The Overnight Report: Uncertain Start

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This story features TELSTRA GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: TLS
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Just a Pause

The excitement of the RBA pause on Tuesday gave way yesterday to the reality that a pause is just that. The RBA is resolute in bringing down inflation and has signalled more hikes ahead. Economists are resolute in their forecasts of two more hikes ahead, it’s just a matter of the timing.

The ASX200 thus gave back most of what it gained on Tuesday, featuring unremarkable across-the-board selling.

Communication services (+1.1%) and utilities (+0.6%) bucked the trend, thanks to gains for Telstra ((TLS)) and AGL Energy ((AGL)). All other sectors were lower, none by more than -1%.

The banks were the main driver (-0.6%), reversing Tuesday's gain. Healthcare was the worst performer (-0.8%).

Materials was one of the better performers in falling only -0.2%, but things should be worse today. Yesterday Caixin’s independent China services PMI showed a fall to 53.9 from 57.1 in June, and the composite PMI, adding in manufacturing, fell to 52.5 from 55.6.

The services result is the lowest since January, when Beijing decided to about-face on zero covid in order to save the economy. Clearly it hasn’t worked. While numbers above 50 imply expansion, the pace of expansion has slowed from a month ago and despite some monetary policy tinkering, the economy has not gained any traction.

Base metal prices were all lower overnight.

With the S&P500 closing down -0.2%, our futures are showing down -0.5% this morning.

Amongst individual stock moves yesterday, Elders ((ELD)) rose 4.8% to top the index after Bell Potter decided the stock had become too heavily discounted and upgraded to Buy. El Nino remains a threat but is likely more a 2024 story, and if you’re like me, you would have enjoyed a bit of rain this week.

AMP ((AMP)) provided an update on the class action against it and fell -6.1% to top the losers.

What Now?

If we dismiss Monday night’s shortened session, last night was the first time Wall Street opened the books for the second half. Having enjoyed a sterling run in the first half, the question now is can this keep going, and if so, based on what?

The first half was dominated by Mega Techs rallying on “multiple expansion” (price/earnings ratios rising) and the expectation that earnings can rise to justify price. Given a lot of the expansion was driven by longer term AI expectations, it could take a while.

Attention is swinging back to The Rest – so-called value stocks, quality dividend payers and small-medium cap stocks that, having been left behind in the first half, now have a chance to shine if investors decide there’s little more to be gained by buying tech at this point.

That said, Meta jumped 2.9% last night after it announced it was taking on the now private company Twitter with its new service Threads, which will lever off Instagram.

Elsewhere, Wall Street exhibited uncertainty as to where to go from here.

The minutes of the Fed meeting were not so comforting, albeit not revealing anything particularly new. There were several FOMC members pushing for another hike in June, but the decision was made to pause.

Or “skip”.

The Fed will continue to hike, just at a more strung-out pace, in order to assess the damage. Sounds familiar.

Futures are pricing in an 89% chance of a hike later this month, and 50% again in September (no August meeting).

By that stage, the June quarter earnings season will be in full swing, and this is where the rubber will meet the road. This is where we see if that E can rise to justify P, and just as important will be September quarter guidance.

Last night brought more data showing the US consumer remains resilient. General Motors reported an 18.8% year on year increase in June quarter sales, despite higher prices, after a subdued June quarter last year beset by supply chain issues.

Toyota and Nissan also reported strong sales, following on from Tesla on Monday night.

Commodities

OPEC-Plus is currently meeting (two days) in Vienna. Oil prices suggest a production increase is not on the cards.

The US ten-year yield rose 9 points last night on the release of the minutes, taking the US dollar up, and the Aussie down -0.5% to US$0.6659.

And impacting on the gold price.

Today

The SPI Overnight closed down -37 points or -0.5%.

Australia and the US both report May trade numbers today.

The US will catch up with its own services PMI following the holiday, and report June private sector jobs.

Peter Warren Automotive ((PWR)) holds its AGM today.

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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