The Overnight Report: Too Far, Too Fast?

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            [1] => ((MFG))
            [2] => ((LKE))
            [3] => ((PMV))
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This story features WOODSIDE ENERGY GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: WDS
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Between the Lines

For the third session running, the ASX200 opened higher yesterday, and then rallied hard late morning before settling through the afternoon. It was the seventh straight up-day. Aside from implicit momentum, the rally was spurred on by what the minutes of the June RBA meeting said, and what they didn’t say.

They said the decision to hike or pause was “finely balanced”. This surprised, given the hawkish tone the RBA has adopted since pausing in May.

What they didn’t say was “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time frame”. This line was in the June statement, and reiterated by Philip Lowe when he spoke the next day, but strangely not in the minutes.

The stock market shot up and the Aussie dollar plunged -1%.

According to Westpac’s Bill Evans: (a) “finely balanced” is a common expression used towards the end of a tightening cycle; and (b) the minutes, while omitting “some further tightening…”, did say the governor “would provide an opportunity to explain the decision in more detail” when he spoke the next day.

So it seems we can’t dismiss further tightening, and Westpac is sticking with its two-more-hikes forecast.

In the meantime, every sector rallied yesterday expect for healthcare, which stood still. Energy was the biggest mover (+1.9%) after Woodside Energy ((WDS)) approved investment in Mexico’s Trion oil project and rose 2.2%.

The banks were the primary driver (+1.2%), on an assumption the minutes foretold of rate relief ahead.

Real estate was pretty happy with that notion too (+1.3%).

All other sectors rallied between 0.5% and 0.9%, other than industrials (+0.1%).

Among individual stocks, Magellan Financial ((MFG)) topped the boards with 5.8%, because the stock market has posted seven winning sessions.

After warning of a delay and higher costs at its lithium project in Argentina on Monday, and falling -20%, Lake Resources ((LKE)) yesterday fell -19.7%.

Premier Investments ((PMV)) was second worst performer (-4.1%), but only because it went ex.

In other news, China has finally announced more stimulus. The PBoC cut its one-year prime rate to 3.55% from 3.65% and its five-year to 4.20% from 4.30%.

Whacko. It looks increasingly like Beijing simply does not have the financial capacity to provide any meaningful stimulus.

Awaiting Powell

Fed Chair Jerome Powell will make a mandatory testimony to the US House tonight. What the Chair tells the House can often be market-moving.

Which was reason enough for Wall Street to return from the long weekend and further square positions, as it had done on Friday night, following the week’s solid rally.

There is also some concern Wall Street has gotten “too far over its skis,” as Americans seem to like to say, suggesting the market has potentially moved too far, too fast.

There were nevertheless some positive economic data last night. US housing starts jumped 21.7% in May after falling -2.9% in April. Building permits rose 5.2%.

“With the labour market less tight, supply chains functioning better, and lumber cheaper than in 2021 and 2022, homebuilders are catching up on their huge backlog of planned projects,” noted one economist.

Meanwhile, global economic bellwether FedEx reported after the bell last night and missed its revenue guidance. The stock is down -3%. It’s the fifth quarter in a row FedEx has missed revenue guidance.

So either the global economy is clearly slowing, or FedEx is not very good at providing guidance.

Over to you Jerome.

Commodities

The surprising modesty of Chinese stimulus is reflected in the table above.

The Aussie is down -0.9% at US$0.6792.

Today

The SPI Overnight closed down -8 points.

China is closed today.

The Bank of England holds a policy meeting.

The US will see existing home sales.

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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