The Overnight Report: All Yield

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

By Greg Peel

Talking the Talk

The ASX200 fell by -54 points to 11am yesterday on a combination of the response to earnings from Australia’s biggest company and the minutes of the last RBA meeting. It closed down only -15.

BHP Group ((BHP)) reported a -24% fall in revenue and a cut in dividend to US90c from last year’s US150c. The stock fell -2%. However, the CEO managed to talk the share price back up via a post-result conference call, and with a little help from a strong iron price, and the fact a dividend cut was expected anyway, the stock closed down only -0.3%.

The RBA minutes noted:

“The recent inflation data had suggested more breadth and persistence in inflation than had been expected and that strong demand was leading to price increases in some parts of the economy. While inflation was expected to decline, there was a risk that it could persist at an uncomfortably high level, which would entail longer term costs.”

At the December meeting, the board had considered three options – a 50 point hike, 25 points or a pause. In February there were only two options – 50 or 25.

“The arguments for a 25 basis point increase also recognised the need to bring demand and supply in the economy more into balance, but noted that inflation was expected to have reached its peak, that the outlook was for a softening in consumption growth and that there were many uncertainties around the outlook.”

Economists do not expect the RBA to pull a 50-pointer on us from here (Lowe would never had gotten out of Canberra alive if that was the February decision), but consensus has now coalesced around a peak rate of 4.10%, or three more 25s, from an earlier 3.85%.

Bovvered? The Aussie two-year rate rose a mere 2 points to 3.55%. The rate-sensitive sectors in the stock market responded as one might expect – technology down -1.1%, real estate -0.9%, and industrials and discretionary down -0.5%, and the banks down -0.5%.

Staples fell -1.0% with some further help from a2 Milk ((A2M)), down -6.3%.

Materials ended up being the winner on the day, once BHP reversed. The other iron miners were strong, base metal prices bounced and the coin came up heads yesterday for your lithium and rare earth types. Energy also managed a gain (0.4%) on better oil prices.

BHP was not the only reporter yesterday. Among the day’s train crashes were Ingenia Communities ((INA)), down -13.4% and Monadelphous ((MND)), down -8.8%.

Johns Lyng ((JLG)) won the session with a 13.2% pop followed by Hub24 ((HUB)) with 7.7%.

Otherwise, the day-after blues (following broker assessments) set in for Adairs ((ADH)), which fell -7.1%, EVT ((EVT)) -6.1%, and Altium ((ALU)) -5.8%.

Today’s list of reporters is the biggest in the season to date, to be pipped only by tomorrow’s list. There are some more biggies in there.

But the macro is back. Wall Street has taken a tumble overnight and our futures are down -45 points to kick us off this morning.

Don’t Mention the War

No one did on Wall Street last night, but it must have been in the background. While the US enjoyed a long weekend the Biden Administration worried that China was set to step up support for Russia, Biden vowed to support Ukraine to the end, and Putin suspended Russia's nuclear treaty with the US.

Increased Chinese support would likely lead to US sanctions, supporting Ukraine means more billions in US funding, and any use of nukes would have NATO in in a flash. One observation, nonetheless, is that Russia has not much complied with the nuclear treaty these past few years anyway.

Otherwise, it appears investors took time over the weekend to contemplate the updated economic scene and Fed thinking. January data showed unexpected strength in jobs, surging retail sales and hot CPI and PPI numbers. Last night’s flash estimates of February PMIs showed manufacturing rising to 47.8 from 46.9 – better, but still in contraction – while the services PMI leapt into expansion at 50.1, up from 46.8.

Not all that surprising given the rebound in travel, entertainment etc, but yet another sign of economic strength.

Hence another reason for the Fed to keep fighting. The result was a 12 point jump in the US two-yield to 4.73%, passing last year’s 4.72% peak, to its highest level since 2007. The ten-year rose 13bp to 3.95%.

It was the last straw for a stock market that had tried grimly to hang on for most of last week. Wall Street had its worst day of the year.

No surprise the Nasdaq fell -2.5%. More surprising is that the Dow fell further (-2.1%) than the S&P500 (-2.0%) given the Nasdaq’s move, but that was down to an earnings result from Home Depot.

The Bunnings lookalike is similarly considered a “defensive discretionary” stock so a disappointing result had the shares down -7%, accounting for over -100 Dow points. Guidance was downbeat, with the usual cost inflation, labour shortage and supply chain problems reeled off.

Staple stalwart Walmart (Dow) reported a beat but also issued weaker guidance, but hung on with a 0.6% gain. Somewhere to hide.

Wall Street has not waited around to see what the minutes of the last Fed meeting, due tonight, might bring. But it is notable  the S&P500 pulled up right at 4000, which should offer strong support. Break that, and we can probably wipe out January.

Commodities

About the only move of note is the Aussie, which jumped 0.6% on Monday night and has since fallen -0.8%. The US dollar index is up 0.3% on bond yields but the Aussie fell all day yesterday.

Today

The SPI Overnight closed down -45 points or -0.6%.

Locally we’ll see December quarter numbers today for the wage price index and construction work done.

The RBNZ meets this morning and the ECB tonight.

The Fed minutes are out tonight.

Today’s long list of earnings reporters includes Domino’s Pizza ((DMP)), OZ Minerals ((OZL)), Rio Tinto ((RIO)), Woodside Energy ((WDS)) and Woolworths ((WOW)).

TechnologyOne ((TNE)) holds its AGM.

Don’t be spooked when the banks open sharply lower this morning. Commonwealth Bank ((CBA)) goes ex. As do AGL Energy ((AGL)) and others.

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.

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