The Monday Report – 06 February 2023

Array
(
    [0] => Array
        (
            [0] => ((CSL))
            [1] => ((NCK))
            [2] => ((TCL))
            [3] => ((AMC))
            [4] => ((SUN))
            [5] => ((AGL))
            [6] => ((REA))
            [7] => ((MQG))
        )

    [1] => Array
        (
            [0] => CSL
            [1] => NCK
            [2] => TCL
            [3] => AMC
            [4] => SUN
            [5] => AGL
            [6] => REA
            [7] => MQG
        )

)

This story features CSL LIMITED, and other companies.
For more info SHARE ANALYSIS: CSL
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Escape Velocity

For three sessions in a row this week, the ASX200 had failed to break away from the 7500 level, despite morning attempts in each case to do so. It looked very much like the index would need to at least consolidate if not pull back somewhat, before a new offensive could be planned.

Then along came global bond markets.

It began with the Fed on Wednesday night signalling there’s still more to do on top of another 25 point hike, but not that much more. There followed the Bank of England and ECB on Thursday night, each raising by another 50 points, but with the BoE in particular suggesting inflation has peaked.

The result was a rush back into bonds, globally. Yields collapsed across the US, Europe and the UK. Australian bonds had initially been circumspect, moving not much following the Fed initially, but on Friday investors joined in the global stampede.

The Australian two-year yield fell -11 points to 2.98%, and the ten-year fell -16 to 3.38%. Assuming the RBA hikes by 25bp to 3.35% tomorrow, the two-year yield, seen as a proxy for the cash rate, is looking ahead to lower rates, or at least a pause from here.

The only problem is the US rather upset the apple cart on Friday night, but we’ll get to that.

Australia’s banks are forecast to post stellar first half results thanks to rate increases to date, but then struggle thereafter in weaker macro conditions brought about by rate stress. On Friday the bank sector rose 1.2%, as investors weighed reduced stress against the end of rate rises.

Real estate had yet another strong session (+2.4%) on lower rates as one might expect. Consumer discretionary (+1.0%) and industrials (+0.9%) chimed in.

Healthcare was the winner on the day (+2.5%), simply because CSL ((CSL)) has re-awoken, Cinderella-like, this year. It added another 3.0% on Friday.

On the other hand, materials let the side down, falling -1.4%. The iron ore miners were all down on lower prices, and gold took a bit of a dive. Four of the top five index losers were gold miners.

Gold took even more of a dive on Friday night (US bonds are King).

If not for the impact of falling bond yields, the local market may have focused more on Friday on weak earnings results from US Mega Techs, with all of Apple, Amazon and Google falling sharply in Thursday night’s aftermarket. While having little connection to Australian companies, these three are enough to drive Wall Street seriously lower.

Our tech sector still managed to close up 0.6% on Friday, after a Meta-driven 3.2% jump on Thursday.

Say What?

Following aftermarket results on Thursday night, misses on either one of earnings, revenues or guidance had all of Apple (Dow), Amazon and Google down -5%. A fall like that for Apple alone has the power to clobber all three major US indices.

Apple had posted its biggest sales decline since Steve Jobs was in short pants. But on Friday night, the stock turned and closed up 2.4%. Google managed to only fall -2.8%, but Amazon plunged -8.4%.

If we take those results in isolation, and the fact the Nasdaq in particular had run hard all week, then a -1.6% fall for the Nasdaq on Friday night, and -1.0% for the S&P500, seem both unsurprising and actually not too bad.

But there was other news that rather overrode earnings results on Friday night.

Forecasts were for the US to add around 190,000 jobs in January and for the unemployment rate to rise to 3.6% from 3.5%, which would have pleased the Fed. But the US added 517,000 jobs, and the rate fell to 3.4% — the lowest since 1969.

The only redeeming factor was a 0.3% increase in hourly pay, which eased the year on year rate to 4.4% from 4.8%, implying some easing of wage inflation pressure. The US ten-year yield shot back up 13 points to 3.53%, and the two-year 20 points to 4.30%.

The US dollar index jumped 1.2% and gold lost almost fifty bucks.

Just when the Fed was hinting at a pause in rates being not too far off, along comes this jobs number to dash those hopes, at least to some extent.

The fact the Nasdaq only fell -1.6% and the S&P -1.0%, and the Dow only -0.4% with Ford down -7.6% on result, suggests Wall Street is not all that panicked. As suggested, had that been the case on a Friday at the end of a strong week without earnings results or jobs numbers, no one would have blinked.

Commodities

While a 1.2% leap in the US dollar is enough to upset all dollar-denominated commodities, moves in metals were nothing out of the ordinary.

Gold is the exception.

It’s been a down-week for the oils, and the prospect of still higher US rates didn’t change the mood.

The Aussie has crashed -2.2% to US$0.6923.

Our futures traders took it all in their stride. The SPI Overnight closed up 12 points on Saturday morning.

The Week Ahead

As the US earnings season rolls on, Wall Street gets a bit of a reprieve from market-moving data this week. January trade numbers are out tomorrow night and consumer sentiment on Friday.

The UK reports its December quarter GDP this week, and China January inflation numbers.

Locally, our own earnings season now kicks into gear. Nick Scali ((NCK)) is among today’s reporters, while across the week we’ll see numbers from the likes of Transurban ((TCL)), Amcor ((AMC)), Suncorp Group ((SUN)), AGL Energy ((AGL)) and REA Group ((REA)), among many others.

Macquarie Group ((MQG)) provides a quarterly update tomorrow.

Tomorrow the RBA will hike by 25 points. The market will be hanging on for clues about where to from there.

The RBA will also publish a quarterly Statement on Monetary Policy on Friday.

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