The Overnight Report: Faded Hopes

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This story features DOMINO'S PIZZA ENTERPRISES LIMITED, and other companies.
For more info SHARE ANALYSIS: DMP
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

Moving Parts

Wall Street posted its worst session in 2023 on Tuesday night as US yields shot up following a week of strong economic data, fuelling further Fed rate hike expectations. The ASX200 obediently plunged -70 points from the open yesterday, because that’s what the computers had been taught to do. It closed down -21.

Once the early dust settled, the market was then able to focus on the day’s local economic data, earnings results and other corporate news.

Beginning with the economy, the December wage price index showed a 0.8% gain to 3.3% year on year growth, to mark the highest level in a decade. Workers should be thrilled, except for a corresponding headline CPI of 7.8%, implying wages fell -4.5% in real terms. The quarterly increase fell short of 1.0% expectations, and came in below the RBA’s yearly 3.5% growth forecast.

What do we make of it all? Well, the Aussie hasn’t mucked around, falling -0.8%. The implication is a wage-price spiral, much feared by the RBA, is not apparent. This should mean the board can perhaps ease off the policy pressure, but only if inflation does the right thing too, as the RBA is hoping.

So good news, sort of.

(The RBNZ raised its cash rate by 50 points to 4.75% yesterday. Just what they need up north.)

As to whether anyone can still afford a Domino’s pizza is another matter. Domino’s ((DMP)) delivered an undercooked result yesterday, citing inflation pressure and falling on-line sales post-covid, and admitted increased prices were a mistake. The stock was burned by -23.8%.

Another to report badly was goldminer St Barbara ((SBM)), which fell -10.9%. Otherwise the day’s results responses were mostly to the good, although Costa Group ((CGC)), having reported on Tuesday, copped a couple of broker downgrades yesterday and fell -8.2%.

Service Stream ((SSM)) rose 9.2%, McMillan Shakespeare ((MMS)) 6.5%, Siteminder ((SDR)) 6.0% and, among the big names, Scentre Group ((SCG)) rose 3.5% and Woolworths ((WOW)) 2.0%.

In other corporate news, Brookfield came back with a lower offer than previously for Origin Energy ((ORG)) and the stock jumped 12.7%. While lower, $8.90 compares to a $7.00 share price pre-announcement and the market is surprised Brookfield came back at all.

News Corp’s ((NWS)) deal to sell its Move real estate business in the US has fallen apart. The stock lost -8.9%.

The result of all of the above were mixed sector moves on the day.

Utilities jumped 4.8% thanks to Origin, staples rose 1.2% thanks to Woolies, and real estate gained 0.5% thanks to Scentre. Going the other way, discretionary lost -1.3% thanks to Domino’s and communication services lost -0.5% thanks to News Corp.

The resources sectors netted out, with energy up 0.9% and materials down -0.8%, while the banks had a strong day in falling -0.5%, given Commonwealth bank ((CBA)) went ex and lost -2.3%.

Ahead of the biggest day in the earnings season by number of reporters, our futures are down -20 points this morning.

No Let Up

Wall Street wobbled last week when two (non-voting) Fedheads suggested they would have liked a 50 point Fed rate hike in February, so they’d like one even more in March. Hence after having posting its worst session of the year on Tuesday night, Wall Street was relieved when the minutes of the February meeting indicated most FOMC members were happy with only 25.

The Dow was up over 100 points at one stage – not unsurprising anyway following Tuesday night’s crunch – but turned sharply in the afternoon. The Fed noted that:

“…inflation data received over the past three months showed a welcome reduction in the monthly pace of price increases but stressed that substantially more evidence of progress across a broader range of prices would be required to be confident that inflation was on a sustained downward path.”

Inflation remains “well above” the central bank’s 2% target, and the labour market is still “very tight, contributing to continuing upward pressures on wages and prices.”

Economists are now gathering around a 5.50% (top-end) peak rate forecast for the cash rate, although Deutsche Bank sits at 5.75%. We recall that Deutsche Bank locally raised eyebrows when it recently forecast a 4.10% RBA peak when only few were forecasting 3.85%.

Consensus has now shifted to 4.10%.

That’s about all anyone paid attention to last night. Hopes for an imminent pause, which sent Wall Street racing in January, have now faded.

The S&P500 broke strong support at 4000 last night, closing at 3991.

Commodities

The bounce in base metal prices has proven short-lived, with central bank policy sparking demand fears and the US dollar climbing back on higher yields.

This is offsetting the China reopening story, and last night was most evident in oil prices.

The Aussie is down -0.8% at US$0.6803.

Today

The SPI Overnight closed down -20 points or -0.3%.

Locally we’ll see December quarter private sector capex today.

The eurozone reports January CPI numbers.

The US will revise its December quarter GDP result.

Nine Entertainment ((NEC)) reports today, as do Qantas Airways ((QAN)), Ramsay Health Care ((RHC)) and…oh dear…Star Entertainment ((SGR)). Star went into a trading halt yesterday, likely ahead of begging for new capital.

Today’s list is the longest in the season, if not the most big cap-packed.

JB Hi-Fi ((JBH)) and Whitehaven Coal ((WHC)) go ex today, among 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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