The Monday Report – 03 July 2023

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This story features DOWNER EDI LIMITED, and other companies.
For more info SHARE ANALYSIS: DOW
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Not with a Bang

The ASX200 opened its final session of the year by falling -29 points to 11am before recovering that and more by lunchtime, falling again, rallying again, and closing up 8. You’d be forgiven for thinking it was the end of the month, the quarter, and the year for most companies and fund managers.

Not much to read into.

Sector moves were mixed but mostly positive, although no sector moved by as much as 1%. Technology managed 0.8%, but would have been better but for a -13.9% trouncing for Link Administration ((LNK)), after it lost a service contract worth 4% of revenue.

Investors clearly sold out of bonds to round up the year, given 10 point gains across the curve and no economic data to speak of.

Staples (-0.4%), healthcare (-0.3%) and real estate (-0.2%) were the losing sectors. The banks rose 0.1%.

Industrials was next best (+0.5%), led by Downer EDI’s ((DOW)) chart-topping 4.3% gain after it won a contract with the Queensland government to build trains.

In staples, beleaguered Bega Cheese ((BGA)) fell yet another -2.4% and made it on to the top five losers’ board. Abacus Property ((ABP)) was the second worst performer on -3.2% simply for going ex.

Materials had a quiet session (+0.2%) and energy was slightly more positive (0.4%).

No point in delving any deeper. Wall Street wrapped its quarter with a solid rally and our futures were up 29 points on Saturday morning.

Wall Street is closed tonight and the RBA meets tomorrow, so whether we’ll see any great enthusiasm today to kick off FY24 remains to be seen.

Not with a Whimper

The US headline personal consumption & expenditure measure of inflation rose 0.1% in May to an annual rate of 3.8%, down from 4.3% in April. The core PCE rose 0.3% and fell to 4.6% from 4.7%.

At the headline, it is possible to see a move back into the 2-3% range in the not too distant future. The core rate is nevertheless the Fed’s benchmark, and falls there are currently blood from a stone.

The numbers are not dissimilar to what Australia saw with is May CPI – lower than expected headline, sticky core – but at least our headline saw actual disinflation in the month (falling prices) whereas this still eludes the US. The stories are the same nonetheless – goods prices continuing to fall but rents and services remaining elevated.

Wall Street is pricing in an 83% chance of a Fed rate hike later this month. In Australia, economists are leaning towards a rate hike tomorrow.

But hey, Wall Street loved 3.8%. It was an excuse, rather than a clear incentive, to continue the rally that had the Nasdaq up over 30% for the first half to mark its best performance since 1983.

The S&P500 rallied 16%. On Friday night Apple became the first company in history to be valued at US$3trn.

In other news, the first Michigan Uni consumer sentiment survey for July showed a rise to 64.4 from 59.2 at end-May to mark a four-month high.

Still, 64 on a 100-neutral gauge is far from optimistic, and one segment within the PCE data which did miss was personal consumption, which rose only 0.1%.

The Fed meets on July 26. Before then it will see numbers for June jobs this week and CPI/PPI next week.

In a couple of weeks, US June quarter earnings season begins.

Commodities

China’s manufacturing PMI for June came in at 49.0, up from 48.8 in May. Hardly shooting the lights out, and still contracting, just at a slightly slower pace.

Well received in commodity markets nonetheless, except iron ore.

The US dollar also helped, falling -0.5% on the PCE data, giving gold a boost.

The Aussie is up 0.7% at US$0.6664.

The SPI Overnight closed up 29 points or 0.4% on Saturday morning.

The Week Ahead

Australia begins the new year today with data for job ads, building approvals and house prices. Trade numbers are out on Thursday.

The RBA meets tomorrow. Recent conflicting data – jobs, CPI, retail sales and job vacancies — make July very much in play.

June manufacturing PMIs are due around the globe on Monday, and services PMIs on Wednesday.

US markets are closed tomorrow night for July 4. This means trading tonight on Wall Street will be thin.

Thereafter the US sees numbers for factory orders, trade, private sector jobs and, on Friday, non-farm payrolls.

The minutes of the June Fed meeting are out next week.

Nickel Industries ((NIC)) holds its AGM on Wednesday.

The Australian share market over the past thirty days…

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