The Overnight Report: Two More’s A Charm

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This story features TPG TELECOM LIMITED, and other companies.
For more info SHARE ANALYSIS: TPG
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

Pullback

After seven straight positive sessions it was no great surprise the ASX200 opened lower yesterday and quietly drifted lower still all day, before what appears a big “sell on close” order hit, worth over -10 points.

Having led on the way up, cyclicals saw the greatest selling, with materials down -1.0%, energy -1.3%, discretionary -1.2% and technology -1.0%.

Financials hung in there (-0.4%) as buying insurers on higher rates is offsetting a pullback in banks.

Industrials were also weak (-0.9%) while the defensive sectors mostly saw small falls. Staples was the only winning sector on the day (+0.7%).

While the local market has largely followed Wall Street around, on Tuesday there was excitement over the RBA appearing less hawkish than previously, although economists have questioned that assumption and left their forecasts for two more hikes intact.

The other issue impacting more on Australia is the growing realisation the Chinese economy is slowing, not growing as expected, and Beijing is not in a position to do much about it.

One by one economists having been winding back their Chinese GDP growth forecasts for 2023.

Investors appeared to switch into bonds yesterday as the ten and two-year yield each fell -7 points. But at 4.07%, the two-year is largely in line with the RBA cash rate of 4.10%, until we see more hikes.

Among individual stocks, TPG Telecom ((TPG)) took a tumble yesterday when the ACCC scuppered the planned network-sharing agreement with Telstra ((TLS)). TPG was down over -10% at one stage but managed to hold on for a -5.4% loss.

Fight Centre ((FLT)) held a strategy day yesterday and talked a good book, but did not upgrade FY23 guidance as expected. It fell -6.9%. Flight Centre is the most shorted stock on the ASX.

Premier Investments fell -4% on Tuesday because it went ex-dividend but fell another -4.9% yesterday. Several senior executives have announced their departure. UBS downgraded to Sell.

With Wall Street down again last night we could assume more on the same on the local market today, although our futures are only down -3 points this morning.

More Pullback

“Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year,” Jerome Powell told the US House Financial Services Committee last night.  

The Fed chair said in the Q and A session the forecast of two more interest-rate hikes this year is a “pretty good guess” as there is strong support among his colleagues for two additional 25-basis-point rate hikes this year. He did not, nevertheless, confirm the timing of those expected hikes.

The Chicago Fed president said last night the central bank needs to “do more sniffing” on the economy and inflation before determining whether to resume raising interest rates. “I have not decided what should be the rate decision more than a month from now.”

A former Fed governor, and later top financial advisor to George W. Bush (tough gig), said he expects the Fed to keep hiking into to 2024 until the cash rate hits 6.0%. He does not believe the Fed will have done its job until “markets say ouch”.

While Wall Street posted a third session of pullback last night, Powell’s comments did not come as any great shock. US bonds yields were little moved.

The stock market had, according to technical signals, wandered into short-term overbought territory after a very solid month to date and was thus due some selling.

As for how far it will fall remains a matter of a clear polarisation of views. While it takes conflicting views to make a market, commentators appear to either be strongly bullish or strongly bearish. The bears dismiss any notion of the US avoiding a recession, albeit admitting they have been wrong to be bearish this past month.

The higher Wall Street runs, the more adamant the bears become.

Powell will speak again tonight, to a Senate committee, but will not say anything different.

Commodities

Metals prices continue to show disappointment in China.

Oil prices rallied because grain prices rallied. Stay with me.

Corn futures rose 5.2% last night after a government report showed much of the US crop being stressed by dry conditions as it neared key development phases, traders said. Soybeans hit their highest level since March.

Expectations are crop shortfalls around the globe could lower biofuels blending and increase oil demand.

The Aussie is up 0.2% at US$0.6802.

Today

The SPI Overnight closed down -3 points.

Chinese markets are closed today.

The Bank of England hold a policy meeting tonight. UK May inflation came in at 8.7% last night, above expectations of 8.4%.

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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