The Overnight Report: Policy Dilemma

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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

Profit-Taking

Yesterday the ASX200 fell -27 points in the first fifteen minutes, but by 11am was up 9, then by 11.30 was down -16. Not sure what was going on there, but I doubt there was much human involvement.

The bottom line is that after a solid run-up, Wall Street pulled back somewhat on Friday night’s hot jobs number, and having enjoyed our own solid run-up, we did the same yesterday once the computers were out of the way.

Interestingly, US bond yields had plunged on the Fed statement last week but ran right back up on the jobs number, and our yields had eventually plunged on Thursday in the wake of the Fed, and the Bank of England and ECB, but yesterday our ten-year fell another -7 points to 3.47% rather than follow the US.

It made little difference to a stock market that had decided it was a good time to lock in some profits. Witness real estate, which after a very strong comeback from the depths fell -2% yesterday.

Healthcare dropped -0.8% as another comeback kid – CSL ((CSL)) – fell -0.6%. The banks and consumer discretionary had been beneficiaries of last week’s plunge in yields, so they fell -0.3% and -0.5% respectively. While not in the ASX200, Nick Scali ((NCK)) had discretionary rattled with a -13.0% fall on earnings result.

The less interest rate-sensitive resource stocks (except how rates impact currencies over the wider term) were playing their own game yesterday. Oil & gas and coal companies bounced back after a period of lower prices, leading energy to top the index with a 0.9% gain.

It was a bad day for volatile lithium stocks, and even worse for gold miners after USD gold tanked on the greenback’s jobs-related bounce-back. There was one exception. US gold miner Newmont has made an all-script conditional bid for Newcrest Mining ((NCM)), so that stock jumped 9.3% against the tide to top the index.

With a little support from the big diversifieds, materials rose 0.3%.

It was overall largely a session to square up, ahead of today’s RBA decision. While a 25 point hike is considered to be baked in, there’s been a lot of chatter over the past few days about a full 40 points.

We recall that the December CPI number was higher than expected, so if the RBA focuses on that, and not on falling house prices and lower retail sales, maybe 40 is possible. It would at least get us back to a more familiar 3.50% having been off-kilter since the first hike last May.

One and done perhaps? The knockout punch? We shall see.

Meanwhile, with a little more weakness on Wall Street overnight, our futures are up one point this morning.

What Now Jay?

Fed chair Jerome Powell is due to speak tonight to the Economic Club of Washington. Having delivered what was widely considered a “dovish” statement and press conference last week, in the current scheme of things, this will be Powell’s opportunity to address the shock jobs number.

The US bond market is not waiting to find out what he thinks. Having plunged on Powell’s words last Wednesday night, the US ten-year yield bounced back 13 points and the two-year 20 points on Friday night’s jobs number. Last night the ten-year added another 11 points to 3.65% and the two-year 18 to 4.48%, returning close to the previous highs.

If the jobs number has sparked a rush to sell bonds once more, the US stock market remains fairly circumspect. Another -0.6% fall for the S&P500 last night, -1.0% for the Nasdaq and a mere -0.1% for the Dow, on top of Friday night’s falls, still only smacks of a totally unremarkable pullback following this year’s surge rather than any form of Fed policy panic.

There was also some consternation over a certain balloon – you may have heard about it – and the implications of a diplomatic setback. The Hang Seng fell -2% yesterday on that basis, and last night US defence stocks caught a bid, such as fighter jet manufacturer Lockheed Martin (+2%).

Meanwhile, and despite the goings on in the bond market, the idiots are back into the meme stocks once more. GameStop rose 7% last night and AMC Entertainment 11%, and Bed Bath & Beyond, which was about to file for bankruptcy, rose 92%. These stocks have admittedly found themselves heavily shorted once more, as was the case when this all kicked off in early 2021, so short-covering is again in play.

If 2021 is any guide, unless you get out before the top, you inevitably will be creamed again.

We might also note that other meme stock – bitcoin – is up 38% year to date.

Joe Biden will deliver the annual State of the Union address tonight, and is expected to announce some tax policy changes that will have the Republicans flapping their right wings, such as a minimum income tax on billionaires.

Very un-American.

Otherwise, over to Jay.

Commodities

We might blame falls in metal prices on a 0.6% jump in the US dollar overnight, but realistically prices have done nothing but fall ever since China came back from holiday. Clearly the punters had overestimated the impact, to date anyway, of China’s reopening.

After a week of falls, oil prices managed to bounce a little.

The US dollar index is up 0.6%, matched by a -0.6% fall for the Aussie to US$0.6880.

Today

The SPI Overnight closed up one point.

We’ll see December trade numbers today, ahead of the RBA release.

Ditto the US, before Powell pipes up.

Transurban ((TCL)) is among a handful of stocks reporting earnings today.

Macquarie Group ((MQG)) will provide a quarterly update.

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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