The Monday Report – 03 October 2022

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

By Greg Peel

End of Quarter I

The local futures looked optimistic on Friday, closing down only -22 points ahead of the open when the S&P500 had fallen -2% overnight. There was some support from commodity prices, but otherwise traders may have been backing some end of quarter window-dressing after a rough week.

It appears the buyers tried, but in the end a desire to get risk off the table heading into October overwhelmed as the ASX200 stepped its way down to a -1.2% loss. The resource sectors provided some support, but not enough against a tide of selling in every other sector.

The index closed down -100 points for the week. Thanks to the July rally, it closed down -93 points for the September quarter. Could have had a nice holiday.

Materials rose 0.7% and energy 0.1% but the banks led the market down with a -2.3% loss, ahead of the RBA’s 50 point hike tomorrow.

Industrials (-3.0%), consumer discretionary (-2.7%) and technology (-2.7%) were the worst percentage decliners.

Staples (-1.1%) and healthcare (-1.1%) “outperformed” as defensives while real estate (-0.7%) had already been battered to death.

No joy either in communication services (-1.9%), with Carsales ((CAR)) the worst index performer on -7.8%, and utilities (-1.6%).

Other stocks carted were Cochlear ((COH)), down -6.6%, Wisetech Global ((WTC)), -5.6%, and Eagers Automotive ((APE)), -5.5%.

The top five ASX200 performers on the day were all miners. The bulk of the top twenty ASX300 performers were miners. Capricorn Metals ((CMM)) topped both lists in rising 8.7% following its earnings update.

The day’s action very much reflected an end of quarter exit from risk ahead of October rather than a full capitulation session. This is evident in both the breadth of the selling and the fact the futures closed up 5 points on Saturday morning with the S&P500 falling another -1.5% on Friday night.

Despite more steep falls in base metal prices.

This suggests, if accurate, we may see the dust settle a bit today but half the country is closed for a long weekend, so trading will be thin.

China now goes on its Golden Week holiday so metals prices will go quiet over the period.

End of Quarter II

It was a similar story on Wall Street on Friday night, with falls in stock indices accelerating in the last hour to ensure a close at the lows.

For the month of September, the Dow fell -8.8%, the S&P500 -9.3% and the Nasdaq -10.5%, to mark the third consecutive quarter of weakness.

US headline personal consumption & expenditure inflation rose 0.3% in August having fallen -0.1% in July, to an annual rate of 6.2%, down from 6.4%, thanks to lower oil prices. But take out energy and food, and the core PCE – the Fed’s preferred measure – rose 0.6% to an annual rate of 4.9%, up from 4.7% in July.

No reprieve as yet. It’s still a long way to go to get that under 3%. While many a company, in particular Big Tech, is no longer hiring, ongoing tightness in the labour market suggests no sign of wage pressure easing. There are signs of rents now easing as house prices fall but not enough to make a difference as yet.

Barring anything from left field in the meantime – Putin’s assassination perhaps – the Fed is guaranteed to hike by another 75 points in November. The US ten-year yield rose 9 points to 3.83%.

Nike (Dow) did not provide any relief, falling -12.8% following Thursday night’s aftermarket earnings result. Nike is the latest top-end retailer to be stuck with too much inventory.

Investors have been backing a return to ocean cruising following the easing of restrictions and given pent-up demand. Carnival Cruises reported earnings on Friday night and fell -23%.

Downgrades to September quarter earnings expectations continue, with US dollar strength a major contributor. The quarterly earnings growth forecast has now fallen to 2.9% annual, down from 9.8% at end-June.

But all and sundry are still calling estimates too high. The question is as to whether stock indices have priced in sufficient earnings weakness.

And to whether the real shakeout is yet to come. October has form in that regard.

Commodities

The latest data show Indonesian nickel production rose 41% in the year to July, increasing the country’s production over the period to 47% of the global total. Total global production rose 14%, tipping the nickel market into surplus from a prior deficit.

While the US dollar is up only 0.2%, the Aussie has taken another big hit, falling -1.5% to US$0.6407.

The RBA has little choice but to counter with rate hikes.

The SPI Overnight closed up 5 points on Saturday morning. We’ll see.

The Week Ahead

China is closed all week.

The next round of Fed fear will come this week in the form of US jobs numbers – private sector on Wednesday and non-farm payrolls on Friday.

The US will also see construction spending, factory orders and trade.

Global manufacturing PMIs are out today followed by services on Wednesday. China’s September manufacturing PMI surprised on Friday with a gain to 50.1 from 49.4. Services nonetheless fell to 50.6 from 52.6.

Tomorrow brings local job ads, building approvals, house price and housing finance data, along with the RBA. The trade balance is due on Thursday.

The RBNZ meets on Wednesday.

The Australian share market over the past thirty days…

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