The Overnight Report: Damn The Torpedos

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

By Greg Peel

Weak Bias

Yesterday the ASX200 bounced around in a 27 point range never going anywhere. The overlaying macro influence was one of don’t do anything ahead of tonight’s US CPI. The underlying micro influence was provided by a number of earnings reports.

We could sum up the session by noting only one of yesterday’s ASX200 reporters made it on to the top five winners list, while four reporters made the top five losers.

Insurance Australia Group ((IAG)) did well and gained 4.5%. Not far off was Endeavour Group ((EDV)) with 4.1%, but missing the podium.

On the flipside, it seems this season’s trend is going to be one of reporting early, ahead of scheduled and traditional slots. Clearly, Star Entertainment ((SGR)) just wanted to get the bad news out there.

Star posted revenue below pre-covid levels citing competition and compliance investment. The company is exposed to regulatory and tax risks, and may write down the value of the Sydney casino. It fell -20.7%.

Fletcher Building ((FBU)) was another to jump the gun, and is looking ahead to soft residential markets here and across The Dutch. It fell -6.3%.

Of those companies which were meant to report yesterday were Aurizon Holdings ((AZJ)), which fell -6.5%, Lendlease ((LLC)), down -6.1%, and JB Hi-Fi ((JBH)), down -5.1% after warning of tough times ahead.

Not much moving the dial on results were Carsales ((CAR)) and Beach Energy ((BPT)).

Beach nevertheless failed to fire in a strong session for the energy sector (+1.8%), which posted a standout performance on higher oil prices and sudden excitement over China buying our coal again. Not that we didn’t already know that. Staples and communication services posted slight gains and all other sectors closed in the red, led by a -1.4% fall for discretionary (Star).

Outside of the index, one positive reporter yesterday was Audinate Group ((AD8)), which jumped 10.0% to top the ASX300.

The first two weeks of (scant) earnings reports had hinted of a weak result season. The first day of the crowded second half of the month has done nothing to change that.

But tonight’s US CPI has the power to overrule all on the macro front, so local investors are looking to follow Wall Street’s lead, earnings season be damned.

Our futures are up 49 points this morning. Best of luck.

Blind Optimism?

With 80% of the S&P500′s market cap having already reported, Credit Suisse is forecasting overall December quarter US earnings estimates to have contracted by -2.2%, as a result of margin weakness. Earnings forecasts have fallen by -1.7% since the end of the quarter when the historical average is for a 2.8% gain.

If we exclude the tech wreck, GFC and initial covid crash, it’s the biggest decline in 24 years, notes Credit Suisse.

Last night the S&P500 jumped 1.1%.

That’s about half of what was lost last week – the first down-week in 2023. That loss, apart from Wall Street having run a bit hard, was all about Fed hawkishness. Tonight’s CPI numbers are critical to Fed policy, so investors are taking a risk.

Yet Wells Fargo put out a note last night suggesting the bear market is over. This may have spurred some optimism, but Wells also said the bull market is “stuck in a traffic jam”.

The fact is Wall Street is fully expecting another tick down in headline inflation as measured in January. If that is the case, then market upside must surely be limited, especially after last night. If the CPI disappoints, and worse, rises, a very big hole will open up.

CNBC’s bond market commentator suggested last night a tick up would see US bond yields jump around 25 points.

Current forecasts are for the January headline CPI to fall to 6.2% from December’s 6.5%.

Strap in.

Commodities

Slip-sliding away. That seems the current trend for metal prices, base metals in particular.

Yet the Aussie is up 0.5% at US$0.6966.

Today

The SPI Overnight closed up 49 points or 0.7%.

Ahead of the US CPI, Japan reports December quarter GDP.

Locally we’ll see the NAB business and Westpac consumer confidence surveys.

Scheduled to report today are the likes of Ansell ((ANN)), Breville Group ((BRG)), Challenger ((CGF)), CSL ((CSL)), James Hardie ((JHX)), Seek ((SEK)) and Sims ((SGM)).

Suncorp Group ((SUN)) goes ex-dividend.

For a calendar of earnings result releases and a summary of earnings results to date, refer to FNArena's Corporate Results Monitor (https://www.fnarena.com/index.php/reporting_season/)

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.

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.)

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