The Monday Report – 10 July 2023

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            [1] => ((RRL))
            [2] => ((EVT))
            [3] => ((NWL))
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This story features PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: PNI
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

One Way Street

It was carnage on the ASX on Friday as the ASX200 posted basically all of the day’s losses from the open, offering no chance of getting out. School holiday thinness would have added to the volatility.

No sector was spared, it was very much a Sell Everything affair, with falls ranging from utilities (-0.7%) to real estate (-2.6%).

Aussie bond yields added yet another 12-13 points, to put the two-year at 4.30% and the ten at 4.26%. The bond market has priced in the equivalent of the two more rate hikes economists are forecasting, despite last week’s pause, in a matter of days.

The last time the ASX200 was under 7100 was in mid-June. The last time it was below 7050 was in March, when SVB went bust.

The index closed down -2.2% for the week.

Testament to the breadth of selling was a fall of “only” -5.0% for fund manager Pinnacle Investments ((PNI)), to be the biggest index loser. Regis Resources ((RRL)) topped the winners list with 1.6%, having achieved record gold production in FY23.

Making the top five winners’ list was EVT Ltd ((EVT)), formerly known as Event Hospitality and Entertainment, with a mere 0.4% gain.

I noted last week strong data on Wall Street was beginning to worry investors, reinforcing further rate hike expectations. That came to a head on Thursday night with a shockingly strong private sector jobs result.

The RBA said last week it is keeping an eye on developments in the global economy as part of its decision-making. Expectation of further rate hikes in the US, and subsequent rallies in bond yields, were thus reflected here late last week.

The good news, if any, is the US non-farm payrolls result on Friday night confounded in being weaker than expected. Wall Street still fell, but our futures were up 25 points on Saturday morning.

Mixed Messages

On Thursday night it was announced the US added 497,000 private sector jobs in June when 220,000 were expected. On Friday night, June non-farm payrolls data showed 209,000 jobs were added when 240,000 were forecast.

Wall Street initially took the weak result as good news, rallying in the morning, until closer scrutiny revealed the news was probably not so good after all.

The unemployment rate dropped to 3.6% from 3.7%, and wages grew by 0.4% in the month to be up 4.4% year on year. These are not numbers that would give the Fed, ahem, pause for thought. By the afternoon Wall Street realised there was no change to further rate hike expectations – the chance of a July hike is now priced at 92% — and sold off, accelerating towards the close.

The data also indicate, if we ignore the private sector number, the US jobs market may finally be cooling off, as has been the expectation for many months. An uptick in weekly new jobless claims last week also supports this view. That’s what the Fed wants to see, in order to tame inflation, but at this stage 4.4% wage growth is not helping.

On Thursday night Wall Street was warming to the idea the US may not see a recession at all. Friday night brought investors back to earth.

One bright spot on Friday night was the energy sector, which rallied on no further gains in oil prices, attributed to weak US inventory data. Any increase in oil prices is another headwind to lower inflation.

Tomorrow night we’ll see the US June CPI, followed by the PPI on Wednesday night. They will need to show meaningful contraction for Wall Street to halt the current slide from peak equity valuations on rate hike fears.

Later this week we’ll see the beginning of the US June quarter earnings season, as the big banks start to report. At the end of the day, it all comes down to earnings.

Commodities

Oil is the only real mover here.

The US ten-year yield was steady on Friday night but the two-year fell -7 points thanks to the jobs report. The US dollar plunged -0.8%, both helping gold to rally.

The Aussie is up 1.0% at US$0.6691.

The SPI Overnight closed up 25 points or 0.4% on Saturday morning.

The Week Ahead

Along with inflation data this week, the US will also see consumer sentiment on Friday.

China reports inflation and trade data this week.

The RBNZ holds a policy meeting on Wednesday and New Zealand is closed on Friday.

In Australia we’ll see the NAB business and Westpac consumer confidence surveys tomorrow.

A June quarter report from Netwealth Group ((NWL)) on Thursday signals quarterly reporting season is now upon us, picking up from next week.

The Australian share market over the past thirty days…

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