The Overnight Report: More Good Is Good

This story features BEGA CHEESE LIMITED, and other companies. For more info SHARE ANALYSIS: BGA

World Overnight
SPI Overnight	7166.00	+ 12.00	0.17%
S&P ASX 200	7194.90	– 1.60	– 0.02%
S&P500	4396.44	+ 19.58	0.45%
Nasdaq Comp	13591.33	– 0.42	– 0.00%
DJIA	34122.42	+ 269.76	0.80%
S&P500 VIX	13.54	+ 0.11	0.82%
US 10-year yield	3.85	+ 0.14	3.88%
USD Index	103.35	+ 0.38	0.37%
FTSE100	7471.69	– 28.80	– 0.38%
DAX30	15946.72	– 2.28	– 0.01%

By Greg Peel

Spending Spree

The ASX200 opened with a flourish yesterday, up 27 points, on the release of May retail sales data. It was not to last, as the index spent the rest of the session sliding back to under 7200.

Retails sales rose 0.7% in May having been flat in April, trashing market forecasts of 0.1%. Economists are nonetheless circumspect, suggesting discounting and EOFYS likely boosted demand.

The big move was in “other retailing” (+2.2%), which includes pharmacy, books and flowers, among other things. Mother’s Day was in May. Dining/takeaway rebounded from April’s decline, up 1.4%, when food retailing rose only 0.3%.

Dining/takeaway is up 12.7% year on year. Take out that segment and other sales are up 2.8%.

While it's positive news from an economic sense, it also strengthens the argument for the RBA to hike again next week, irrespective of the surprise drop in CPI. Adding further strength were May job vacancy data, which fell -2.0% in the three months to May, implying solid ongoing labour demand.

Aussie bond yields rose 5-7 points. The Aussie is up 0.3% after falling sharply on the CPI data.

Despite the lift in bonds, technology won the day with a 1.8% gain after the Nasdaq rebounded overnight. The banks (+0.5%) and discretionary (+0.5%) were stronger on the back of the sales numbers.

Lower metals prices had materials down -0.8%.

Thereafter, we have to take negative sector moves with a grain of salt, given the slew of ex-dividends yesterday. Utilities fell -1.3%, real estate -0.8% and industrials -0.3%.

Healthcare and staples were flat.

Staple Bega Cheese ((BGA)) has had a tough week on the back of rising milk prices. It fell -6.1% to top the index losers and is down around -17% in a week. Not sure how Vegemite’s affected.

Domain Group ((DHG)), often seen as a poor man’s REA Group ((REA)), made a rare appearance at the top of the winners list (+5.1%) for reasons unclear.

Wall Street was stronger last night and our futures are up 12 points this morning, which would put the index tenuously above 7200.

In Hindsight

It may be old news, but the US economy grew by 2.0% in the March quarter when 1.3% was previously estimated last month.

More presciently, new jobless claims fell last week to a one-month low.

Wall Street took both as signals that talk of a recession may be misguided, or at the very least any landing would be soft, which is now the prevailing view. Investors are now more comforted by solid economic data, despite the implication for interest rates.

US bond yields jumped 14-16 points last night on the strong data. This weighed on the Nasdaq, but provided a boost for industrials in particular. This is in contrast to the response Wall Street saw to ever higher yields last year, when any good news was considered bad.

Wall Street knows the Fed has two more rate hikes up its sleeve, and believes that will be it. In other words, there’s light at the end of the tunnel. Now the end is near. Rates may remain higher for longer, as the Fed has insisted, but at least the market knows where it stands.

Also adding to comfort last night were the results of the Fed’s annual big bank stress tests, which were released after the bell on Wednesday night. All banks passed with flying colours, despite the Fed toughening up the requirements from last year.

Sceptics recommend not reading too much into last night’s moves, which would also apply tonight, given the end of quarter is upon us, and fund managers are rebalancing.

Consideration will also be given tonight to squaring up ahead of an unofficial four-day long weekend, with July 4 falling next Tuesday.

July may start with a thin market on Monday night.

In other news, were Apple to have reached US$190.73 a share last night, it would have been the first company ever to be worth US$3trn. As it was Apple closed at US$189.59, which was at least a new high.

Not so good for Nike, which reported after the bell and is down -4% in the aftermarket.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1908.10	+ 0.70	0.04%
Silver (oz)	22.53	– 0.15	– 0.66%
Copper (lb)	3.72	– 0.05	– 1.31%
Aluminium (lb)	0.96	– 0.01	– 1.41%
Nickel (lb)	8.90	– 0.10	– 1.11%
Zinc (lb)	1.05	– 0.01	– 0.92%
West Texas Crude	69.86	+ 0.30	0.43%
Brent Crude	74.31	+ 0.74	1.01%
Iron Ore (t)	113.91	– 0.30	– 0.26%

Until Beijing does more than just tweak a couple of lending rates, metals prices will remain weak.

It is possible oil prices will remain at least supported while machinations play out in Moscow, whatever may transpire.

The Aussie is up 0.4% at US$0.6619.

Today

The SPI Overnight closed up 12 points or 0.2%.

China will release June PMIs today. Maybe that will be the catalyst.

We’ll see May private sector credit numbers.

For the US, it’s May PCE inflation, along with consumer sentiment.

PointsBet Holdings ((PBH)) holds an EGM today for shareholders to vote on the sale of its US business.

The Australian share market over the past thirty days…

Index	29 Jun 2023	Week To Date	Month To Date (Jun)	Quarter To Date (Apr-Jun)	Year To Date (2023)
S&P ASX 200 (ex-div)	7194.90	1.35%	1.46%	0.24%	2.22%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ALQ	ALS Ltd	Upgrade to Lighten from Sell	Ord Minnett
BGA	Bega Cheese	Downgrade to Hold from Buy	Bell Potter
		Downgrade to Hold from Add	Morgans
		Downgrade to Lighten from Hold	Ord Minnett
BMN	Bannerman Energy	Upgrade to Buy from Hold	Shaw and Partners
BOE	Boss Energy	Downgrade to Hold from Buy	Shaw and Partners
BSL	BlueScope Steel	Downgrade to Neutral from Buy	UBS
DDH	DDH1	Downgrade to Hold from Buy	Bell Potter
		Downgrade to Neutral from Outperform	Macquarie
ELD	Elders	Upgrade to Buy from Hold	Bell Potter
HVN	Harvey Norman	Upgrade to Equal-weight from Underweight	Morgan Stanley
JBH	JB Hi-Fi	Downgrade to Underweight from Equal-weight	Morgan Stanley
MIN	Mineral Resources	Downgrade to Sell from Neutral	UBS
MLG	MLG Oz	Upgrade to Add from Hold	Morgans
PLS	Pilbara Minerals	Downgrade to Neutral from Buy	UBS
SHL	Sonic Healthcare	Upgrade to Hold from Lighten	Ord Minnett
TPG	TPG Telecom	Upgrade to Buy from Accumulate	Ord Minnett

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