The Overnight Report: Good News Is Good

This story features COLLINS FOODS LIMITED, and other companies. For more info SHARE ANALYSIS: CKF

World Overnight
SPI Overnight	7095.00	+ 26.00	0.37%
S&P ASX 200	7118.20	+ 39.50	0.56%
S&P500	4378.41	+ 49.59	1.15%
Nasdaq Comp	13555.67	+ 219.89	1.65%
DJIA	33926.74	+ 212.03	0.63%
S&P500 VIX	13.74	– 0.51	– 3.58%
US 10-year yield	3.77	+ 0.05	1.32%
USD Index	102.51	– 0.25	– 0.24%
FTSE100	7461.46	+ 7.88	0.11%
DAX30	15846.86	+ 33.80	0.21%

By Greg Peel

Reprieve

After a two-day sell-off followed by tentative stability on Monday, yesterday saw the ASX200 find buyers and further stabilise, recovering all and a bit more of Monday’s fall at least. The index jumped up from the open and largely stayed there.

The rally ran against Wall Street’s indication on Monday night but Wall Street flipped to the positive again last night, and our futures are up 26 points this morning.

It was still a mixed bag among sectors yesterday with materials (+1.2%) and the banks (+0.7%) leading the charge, with materials aided by a rise in the iron ore price.

Real estate stood out (+2.0%) but it was not to do with the extraordinary volatility we’ve seen lately in this normally sedate sector, rather the NSW premier announced an increase in height restrictions for apartment buildings in Sydney. Not everyone’s happy.

Defensive sectors were largely left behind, with communication services down -0.7% and healthcare, industrials and utilities posting modest falls. Staples rose slightly.

Consumer discretionary was flat, despite traders gouging on Collins Foods ((CKF)), thanks to an update on KFC sales worth 17.1%. They all felt just a bit ill by the afternoon.

Collins Foods topped the index ahead of a 5.4% gain for property fund manager Centuria Capital ((CNI)), which must be happy with NSW. Macquarie initiated coverage on Friday with an Outperform rating.

Medibank Private ((MPL)) topped the losers’ list in falling -3.9% after APRA told the insurer, in the wake of its cyber attack, it must hold $250m in provisional capital.

Otherwise a bit of a nothing day, a step-up and not much else, but a relief from the sharp selling seen late last week. Base metal prices are mostly up overnight although gold and the oils are down, but Wall Street has suddenly found a new lease of life.

Data-Driven

Two markets within the US economy that were assumed would be hit hardest by high inflation and interest rates were housing and the consumer in general.

Last night the Conference Board’s monthly index of consumer confidence rose to 109.7 from 102.5 when forecasts were for 104, rebounding from a six-month low to a 17-month high.

Given 100 is neutral, this suggests US consumers are actually optimistic, a bit. However, this series for some time has been at odds with the bimonthly Michigan Uni sentiment survey, which remains well into pessimistic territory.

But Wall Street liked it.

New home sales jumped 12.2% in May to be 20% up year on year. Home builder stocks are now at or close to 52-week highs. The Case-Shiller 20-city house price index rose 0.9% in April.

Wall Street liked that too.

Durable goods orders rose 1.7% in May when a -0.9% fall was forecast. The gain was mostly due to orders for planes and autos, but take those out and orders still rose 0.6%. And the business investment segment was positive.

What was there not to like?

Well, these positive data have only prompted economists into being more certain about the chance of a Fed rate hike in July. But the attitude these days is a strong economy is more positive for the market than the negative impact of higher rates, and what’s another 25 really going to do, on top of 5.25?

Where’s this recession?

Thing about recessions is you don’t know you’ve been in one until afterwards, when you may well be out again. Hence, some suggest the US has already been in a “rolling” recession, rolling through different sectors, but has managed to struggle on through.

There is concern further rate rises, even if only one or two, may yet be the straw that breaks the back of more small regional banks. But that scene has been a quiet one in recent months. Deposits are back on the rise, and cash is now flowing out of money market funds.

It had appeared from Monday night’s trade the last week of the first half of the year would feature a reallocation of funds out of high-flying tech and into other sectors, for both profit-taking and re-weighting purposes. But that went out the window last night.

Wall Street is becoming increasingly confident, and the bears are feeling increasingly uneasy. The VIX volatility index is now at a three-year low, suggesting complacency.

Which is usually when things turn ugly.

In a couple of weeks we’ll start to see June quarter corporate earnings results.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1913.70	– 9.10	– 0.47%
Silver (oz)	22.84	+ 0.07	0.31%
Copper (lb)	3.81	– 0.01	– 0.26%
Aluminium (lb)	0.98	+ 0.02	1.82%
Nickel (lb)	9.27	+ 0.15	1.62%
Zinc (lb)	1.08	+ 0.02	1.86%
West Texas Crude	67.70	– 1.67	– 2.41%
Brent Crude	72.50	– 1.90	– 2.55%
Iron Ore (t)	112.62	+ 2.71	2.47%

Yesterday China’s premier Li Qiang said the world’s second-largest economy remains on track to achieve its annual growth target of around 5% and that Beijing would roll out policies to expand domestic demand and open markets.

In the former case, he means that’s what we’ll tell you it was. In the latter, when?

Metals prices liked the news. Oil prices were nevertheless concerned about strong US data leading to higher rates. And any scare out of Russia appears to be over for now.

The Aussie is up 0.3% at US$0.6690.

Today

Locally today we’ll see May retail sales numbers. How are our own consumers faring?

After popping yesterday, the real estate sector could go flying back the other way from the open today. But fear not, it's all about the extent of REITs and other funds, developers and property fund managers going ex quarterly dividends all on the same day.

The US will see a revision of March quarter GDP, for what it’s worth.

The Australian share market over the past thirty days…

Index	27 Jun 2023	Week To Date	Month To Date (Jun)	Quarter To Date (Apr-Jun)	Year To Date (2023)
S&P ASX 200 (ex-div)	7118.20	0.27%	0.38%	-0.83%	1.13%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
CLW	Charter Hall Long WALE REIT	Downgrade to Neutral from Buy	Citi
CMM	Capricorn Metals	Upgrade to Outperform from Neutral	Macquarie
CMW	Cromwell Property	Upgrade to Buy from Accumulate	Ord Minnett
DDH	DDH1	Downgrade to Hold from Buy	Bell Potter
ERD	Eroad	Downgrade to Hold from Buy	Bell Potter
HLO	Helloworld Travel	Upgrade to Accumulate from Lighten	Ord Minnett
JLG	Johns Lyng	Downgrade to Hold from Buy	Bell Potter
LOV	Lovisa Holdings	Upgrade to Accumulate from Hold	Ord Minnett
MIN	Mineral Resources	Downgrade to Sell from Neutral	UBS
MND	Monadelphous Group	Upgrade to Accumulate from Hold	Ord Minnett
NHC	New Hope	Downgrade to Underperform from Neutral	Macquarie
PLS	Pilbara Minerals	Downgrade to Neutral from Buy	UBS
PME	Pro Medicus	Downgrade to Reduce from Hold	Morgans
RRL	Regis Resources	Downgrade to Neutral from Buy	UBS
SHL	Sonic Healthcare	Upgrade to Hold from Lighten	Ord Minnett
TPG	TPG Telecom	Downgrade to Neutral from Buy	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.)

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