The Overnight Report: Higher And Higher

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            [0] => ((WBC))
            [1] => ((PDL))
            [2] => ((PPT))
            [3] => ((WEB))
            [4] => ((A2M))
            [5] => ((MGR))
            [6] => ((NHF))
            [7] => ((ORI))
            [8] => ((CRN))
            [9] => ((SOL))
        )

    [1] => Array
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            [0] => WBC
            [1] => PDL
            [2] => PPT
            [3] => WEB
            [4] => A2M
            [5] => MGR
            [6] => NHF
            [7] => ORI
            [8] => CRN
            [9] => SOL
        )

)

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

Funny Old Market

We could apply a Dullsville tag to yesterday’s action on the ASX which saw the ASX200 do nothing much before closing slightly higher. But there were interesting forces afoot.

On the tedious side, it was yet another session of Resources versus The Rest as has been the case all week, with each day flipping back and forward. Energy fell -2.1% and materials -1.2% on lower respective commodity prices, and all other sectors closed in the green.

The index peaked up 24 points but was soon back to square on the release of the October jobs numbers.

Australia added 32,000 jobs in the month – 47,000 full-time – which was helped by a 23,000 lift in population thanks to immigration. The unemployment rate fell to 3.4% from 3.5% — the lowest level since 1974 — when the forecast was for 3.6%.

It was a strong update, Westpac noted, even though holidays, sickness and floods continue to hold back the recovery.

Combine a stubbornly tight labour market with the strong wages data we saw on Wednesday and it is clear the RBA has little choice but to keep on hiking. The board has made it pretty clear there’ll be no more 50s, even if it says there could be. So we can book in 25 points for next month. But then we already had.

On Wednesday the stock market ran a little scared of the implications of strong wages growth, but the bond market didn’t. Yesterday the bond market followed the US overnight and ignored the local economic data, with the ten-year falling -11 to 3.61% and the two-year -5 points to 3.10%.

Note that the local yield curve is still 50 points “normal” on the two-ten spread, with the US curve some -60 points inverted.

On that basis the stock market didn’t need to run scared of the RBA, which is why all sectors outside resources had solid sessions. While it might bring a higher RBA rate, the fact is strong employment suggests a strong economy. The consumer sectors stood out yesterday with a 1.3% gain for discretionary and 1.9% for staples.

Healthcare, utilities and technology all rose over 1%. The banks only rose 0.4%, but that was net of Westpac ((WBC)) going ex-div.

Among individual stocks, Pendal Group ((PDL)) decided that if it wanted to be taken over by Perpetual ((PPT)) before Perpetual itself is taken over, it better offer a sweeter deal. It worked. The deal is on, with Pendal shareholders slightly worse off than the original offer, but yesterday Pendal shares rose 10.5%. Better than no deal at all.

Perpetual fell -12.6%.

Meanwhile, Webjet ((WEB)) surprised with strong earnings and jumped 10.1%, with no doubt some short-covering in play. On the losers’ board, all were miners, other than Perpetual.

A Load of Bullard

“Thus far, the change in the monetary policy stance appears to have had only limited effects on observed inflation, but market pricing suggests disinflation is expected in 2023,” said St Louis Fed president and FOMC member James Bullard last night. “The policy rate is not yet in a zone that may be considered sufficiently restrictive.”

“To attain a sufficiently restrictive level, the policy rate will need to be increased further”.

Where to Mr Bullard? Somewhere between 5 and 7%.

Bullard is known as an uber-hawk and a bit of a FOMC outlier. After voting in December his tenure on the FOMC expires, so he won’t be voting next year. But still, Wall Street has become increasingly unnerved this week over a stream of still-hawkish Fedspeak, undermining the exuberance which followed the October CPI result.

It is Wall Street’s third attempt to predict a pause and although we haven’t heard from Powell yet, the third time the notion has been shot down. I did point out, following the CPI release, the definition of insanity.

The US ten-year yield jumped up 8 points to 3.78% last night and the two-year by a similar amount, maintaining the inversion gap. The risk of a Fed-led recession, or at least the expectation of such, is growing.

The good news is Wall Street did stage a late rally back from the depths towards the close and the S&P500 remains above 3900 support. But economists have been edging up their peak Fed rate forecasts, now into the low to mid-fives from previous high fours.

Commodities

Higher interest rates and recession fears, along with ongoing lockdowns, reduce commodity demand expectations.

Mostly notably for oil.

The Aussie is down -0.9% at US$0.6685.

Today

The SPI Overnight closed up 6 points.

There’s another batch of AGMs to day – not quite as many as yesterday – including those of a2 Milk ((A2M)), Mirvac Group ((MGR)) and nib Holdings ((NHF)).

Orica ((ORI)), Coronado Resources ((CRN)) and Soul Pattinson ((SOL)) go ex.

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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