Daily Market Reports | Jul 07 2023
| World Overnight | |||
| SPI Overnight | 7030.00 | – 90.00 | – 1.26% |
| S&P ASX 200 | 7163.40 | – 89.80 | – 1.24% |
| S&P500 | 4411.59 | – 35.23 | – 0.79% |
| Nasdaq Comp | 13679.04 | – 112.61 | – 0.82% |
| DJIA | 33922.26 | – 366.38 | – 1.07% |
| S&P500 VIX | 15.44 | + 1.26 | 8.89% |
| US 10-year yield | 4.04 | + 0.10 | 2.43% |
| USD Index | 103.12 | – 0.22 | – 0.21% |
| FTSE100 | 7280.50 | – 161.60 | – 2.17% |
| DAX30 | 15528.54 | – 409.04 | – 2.57% |
By Greg Peel
The Global Economy
"In making its decisions, the Board will continue to pay close attention to developments in the global economy, trends in household spending, and the forecasts for inflation and the labour market.
This excerpt from Tuesday's RBA statement loosely implies the RBA will be beholden to policy decisions made elsewhere, ie by the Fed. The minutes of the Fed meeting released on Wednesday night signalled the FOMC is keen to see more rate hikes at least two, and then hold that level for a prolonged period.
The RBA paused on Tuesday but economists still expect two more hikes here as well. The market was not so sure on Tuesday, but yesterday decided the risk of more Fed rate hikes only increases the risk of more RBA hikes.
I also suspect there may have been another big sell order ready to hit the market from the open. The futures had suggested a disproportionate fall of -0.5% to the S&P500's -0.2% response and this may have indicated positioning ahead of selling stocks.
The ASX200 dropped -68 points from the open yesterday, when the futures said -37, before finding a modicum of support below 7200. The recovery to 7200 was short-lived, and then it was all downhill. The index at least managed to recover some ground from the low of down -108.
It's not about to get any better. A very strong US private sector jobs report out last night, along with a solid US services PMI, now has Wall Street running scared of more Fed hikes. Our futures are down -90 points this morning.
Aussie bond yields jumped 12-13 points yesterday. The banks were slapped -1.5% and consumer discretionary -1.9%.
Resources were already set for a fall on weak Chinese economic data, and so materials fell -1.9% and energy -1.2%. There was no joy from May trade data, which showed exports rose 4.4% on higher volumes offsetting lower commodity prices, outweighing a 2.5% increase in imports and leading to a further widening of the surplus.
Nice for Jim.
The defensive sectors were hit not quite as hard although staples still lost -0.9%.
Technology was the only sector to close in the green (+0.1%).
It looks like we're in for an ugly Friday. We'll leave 7100 behind and then 7000 comes into sight. It's school holidays for many, ensuring thinner than average markets, allowing more room for volatility.
Change of Heart
The trend on Wall Street these past couple of months has been to cheer on stronger than expected economic data on easing recession fears, while shrugging off the Fed's talk of two more hikes given falling inflation. The result has been a solid first half rally, even as US bond yields have drifted back up on said easing of recession fears.
But last night that all changed. Wednesday night's Fed minutes had surprised somewhat in their seeming insistence of two more hikes, causing some concern, but last night's data were the nail in the coffin.
The US added 497,000 private sector jobs in June, according to ADP data, when 220,000 were expected. The bulk of those additions was in service industries.
The US June services PMI showed expansion from a tentative 50.3 in May to a more expansive 53.9 in June.
The June non-farm payrolls numbers are out tonight.
There were some contradicting data nonetheless, but not so promising as to stem the tide. Weekly new jobless claims rose 12,000 last week to 248,000, and May job openings fell below ten million, suggesting the labour market may finally be starting to cool.
For the Fed, lowering inflation is the definitive goal, and while goods inflation has fallen back as the ghosts of the pandemic fade, and initial shocks from the war dissipate, a tight labour market remains the stumbling block for achieving a 2-3% inflation target. Low unemployment means money in pockets to support consumption and financial security in a rising rate environment.
The US ten-year yield jumped 10 points on the data to over 4%, and the two-year rose 5 points to hit 5%. These sorts of round numbers are typically trigger points for selling in equities. The big 2022 sell-off started when the ten-year hit 3%.
Wall Street will be holding its breath tonight when employment data drop ahead of the open.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1910.80 | – 4.30 | – 0.22% |
| Silver (oz) | 22.68 | – 0.43 | – 1.86% |
| Copper (lb) | 3.75 | – 0.00 | – 0.07% |
| Aluminium (lb) | 0.94 | – 0.00 | – 0.33% |
| Nickel (lb) | 9.56 | + 0.45 | 4.92% |
| Zinc (lb) | 1.07 | + 0.01 | 0.61% |
| West Texas Crude | 71.80 | + 0.01 | 0.01% |
| Brent Crude | 76.51 | – 0.04 | – 0.05% |
| Iron Ore (t) | 112.27 | + 0.43 | 0.38% |
Now that China has supported the construction sector with monetary and regulatory measures and will continue to do so, Taiwanese stainless steel producers expect further positive signals and rising demand for stainless steel.
Solid US car sales numbers on Wednesday night, despite an announced two-month shutdown in production for a major European stainless steel producer last night, acted as the trigger to send the price of nickel higher.
There have been no indications of any change to production quotas to come out of the OPEC-Plus meeting in Vienna. What OPEC did reveal is the cartel expects global oil demand to grow in 2024, although not as quickly as it has out of the pandemic in 2023, and that OPEC is keen to bring on new members.
OPEC would not be drawn on who might be invited to join, other than Ecuador, which withdrew in 2020 for political reasons. Names such as Malaysia, Brunei, Azerbaijan and Mexico have been suggested.
Oil markets were not sure what to do with that information.
The Aussie is down -0.5% at US$0.6624.
Today
The SPI Overnight closed down -90 points or -1.3%.
The US will report May industrial production tonight, and June jobs.
The Australian share market over the past thirty days
| Index | 06 Jul 2023 | Week To Date | Month To Date (Jul) | Quarter To Date (Jul-Sep) | Year To Date (2023) |
|---|---|---|---|---|---|
| S&P ASX 200 (ex-div) | 7163.40 | -0.55% | -0.55% | -0.55% | 1.77% |
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| 3PL | 3P Learning | Downgrade to Equal-weight from Overweight | Morgan Stanley |
| ARB | ARB Corp | Downgrade to Underperform from Neutral | Macquarie |
| AZJ | Aurizon Holdings | Downgrade to Hold from Add | Morgans |
| CGC | Costa Group | Downgrade to Hold from Buy | Bell Potter |
| Downgrade to Neutral from Outperform | Macquarie | ||
| RKN | Reckon | Downgrade to Underweight from Equal-weight | Morgan Stanley |
| TLS | Telstra Group | Upgrade to Buy from Neutral | UBS |
For more detail go to FNArena's Australian Broker CallReport, which is updated each morning, Mon-Fri.
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