The Overnight Report: A Glimmer?

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            [5] => ((AMI))
            [6] => ((TLS))
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This story features COLES GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: COL
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Sell Everything

Last week began in Buy Everything mode following the UK government’s ditching of its tax cuts, which sent all global markets racing, and aided locally by the RBA only hiking by 25. This week has begun in Sell Everything mode, following the strong US jobs report.

No sector was spared yesterday. Consumer staples nevertheless slipped back into its defensive role in falling only -0.3%, while a -0.9% fall for materials was one of the better performances, supported by a higher iron ore price against the tide of gold and other price falls.

Testament to the day’s mood was a 0.6% gain for Coles ((COL)), which put that stock among the top five ASX200 winners.

Technology fell -2.6%, following the Nasdaq and higher local yields, albeit the Aussie ten-year only rose 2 points yesterday to 3.86%. The worst performer was utilities, which fell -3.2%.

AGL Energy ((AGL)) has its own board issues at the moment but it fell another -3.2% yesterday while rival Origin Energy ((ORG)) fell -2.6% after power CEOs told the AFR electricity prices will rise 35% next year. We’re just not buying it.

Healthcare fell -2.1% on a -2.0% fall for CSL ((CSL)), with health investors ignoring an Aussie dollar that is dropping like a stone.

Meanwhile, the usual suspects in a higher yield environment were all down again – banks fell -1.5%, real estate -1.8%, discretionary -1.2% and communication services -1.5%.

Even energy lost -1.1%, despite oil prices rising again.

Rebuilder and maintenance services provider Johns Lyng Group ((JLG)) fell -14.8% after the CEO sold 4m shares, despite the company doing a lot of insurance work, and the rain still falling.  

That made Johns Lyng the worst ASX200 performer, but topping the ASX300 losers list was Aurelia metals ((AMI)), which fell -36.4% after announcing the feasibility study for its Federation project confirms it is “one of the great discoveries in the Cobar Basin”.

Confused? Aurelia now needs to fund it, and as such hinted at a capital raising.

Economic news yesterday was not good, which you can take either way (bad or good) when it comes to an RBA that is already slowing.

The National Skills Commission reported yesterday skilled job advertisements fell -5.9% last month, in a sign the labour market is beginning to weaken. The Australian services sector PMI plunged into contraction last month at 48.0, down from 53.3 in August.

While goods consumption drove the economy in 2021, 2022 has been all about services consumption, and particularly discretionary consumption.

No more, it seems.

Wall Street closed lower again last night but after yesterday’s selling, our futures are up 12 points this morning.

Contrasting Voices

Overstocked US chipmakers took another kick in the guts last night when the White House announced new export controls that limit US companies selling advanced computing semiconductors and related manufacturing equipment to China, even though the move had long been flagged.

The Nasdaq closed on a two-year low.

JPMorgan CEO Jamie Dimon said last night the next 100 points of Fed rate hikes will be more painful than prior hikes because people just aren’t used to higher rates. The US will fall into recession next year and it likely won’t be mild, and the stock market could fall another -20% on top of the -25% to date.

When Dimon talks, Wall Street listens, and the Dow was down -280 points mid-session. It was soon back to square again following comments from Fed vice chair Lael Brainard, before dipping again at the death.

“There is clarity that monetary policy will be restrictive for some time, until there is confidence inflation comes down,” Brainard said. “We also will be learning as we go and that assessment will reflect incoming data and also risks domestically and globally. The actual policy path will be data-dependent”.

Channelling Philip Lowe? It appears the Fed has begun to become concerned about just what its aggressive actions are having on not just the US economy, but also the global economy, most closely reflected in the surging US dollar, which was up another 1.2% last night.

Are we nearing the end of the hiking cycle? Wall Street still expects at least another 100 points, irrespective of what Thursday night’s CPI result might be.

While these comments might have prompted an easing off in US bond yields, the bond market was closed last night. The bond futures markets were open nonetheless, but on ongoing increases in UK and German yields, were higher.

Speaking of JPMorgan, the bank will report earnings on Friday night, along with peers Morgan Stanley, Citi and Wells Fargo, to kick off an earnings season that is arguably more critical than any in recent times.

If the widespread assumption that S&P500 earnings forecasts are still too high, despite coming down recently, proves not to be true, it could be the trigger Wall Street needs.

But that dollar is the main obstacle.

Commodities

The iron ore price reportedly went up over 2% yesterday, but our price source has proven unreliable this morning; I’m sorry.

Otherwise, aluminium continues to fall back, and gold has taken another hit despite no US bond market.

The oils have finally seen a dip after a week of strength.

Look out below, here comes the Aussie peso. It’s down another -1.2% at US$0.6299.

Today

The SPI Overnight closed up 12 points.

The NAB business confidence survey for September and the Westpac consumer confidence survey for October are out today.

A handful of companies are holding their AGMs today, including Telstra ((TLS)).

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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