The Overnight Report: Concern Grows

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This story features COMMONWEALTH BANK OF AUSTRALIA, and other companies.
For more info SHARE ANALYSIS: CBA
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Delicate Balance

Economists’ initial views on last night’s blink-or-you’ll miss it budget – Chalmers got a lot out there in double-time – is that it is short term inflationary. No one begrudges, for example, a 15% pay increase for age-care workers, but more money in pockets means more to spend at higher prices.

The Labor government was between a rock and hard place, and had to deliver some sort of cost of living relief to its base, but as much as the Treasurer rammed home his attempts to be balanced, he has not done the RBA any favours.

On the other hand, data showed real retail sales (ex-inflation) fell -0.6% in the March quarter, following a -0.3% fall in December, to a 0.3% year on year gain – the biggest six month contraction in sales since 1986, if we exclude covid lockdowns and the introduction of the GST.

That’s what the RBA does want to see. Furthermore, on the release of its earnings result yesterday, Commonwealth bank ((CBA)) warned that customers are under strain from rising borrowing and living costs which has triggered an increase in impaired loans.

“As higher interest rates impact the Australian economy in the period ahead, we expect economic growth to continue to moderate.”

CBA’s 10% year on year increase in quarterly profit was good for a 0.2% gain, and the financials sector closed up 0.5%, to be one of only two sector winners on the day. Industrials rose 0.3%.

For all other sectors, it was a case of trimming off some of Monday’s gains ahead of the budget and tonight’s US CPI numbers.

Real estate is having its ups and downs of late, and yesterday fell -1.4% to be the worst performer, with Charter Hall ((CHC)) the worst index performer, losing -4.2%. Retail REIT Scentre Group ((SCG)) fell -2.1% on what should not have been surprising retail data.

Consumer discretionary also reflected the data (-0.5%) and healthcare was trimmed (-0.6%), as technology (-0.7%), while other falls were modest.

The market can spend the day sifting through the budget details while the US CPI still looms, along with US debt ceiling fears.

In terms of overnight reaction to the budget, our futures are down -21 points or -0.3% but the S&P500 closed down -0.5% so we can’t isolate any impact there.

Dancing on the Ceiling

As I write, Biden is meeting with the leaders in the House and Senate from both parties, the most influential of which is Speaker Kevin McCarthy, leader of the Republican House majority, and held to ransom by the party’s far right.

I suggested yesterday this was a “negotiation”, with the supposed June 1 debt ceiling deadline edging closer, but apparently that is not true. It is, at this stage, just a “meeting”, ahead of actual negotiations. No doubt we’ll hear the meeting was “constructive”, and learn nothing.

Wall Street has not been all that worried up to now about the debt ceiling, as it is always resolved at a minute to midnight, and may still well be. But this time there is concern. Concern that an impasse cannot be broken.

Wall Street is not exactly panicking, just taking some risk off the table, with the CPI the more immediate issue. That could go either way.

In other news, PayPal reported earnings last night and, on weaker guidance, fell -12.7% — a consumer bellwether.

Similarly, Airbnb has reported in this morning’s aftermarket and is down -11%.

The EV game is not easy, except maybe for Elon, who had the jump. Lucid fell -5.6% on its result last night while electric truck aspirant Nikola dropped -13% after saying it would pause production to modify its Arizona assembly line in order to refocus its business on hydrogen fuel cell trucks.

Commodities

The LME was back in business last night to worry about slowing global growth meeting a marginal surplus in aluminium.

Gold is hanging in there, with little move in bond yields last night.

The Aussie is down -0.3% at US$0.6764, this time matching the gain in the US dollar.

Today

The SPI Overnight closed down -21 points or -0.3%.

The US CPI is the big-ticket item tonight.

CSR ((CSR)) reports earnings today.

GPT Group ((GPT)), Iluka Resources ((ILU)) and Smartgroup Corp ((SIQ)) hold AGMs.

Don’t panic when banks fall this morning – both National Bank ((NAB)) and Bank of Queensland ((BOQ)) go ex.

As does ResMed ((RMD)).

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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