The Overnight Report: Down To The Wire

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This story features JAMES HARDIE INDUSTRIES PLC, and other companies.
For more info SHARE ANALYSIS: JHX
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

When the Levy Breaks

History suggests when a stock market simply cannot go up, if not for want of trying, it will have to go down instead. After several days of going nowhere, yesterday the ASX200 opened lower from the open, and given a trifecta of factors to follow, it was all downhill from there.

A weekly measure of consumer confidence fell -7.9% to 75.9 (100-neutral) from 85.8, reflecting the unexpected May rate hike. The week before confidence had risen 9.4%. I don’t typically highlight this weekly survey as it bounces around, as evidenced by these numbers, but the takeawy is this is the lowest reading since April 2020, which was not a great month.

And there’s more to come, it would seem. While the minutes of the May RBA meeting noted the decision to hike again was “finely balanced”, “further increases in interest rates may still be required, but that this would depend on how the economy and inflation evolve”.

Not just an increase, further increases. Economists took the minutes to be on the hawkish side, noting the board is still worried about sticky services inflation, a tight labour market and zero productivity growth.

The popular choice remains another hike in August, following the release of June quarter CPI data, but others see a hike perhaps in July. June is not much in favour, but then nor was May.

We next saw April economic data from China.

Industrial production rose 5.6% year on year, retail sales jumped 18.4%, and fixed asset investment rose 4.7% year to date. They seem like great numbers, except that a year ago China was in strict lockdown and thus economists had been forecasting 10.9%, 21.0% and 5.5% respectively.

More evidence China’s reopening “surge” is just not gaining any traction.

Yet, the only sector to close in the green yesterday was materials (+0.2%), which responded to commodity price increases following news of more Chinese monetary stimulus the day before, with iron ore in particular jumping. An 8.3% pop for James Hardie ((JHX)), post earnings result, also helped.

Otherwise, every other sector fell in a reasonably uniform fashion.

Hardest hit was staples, down -1.2% on the confidence number and hawkish RBA, with discretionary down -0.8%.  Healthcare, technology and real estate all fell -1.0%, with utilities and industrials not far behind.

The banks fell -0.4%.

It won’t get any better today. Wall Street showed similar wobbles last night after it, too, had failed to make any headway over several sessions. Our futures are down -37 points this morning.

We will thus test 7200 support yet again.

Sorry Albo

US retail sales rose 0.4% in April which some took to be a further sign the US consumer remains relatively resilient, except that forecasts were for 0.8%. Take out cars and fuel and sales rose 0.6%, which is not too bad, other than the number does not separate out inflation.

In a separate consumer barometer, shares in Home Depot fell over -2% after the US Bunnings posted its biggest revenue miss in 20 years and cut full-year guidance. Home Depot represented a large part of the Dow’s underperformance.

We have earnings reports from Walmart (Dow) and Target to come before week’s end, and they are also considered critical bellwethers.

Industrial production, however, rose 0.5% after two flat months, which is positive, and continues a run of mixed US economic data that for the most part are stronger than feared.

The market nevertheless still has a high expectation of a Fed pause in June.

Wall Street opened lower and remained there all session right until the death, when selling accelerated. Selling accelerated when President Biden officially cancelled his planned trip to Australia later this month.

Congressional leaders met Biden in the White House at 3pm and were out again before 4. Speaker McCarthy called the meeting “a little more productive,” despite he and Biden being “still far apart,” but suggested a resolution was possible by the end of this week.

Biden called the meeting “productive and direct,” but did not give as positive a signal as McCarthy when he announced he would cut short his trip to the G7 and cancel the planned trip to Australia for a Quad meeting as the debt ceiling was of overriding importance, indicating he does not see a resolution as early as this week.

While Wall Street still expects a last-minute deal, investors are not taking any chances. The Nasdaq was mildly positive for nearly the whole session, led by the Megas as usual, but it, too, tipped over at the close.

Commodities

Up on Chinese stimulus on Monday night and down on Chinese data last night.

Gold has fallen below US$2000/oz, with US bonds yields rising on the retail sales data.

The Aussie is down -0.7% at US$0.6659 as another forex trader is admitted with whiplash.

Today

The SPI Overnight closed down -37 points or -0.5%.

We’ll see the March quarter wage price index today – critical for a data-dependent RBA.

Japan will report March quarter GDP.

Incitec Pivot ((ILP)) and United Malt ((UMG)) report earnings today.

Super Retail ((SUL)) hosts an investor day and HT&E ((HT1)) holds its AGM.

The Australian share market over the past thirty days…

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