The Overnight Report: Treading Water

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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

Unhappy Anniversary.

Second Time Unlucky

It was a very up and down start to the local session yesterday as earnings results flowed in on Super Thursday and economic data had heads scratching as well. The ASX200 settled in the afternoon to a -29 point close.

On Wednesday, BHP Group ((BHP)) initially fell -2% on its earnings report but the CEO managed to talk the share price back up again thereafter, by saying nice things. They weren’t buying it offshore – literally – BHP fell -3.4% yesterday.

Rio Tinto ((RIO)) reported yesterday and fell -1.7%. Which makes the net -1.6% fall for the materials sector, and -0.4% for the index, look like a pretty good result. The usual coin-toss miners were doing their thing again yesterday.

Another rethink story was that of Woolworths ((WOW)), which posted a surprisingly good result on Wednesday and jumped 2.0%, before the question was asked “can it last?” Woolies fell -1.4% yesterday and staples fell -0.9%.

Generally saving the day was CSL ((CSL)), which reported a couple of weeks ago. It rose 1.0% to send healthcare up 1.1%.

Thereafter, there were sizeable moves among the day’s reporters, up and down.

On the winners’ list were Eagers Automotive ((APE)), up 9.0%, Qube Holdings ((QUB)), 8.7%, Smartgroup Corp ((SIQ)), 7.4%, Medibank Private ((MPL)) 6.5%, Kelsian Group ((KLS)) 5.4%, and so the list goes on.

The day’s losers included Bega Cheese ((BGA)) down -7.8%, Qantas Airways ((QAN)) -6.8%, Blackmores ((BKL)) -6.6% and Zip Co ((ZIP)) -6.2%, and ditto.

In responses to broker responses to results the day before, Service Stream ((SSM)) rose 8.5% and Platinum Asset Management ((PTM)) fell -16.9%.

JB Hi-Fi ((JBH)) fell -5.7% but only because it went ex.

In the day’s economic news, the first survey of private sector capital expenditure expectations for FY24 showed an 11% increase on expectations for FY23 a year ago. That’s huge, when recession talk is all the rage. Problem for the RBA?

No. Firstly, you might have noticed prices have gone up a lot lately, including for finance and wages. It’s not an 11% increase in volume of capex plans, just price. Secondly, businesses re-guess this number each successive quarter, and can easily change their minds.

Still, December quarter actual capex rose a solid 2.2%, driven by non-mining, and expectations for spending in FY23 (two more quarters to go) also rose 2.2%. ANZ Bank economists note that adding Sep-Dec quarter capex gets us halfway to the FY23 estimate, but the March quarter is typically quiet given summer shutdowns. So it will all have to happen in June.

The actual capex number will nevertheless support next week’s GDP result, but otherwise the RBA need not be overly concerned.

The number of companies reporting daily mercifully gets smaller now to the end of the month. At the same time, the daily list of stocks going ex-dividend is growing, implying an opening handicap for the index each day.

Let’s Chat

Half an hour in last night the Dow was up 220 points, by mid-session it was down -250, and it closed up 100. That about sums up the consensus view on Wall Street at present – no idea.

No idea how many more Fed rate hikes are coming, no idea if the next one will be 25 or 50, no idea whether the US will go into recession this year or not, or maybe not until 2024, and, well, just no idea.

The S&P500 did manage to close above 4000.

Last night showed US weekly new jobless claims numbering less than 200,000 for the sixth week running, suggesting a still very tight labour market.

The first revision GDP estimate for the December quarter trimmed the result to 2.7% growth from a prior 2.9%.

The stock story of the day was that of leading chipmaker Nvidia, which having reported in Wednesday night’s aftermarket jumped 14% last night. Nvidia specialises in chips for the biggest craze since the yo-yo — AI. The recent emergence of chatGPT suggested to the world AI was suddenly here, but the reality is it’s been in development for decades, and from here will only grow exponentially into our everyday lives.

You have been warned.

One revelation last night is that because the US individual states are now flush with cash, competition is fierce between them to cut their state income tax rates to lure investment. State tax rates run from the highest being California to one of the lowest being Texas, at zero. Last year Elon moved the Tesla HQ to Austin for that very reason, and it’s not the only business to have escaped Silicon Valley.

The states are thus effectively pumping liquidity into the economy, as fast as the Fed is trying to take it out.

In the context of the current debate downunder about super tax concessions for the rich, and an earlier push to raise the super contribution level from 10%, note the average US contribution into their equivalent, yet voluntary, 401(k) is 13.7%. Yet the average super balance at the end of 2022 was only about US$104,000.

Mind you, that’s down -26% on the end-2021 balance, but who could retire on that?

Commodities

On Wednesday night oil traders were all in a panic about Fed rate hikes killing demand. Last night Russia said it would cut exports from Western ports by as much as -25% — representing more than an earlier -500,000bpd target.

The Aussie is up a tad at US$0.6813.

Today

The SPI Overnight closed up 8 points.

Wall Street will hold its breath for the January PCE inflation numbers tonight, along with consumer sentiment and new home sales.

Adbri ((ABC)), Allkem ((AKE)), Brambles ((BXB)) and Mineral Resources ((MIN)) are among today’s (shorter) list of reporters.

BlueScope Steel ((BSL)), Deterra Royalties ((DRR)), Newcrest Mining ((NCM)) and Tabcorp ((TAH)) are just some of the stocks going ex-dividend today.

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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