The Overnight Report: Hikes Abound

This story features JOHNS LYNG GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: JLG

World Overnight
SPI Overnight	7201.00	– 1.00	– 0.01%
S&P ASX 200	7195.50	– 119.40	– 1.63%
S&P500	4381.89	+ 16.20	0.37%
Nasdaq Comp	13630.61	+ 128.41	0.95%
DJIA	33946.71	– 4.81	– 0.01%
S&P500 VIX	12.91	– 0.29	– 2.20%
US 10-year yield	0.38	+ 0.01	2.04%
USD Index	102.40	+ 0.31	0.30%
FTSE100	7502.03	– 57.15	– 0.76%
DAX30	15988.16	– 34.97	– 0.22%

By Greg Peel

Out of the Blue

After opening lower yesterday, the ASX200 just kept going, flattening out towards the close as the index again breached 7200. The mood was in stark contrast to that seen earlier in the week, and the futures had suggested only -3 points negative for the day.

The futures are down -1 point this morning. You have been warned.

There was no obvious trigger for the sell-off. Powell’s call of two more rate hikes in the US was not a surprise to anyone. While sector moves were mixed in quantum, all sectors closed in the red. A big offshore sell order may have hit the market.

There was no discrimination between cyclical and defensive sectors. Technology fell -3.9%, real estate -2.5%, communication services -2.2%, discretionary -1.8% and even staples fell -1.1%.

Aussie bond yields were little changed.

The big sectors were also hit. Materials down -1.9% and banks down -1.6%. Healthcare was an outperformer in falling only -0.8%, while utilities lost only -0.2%. Energy dropped -0.9% on higher oil prices, which were much lower overnight.

There was no economic news of note yesterday.

Insurance builder and disaster recovery manager Johns Lyng Group ((JLG)) topped the index losses with an -11.9% fall after updating guidance that looked like an upgrade but was really a downgrade when write-offs are considered. The market update was deemed of poor quality as the bulk of the improvement came from catastrophe activity, usually a very lumpy earner for the company. 

Market bellwether (being a fund manager) Magellan Financial ((MFG)) had been enjoying a new lease of life on the rally earlier in the week but reality bit yesterday as it lost -6.2%.

China and Hong Kong markets were closed yesterday so no influence there.

So what now? The index closed just under 7200 and Wall Street regained 0.4% last night, but as noted our futures are down a point this morning. So not much inspiration there, although the futures are not often a good indicator. See also yesterday.

Since mid-April, a fall below 7200 has been soon recovered five times.

Rate Hike Trend

The Bank of England hiked its cash rate by 50 points to 5.00% last night. Most had expected only a 25 point hike. The BoE warned there may be more to come.

Norway’s central bank also hiked 50 points last night, and also warned of more ahead, while the Swiss central bank only hiked 25bp but – you guessed it – warned of more to come.

The moves follow unexpected 25 point hikes for Australia and Canada earlier in the month. The Fed was the outlier in pausing.

Yet, last night Jerome Powell reiterated an expectation of two more Fed hikes ahead, speaking to the Senate committee. If that’s the case, why pause this month? Powell noted the timing of two more hikes will depend on ensuing data.

Wall Street is now kinda used to the idea.

And there are other things to consider. Last night Amazon announced its cloud-based Web Services business (AWS) would invest US$100m in a new Generative AI Innovation Centre.

Of course it did.

“The introduction of Generative AI is expected to be a significant driving force for Amazon's business, promising to foster innovation and streamline solutions,” said Amazon, adding that AI improvements will transform Alexa into more of a "personalized aide".

Be very afraid.

Amazon rose 4.3% on the news and fired up the Mega Techs once more, reminding investors of AI mania. The Nasdaq rebounded after a couple of weaker sessions, gaining 1.0% even as US bond yields rose 7-8 points.

The Dow was held back by a -3% fall in Boeing, after workers at the company’s fuselage supplier went on strike.

All three major indices rallied to the close off earlier losses.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1913.80	– 18.80	– 0.97%
Silver (oz)	22.25	– 0.40	– 1.77%
Copper (lb)	3.89	+ 0.05	1.19%
Aluminium (lb)	0.98	– 0.03	– 2.60%
Nickel (lb)	9.61	– 0.19	– 1.93%
Zinc (lb)	1.09	+ 0.03	3.24%
West Texas Crude	69.51	– 3.02	– 4.16%
Brent Crude	74.21	– 2.77	– 3.60%
Iron Ore (t)	113.46	+ 0.38	0.34%

It was a volatile session for base metal prices but, with China absent, the market would have been thin.

The BoE’s greater than expected hike has been blamed for the fall in oil prices.

The Aussie is down -0.7% at US$0.6755.

Today

The SPI Overnight closed down -1 point.

China is closed again today.

Flash estimates of June PMIs are due from across the globe.

The Australian share market over the past thirty days…

Index	22 Jun 2023	Week To Date	Month To Date (Jun)	Quarter To Date (Apr-Jun)	Year To Date (2023)
S&P ASX 200 (ex-div)	7195.50	-0.77%	1.47%	0.25%	2.23%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AX1	Accent Group	Downgrade to Sell from Neutral	UBS
BSL	BlueScope Steel	Downgrade to Neutral from Buy	Citi
CLW	Charter Hall Long WALE REIT	Upgrade to Neutral from Sell	UBS
COF	Centuria Office REIT	Upgrade to Buy from Neutral	UBS
CPU	Computershare	Downgrade to Hold from Accumulate	Ord Minnett
EML	EML Payments	Upgrade to Accumulate from Hold	Ord Minnett
FLT	Flight Centre Travel	Upgrade to Hold from Lighten	Ord Minnett
HDN	HomeCo Daily Needs REIT	Upgrade to Buy from Neutral	UBS
IGO	IGO	Upgrade to Equal-weight from Underweight	Morgan Stanley
LIC	Lifestyle Communities	Upgrade to Buy from Neutral	UBS
MFG	Magellan Financial	Downgrade to Hold from Accumulate	Ord Minnett
MGR	Mirvac Group	Upgrade to Buy from Neutral	UBS
NST	Northern Star Resources	Downgrade to Equal-weight from Overweight	Morgan Stanley
PMV	Premier Investments	Upgrade to Hold from Lighten	Ord Minnett
		Downgrade to Sell from Neutral	UBS
QBE	QBE Insurance	Downgrade to Lighten from Hold	Ord Minnett
RRL	Regis Resources	Upgrade to Overweight from Equal-weight	Morgan Stanley
SGP	Stockland	Downgrade to Neutral from Buy	UBS
SKT	SKY Network Television	Upgrade to Accumulate from Hold	Ord Minnett
STO	Santos	Downgrade to Accumulate from Buy	Ord Minnett
SUL	Super Retail	Downgrade to Sell from Neutral	UBS

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms