The Overnight Report: We’re On A Road To Nowhere

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This story features AMCOR PLC, and other companies.
For more info SHARE ANALYSIS: AMC
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Jogging on the Spot

It’s been an up and down week for the ASX200 to date, with an end result of going nowhere. So far 7500 support has appeared safe. Yesterday we rallied to 7530, reversing Tuesday, and this morning the futures are down -33. And doe-si-doe your partner.

Wall Strength provided support for the local market to respond to earnings reports yesterday.

The standout was Boral ((BLD)), which rose 12.8% on a 50% increase in earnings. The result fired up the building materials sector, sending Adbri ((ABC)) up 4.3% and CSR ((CSR)) up 1.0% and the materials sector up 0.8%, with some help from iron ore.

There was a bit of a drag from Amcor ((AMC)), which fell -3.3% after posting a strong result, with cautious commentary about the quarters ahead, and that resonated with Orora ((ORA)), which lost -3.7%.

With much of the country underwater in the December half, Suncorp Group ((SUN)) surprised with a 44% increase in profit, gained 4.6%, and again boosted peers in anticipation. There’s only so far one could push premiums to cover cats.

The financials sector rose a market-leading 0.9%. Aside from the insurance contribution, the first immediate pass-throughs into mortgage rates from the banks reminded investors higher rates are good for margins.

Meanwhile, ANZ Bank’s CEO warned the cash rate is entering dangerous territory for mortgage customers that borrowed to their limits. The buffer the banks built into home loans had now gone. ANZ wasted no time in passing on the full 25.

Elsewhere, the impact of Philip Lowe’s “more to come” warning on Tuesday continued to be felt in the likes of real estate (-0.4%), healthcare (-0.6%) and staples (-0.6%).

The fall in staples was pushed along by an index-topping -5.8% drop for Elders ((ELD)). With no news out, the ASX had to ask Elders for a “please explain” (known in market parlance as a “Pauline”).

Not much going on in other sectors.

There are several more companies reporting today before the season ramps up in earnest next week. It’s that time of the year (of which there are two) when it becomes a battle of the micro and the macro. Right now both the local market and Wall Street appear to have taken the prospect of more rate hikes in their stride, both hanging on for now within ranges near their highs.

If this can hold then it will be earnings results that can cumulatively provide investors with a more definitive view of the state of the economy.

Micro and Macro

It had been oft noted through late last year and the US “holiday season” that while lower income households might be struggling, high-end customers were still happy to fork out for luxury brands. Last night a company called Capri Holdings, owner of brands such as Versace, Michael Kors and Jimmy Choo, posted a miss on earnings, lowered its guidance, and fell -24%.

Fast food is a little more palatable for lower-income households, but last night Chipotle Mexican reported a miss and fell -5%.

Unrelated to earnings, Goggle hit a major stumbling block amidst this sudden new AI race among search engines. Google has countered the ChatGPT bot on Microsoft’s Bing with its own offering called Bard (of all things), which posted an ad for itself on Twitter last night featuring a moment in history that was quickly proven to be inaccurate.

Google plunged -7.7% and in so doing, accounted for around a quarter of the fall in the S&P500, let alone the Nasdaq. Shakespeare would be rolling in his grave.

Switching from the micro to the macro, Federal Reserve governor Christopher Waller said in a speech last night he’s “prepared for a longer fight to get inflation down” and said interest rates need to remain high for “some time” to make sure intense price pressures are eradicated.

Separately, the New York Fed president said the central bank needs to maintain “restrictive” interest rates for a few years to make sure high inflation is restored to low pre-pandemic levels.

After a lot of ups and downs on Tuesday night as the Fed chair delivered a speech, Wall Street decided to back Powell’s talk of “disinflation” rather than “data-dependence”, in the wake of the hot jobs number. The major indices closed higher, and last night gave it all back.

Wall Street remains in a range. Indeed last night’s intraday range fits completely within Tuesday night’s range.

Were the S&P500 to fall back towards 4000 (4117 now), it would not particularly upset the 2023 trend to date.

Commodities

Not much happening in metals.

The oils have kicked on a bit following Tuesday night’s pop.

Having leapt on the RBA statement, the Aussie has pulled back -0.3% to US$0.6922.

Today

The SPI Overnight closed down -31 points or -0.4%.

Today’s earnings reporters include AGL Energy ((AGL)), ASX ((ASX)), Downer EDI ((DOW)) and Mirvac Group ((MGR)), among others.

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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