The Monday Report – 14 November 2022

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

By Greg Peel

Flat Session

As I had suggested, the ASX200 simply stepped-jumped up on Friday in the opening minutes and did nothing thereafter, closing where it had opened. It was a good day for a steak and a red.

The formidable 7000 resistance level was left behind in the opening seconds, and the index also closed above its 200-day moving average, which is an ongoing bullish sign.

The day was all about interest rates. The Aussie ten-year yield did not match the US equivalent in falling -30 points. It only fell -7, but had fallen a total of -30 points in the two sessions prior. Lower yields, on the back of a lower US inflation print, were what drove stocks either up or down.

Winners on lower rates were technology (5.0%), real estate (3.9%), health care (3.6%), consumer discretionary (3.5%), communication services (2.8%) and industrials (2.2%).

And also the banks (2.2%), which while looking less spectacular, have more index clout. Financials were also hampered by small falls for insurers, which actually benefit from higher rates, notwithstanding another weekend of floods.

Computershare ((CPU)) is also a rate beneficiary, and thus fell  -2.9%, pipped only by a -3.2% fall for Origin Energy ((ORG)), which had nothing to do with rates. Origin shot up 30% the day before on a takeover offer. Utilities were thus the only sector to close in the red on Friday (-0.5%) when otherwise it would have joined the party.

The biggest moves in index stocks were posted by some of the most beaten-down of late, but also the most shorted. Shorted more than 10% ahead of Friday were Megaport ((MP1)), which topped the index with a 13.7% jump, and Block ((SQ2)), up 11.5%.

Shorted more than 5% were Pinnacle Investments ((PNI)), up 12.5% (it was a good day for fund managers) and Pro Medicus ((PME)), up 11.4%.

On the other side of the ledger, coal miner woes continued.

That may change today. Yet another -1.7% plunge in the US dollar on Friday night, following -2% on Thursday night, finally kicked metal prices into gear after a typical day-late delayed reaction. All commodity prices were up big on Friday night.

Materials did rise 3.7% on Friday, mostly on gold, with energy a laggard at 0.7%.

Offsetting the gains in commodity prices is another 1.4% jump for the Aussie to over US67c, having come from under US63c in a heartbeat.

Australia’s inflation trajectory remains to the upside, but the US has given hope of a peak ahead.

The futures were up another 42 points on Saturday morning.

Sticking With It

The US bond market was closed on Friday night for Veterans Day, depriving the stock market of its daily compass. The mood nevertheless remained upbeat. The Dow had a quieter session, but tech stocks were still seeing a buying scramble.

The Dow closed up 4.1% for the week, the S&P500 5.9% and the Nasdaq 8.1%.

News over the weekend was of the Democrats retaining the Senate. The House is as yet undecided, but still looks like going to the Republicans with a majority of only a few seats. We recall that Wall Street had already run up hard ahead of Thursday night’s CPI on the assumption the Republicans would sweep the House and likely take the Senate as well.

So will the mood change tonight? By Friday night it was clear there would be no Red Wave, which didn’t upset the mood on Wall Street, and as long as there is a slim Republican majority in the House, the blocking capacity is the same. For now though it looks like inflation excitement will…ahem…trump all else.

Should be an interesting Big Announcement on Tuesday night.

In economic news, the Michigan Uni consumer sentiment slipped to 54.7 from 59.9 at end-October. One year inflation expectations rose to 5.1% from 5.0% and five years to 3.0% from 2.9%.

Clearly, the survey was taken before Thursday night, so it will be the next set of numbers to watch out for, at end-November.

In the meantime, Wall Street is now confident of only a 50 point Fed hike next month, which was the expectation anyway. The only problem is the November CPI will be out before the meeting.

Let’s hope it does not go back up.

Commodities

China has moved to cut quarantine periods down by two days for close contacts of infected people and for travellers arriving in the country, as well as scrapping a rule that penalises airlines for bringing in too many cases, while insisting the country “will not waver from the dynamic zero-covid” policy, and changes were only made to “enhance” the anti-pandemic measures.

Beijing can say what it likes but the world is reading a move towards slowly withdrawing from zero-covid and claiming victory, to avoid economic disaster.

We recall it was the threat of economic disaster that had countries around the globe, including Australia (federal and state), conceding to “living with covid” after it became clear lockdowns were not the solution to an ongoing problem.

Whatever the case, on the assumption of easing restrictions, and another tumble in the US dollar, all commodity prices took off on Friday night.

If anything is going to upset easing US inflation at this point, it will be oil prices.

The Aussie is up 1.4% at US$0.6720.

The SPI Overnight closed up 42 points or 0.6% on Saturday morning.

The Week Ahead

It could take more than another week to finalise the US House result. With races so close there’s bound to be one or more recount demands, and possibly court cases. I wonder if anyone would now be game enough to cry “stolen”.

The minutes of the November RBA meeting are out tomorrow – a meeting that preceded US CPI.

Important to the RBA from here will be the September quarter wage price index, out on Wednesday, and Thursday’s October jobs report.

China reports October retail sales, industrial production and fixed asset investment tomorrow, what there is of it.

The UK, eurozone and Japan all report October CPIs this week.

The US PPI is out tomorrow night. Be wary.

The US will also see retail sales, industrial production and housing starts over the week.

ALS Ltd ((ALQ)) and Elders ((ELD)) report earnings today.

Incitec Pivot ((IPL)), United Malt ((UMG)), Aristocrat Leisure ((ALL)), GrainCorp ((GNC)), Nufarm ((NUF)), Virgin UK ((VUK)) and Webjet ((WEB)) report earnings over the week.

A large number of AGMs will be held this week.

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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