The Overnight Report: Momentum Ongoing

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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

One Bank

The market did not take too kindly to Westpac’s ((WBC)) announced 4% profit increase yesterday, as management warned about a headwind in the coming year as rates continue to increase and consumer behaviour remains unpredictable, despite 68% of customers being ahead on mortgage payments. The stock fell -3.9%.

The result led the financials sector down -1.4% to counter the bulk of the market, although the other banks weren’t quite so impacted. Commonwealth Bank ((CBA)) closed flat, National Bank ((NAB)) fell -1.2%, ANZ Bank ((ANZ)) fell -1.7% but that was actually a gain net of going ex-div, and Macquarie Group ((MQG)) rose 0.5% after also going ex-div.

Westpac ensured the 91 points the futures had suggested at the start of trade yesterday, following Wall Street’s jobs-related rally, was not to be. The ASX200 opened up 50, was only up 16 at midday, and then picked up into the close.

The only other sectors to close in the red yesterday were technology (-2.2%) and real estate (-0.1%). The ten-year bond yield rose 6 points to 3.90% which may explain but discretionary is usually hit on higher rates and it rose 0.8%.

WiseTech Global ((WTC)) fell -5.9% and Altium ((ALU)) -4.5% to drive tech.

Materials was the standout winner with a 3.7% gain. Energy rose 1.4% and utilities 0.9%. This was due to surging commodity prices, driven by speculation China is ready to reconsider its zero-covid policy. But:

“Practice has proved that our pandemic prevention and control policy and a series of strategic measures are completely correct, and the most economical and effective,” said Hu Xiang in response, a disease control official, when asked if China would adjust its covid policies in the near term. Yet:

Chinese officials have grown concerned about the costs of their zero-tolerance approach to smothering covid outbreaks, according to the WSJ, but they are weighing those against the potential costs of reopening on public health and support for the Communist Party. So:

As a result, they are proceeding cautiously despite the deepening impact of the covid policies, pointing to a long path to anything approaching pre-pandemic levels of activity, with the timeline stretching to sometime near the end of next year.

Believe what you will.

Meanwhile Apple has warned of a supply shortage of iPhone 14s due to lockdowns. Commodity prices fell back last night.

All other sectors rose 0.4-0.8% yesterday.

The top five ASX200 winners were all gold miners, after the gold price jumped US$50 overnight. Capricorn Metals ((CMM)) jumped 10.0%.

Thermal coal miner Coronado Resources ((CRN)) dropped -7.0% after Peabody withdrew its merger proposal.

Wall Street has posted another big up-day, as relief rally momentum continues.

Our futures are up 24 this morning.

Midterm Risk

Over the weekend, the Washington Post reported the Biden administration was privately encouraging Ukraine’s leaders to signal an openness to negotiate with Russia and to drop their public refusal to participate in talks unless Putin is removed from power.

Putin has indicated he’d settle for the annexed territories and Zelensky has vowed to take back all of Ukraine, including Crimea. So I don’t know what that’s all about. Experts suggest if Zelensky cedes the annexed territories, Putin will just wait for a while before launching another invasion.

The news is cited as one reason Wall Street was strong again last night. The other, more reasonable, is that the Republicans look like taking at least the House in tonight’s midterms.

The US dollar took another dive, falling -0.7% following Friday night’s -1.9% plunge, which is positive for big US multinationals, all of whom, having reported to date, have highlighted a currency drag.

It is not clear exactly why the dollar has turned tail. US bond yields were up another 6-7 points last night. Given how hard it has run this year, perhaps it’s just time for some profit-taking.

Investors appear happy to take on risk ahead of Friday’s CPI result, which all agree could go either way, and thus so could the market.

Meanwhile, we see how these midterms go, and how many Republican candidates deny they have lost.

Commodities

As noted, all a bit of a pullback now the China reopening question is in doubt. Iron ore excepted.

With the dollar down another -0.7%, the Aussie is up another 1.2% at US$0.6484.

Today

The SPI Overnight closed up 24 points or 0.4%.

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

James Hardie ((JHX)) reports quarterly earnings.

Bendigo & Adelaide Bank ((BEN)), Inghams Group ((ING)) and Sims ((SGM)) are among those holding AGMs.

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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