains.

In other news, Godman Sachs announced last night it is planning to lay off hundreds of staff, starting next week.

Commodities

Sharp moves last night in metal prices have been attributed to the ongoing pullback for the US dollar triggering short-covering. This is most evident in nickel and silver. Silver jumped 5% to gold’s 0.4%, so something was amiss.

The US dollar fall and higher metal prices have pushed the Aussie up another 0.8% to US$0.6891.

Today

The SPI Overnight closed up 43 points or 0.6%.

NAB will release its August business confidence survey today.

US CPI tonight.

Inghams Group ((ING)), News Corp and TPG Telecom ((TPG)) go ex-dividend today.

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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