The Overnight Report: Two-Speed Market

Array
(
    [0] => Array
        (
            [0] => ((MPL))
            [1] => ((COL))
            [2] => ((CGC))
            [3] => ((CGF))
            [4] => ((FMG))
            [5] => ((JBH))
            [6] => ((NCM))
            [7] => ((WES))
            [8] => ((ANZ))
            [9] => ((CIA))
            [10] => ((JHG))
        )

    [1] => Array
        (
            [0] => MPL
            [1] => COL
            [2] => CGC
            [3] => CGF
            [4] => FMG
            [5] => JBH
            [6] => NCM
            [7] => WES
            [8] => ANZ
            [9] => CIA
            [10] => JHG
        )

)

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

By Greg Peel

Surprise?

It was heartening to see the local market shrug off big falls in US Big Tech stocks before the open yesterday when once it would have been spooked. There is simply no connection.

Hence the ASX200 jumped up 45 points in the first hour on Wall Street’s broader day-session strength. But when the CPI numbers came out, that was the end of that.

The headline CPI rose 1.8% in the September quarter to a 7.3% annual rate when consensus had 1.6% and 7.0%. The core CPI rose 1.8% to 6.1% when consensus had 1.6% and 5.5%.

The result is economists have reassessed their forecasts. There is talk of the RBA being forced into another 50 point hike next week, but that would belie the intention behind only hiking by 25 this month when 50 was expected. More likely, economists suggest, is the RBA will go 25 points both next week and in December to 3.10%.

Thereafter, it appears more hikes will be needed. ANZ Bank economists, for one, have lifted their peak rate expectation to 3.85% by May. They see higher inflation extending into 2023 due to both the stronger September quarter data and the upside risks ahead given continuing cost pass-through, flooding, a lower Aussie and evidence of persistence in inflationary pressures globally.

In the shorter term, 7.3% might have been above expectations but it lies with the trajectory between the August result of 6.8% and the RBA’s 7.75% year-end forecast. So is it really that much of a shock?

Not according to the bond market. If inflation comes in hot one would expect yields to rise in anticipation of further RBA rate hikes. Yesterday the bond market ignored the local and acted globally in sending the ten-year yield down -16 points to 3.91% and the two-year down -8 to 3.37%, following the US and UK.

Hence, disaster was averted. Real estate rose 2.5%, utilities 2.4%, industrials 0.9% and discretionary 0.5%.

The big banks all rose between 0.2-0.5%, but financials closed flat due to the offset of Medibank Private ((MPL)), which came back on the boards and fell -18.1%.

Perhaps the biggest surprise was technology, which also closed flat.

Materials managed a 0.3% gain as gold miners offset falls in lithium and coal miners. Energy fell -1.3% despite little movement in oil prices.

The big loser was defensive star consumer staples (-2.4%). Not only did the CPI come out hot, Coles ((COL)) bemoaned inflation at its quarterly update. Flying in the face was Costa Group ((CGC)), which having taken a hit on its weather-beaten update jumped 10.7% yesterday on news private equity has taken a stake.

It was a two-speed market on Wall Street last night, with the Nasdaq on its own. Base metal prices surged in London last night, and gold and oil are up, and our futures are up 26 points this morning.

Oh Canada

Having reported in Tuesday night’s aftermarket, last night Google fell -9% and Microsoft -7%. All the Big tech names were impacted during last night’s session, including a sympathetic fall of -6% for Meta.

Meta has reported this morning and is currently down -15%, having already been down -60% from its high.

I erroneously suggested Amazon would report this morning. In fact it’s tomorrow morning, along with Apple.

In other news, Boeing reported during the session last night, and it fell -8.8%. The fall in Microsoft was worth -125 Dow points, and Boeing -80, so put that into the context of a flat Dow close.

The big surprise last night nevertheless came from north of the border. The Bank of Canada hiked by 50 points. It was a surprise because 75 points was widely expected.

The move brought back memories of the RBA only going 25 early this month when 50 was assumed. The expectation is becoming greater the Fed will soon need to ease off the pace as well.

Once again, the US ten-year fell sharply, down -9 points to 4.01%, with the two-year down only -2 points. It was no help for the Nasdaq, which was always set to cop a hiding, but it’s good for everyone else.

The US dollar plunged another -1.1%.

All up we had the Nasdaq down -2% versus a flat Dow, and the S&P500 splitting the difference to -0.7%.

Things aren’t going well in Big Tech Land. FANG & Co have led Wall Street higher for a decade, and as late as last year were being called “defensive” growth stocks. Not anymore, unless Amazon and Apple can somehow save the day. Perhaps the time has come for the digital world to come back to earth a bit.

The metaverse can wait.

Commodities

The US dollar index has fallen sharply more than once this week, but last night seemed to be the final kicker for base metals. Add in the implications of the Bank of Canada’s surprise move – Canada also being a major commodity producer – and probably short-covering, and the scramble was on.

Iron ore missed out though.

Gold has been rising steadily on the lower US yields and dollar.

The US exported 5.1mbbl per day of crude oil last week – a record. Imports fell to their lowest level ever. Oil prices subsequently jumped, again with help from the lower dollar.

The Aussie is up a full cent, or 1.5%, at US$6492.

Today

The SPI Overnight closed up 26 points or 0.4%.

The ECB meets tonight. More surprises?

The US will see a first estimate of September quarter GDP.

Today’s is the longest list of local AGMs and quarterly reports for the season. On either list is Challenger ((CGF)), Fortescue Metals ((FMG)), JB Hi-Fi ((JBH)), Newcrest Mining ((NCM)) and Wesfarmers ((WES)), among the many.

And ANZ Bank ((ANZ)) kicks off the major banks earnings season today.

Also reporting is Champion iron ((CIA)), along with quarterly earnings from Janus Henderson ((JHG)).

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