The Overnight Report: Known Knowns

This story features MEGAPORT LIMITED, and other companies. For more info SHARE ANALYSIS: MP1

World Overnight
SPI Overnight	7013.00	+ 25.00	0.36%
S&P ASX 200	7108.90	+ 104.90	1.50%
S&P500	4439.26	+ 29.73	0.67%
Nasdaq Comp	13760.70	+ 75.22	0.55%
DJIA	34261.42	+ 317.02	0.93%
S&P500 VIX	14.84	– 0.23	– 1.53%
US 10-year yield	3.98	– 0.03	– 0.65%
USD Index	102.27	– 0.85	– 0.82%
FTSE100	7282.52	+ 8.73	0.12%
DAX30	15790.34	+ 117.18	0.75%

By Greg Peel

Forward Gear

On Monday the ASX200 bottomed out at 7000 on the knocker and closed at 7004. Yesterday the index was set to open higher and did, by 77 points, and then continued gradually higher all day.

Last week’s pullback was largely a Sell Everything affair. Yesterday it was Buy Everything. The index has technically held at 7000 and with Wall Street back in rally mode, it’s a green light downunder as well. The futures are up 35 points this morning.

The rally yesterday was aided by further drip-feed stimulus from hot and bothered Beijing. The PBoC extended a package of support for the property sector put in place last year, and as always more stimulus is expected in the near term.

This was good news for all things required for construction, such as steel, and along with a rally for gold, the materials sector rose 1.9%.

Technology won the day with 2.6%, aided by a 33.8% pop for Megaport ((MP1)), following yet another guidance upgrade. As of last week, Megaport was over 6% shorted.

More good news came from local sources with the Westpac consumer confidence survey for July, which showed a 2.3% gain to 81.3 following a -0.2% fall in June. The result was nonetheless as expected: everyone loves a pause.

NAB’s business survey for June was not so flash, however. At an unchanged +9, business conditions remain above historical levels and are showing resilience, although within the data was 0.7% increase in labour costs, to 2.6% growth for the quarter, which will not inspire an RBA closely watching the correlation between wage growth and sticky services inflation.

Business confidence rose 3 points to zero.

Still, bond yields fell -9 points and this was good news for the banks (+1.5%) and real estate (+1.9%) with consumer confidence an added boost for discretionary (+1.9%).

The laggards on the day were defensives staples (+0.6%), healthcare (+0.7%) and utilities (+0.9%), but all sectors closed in the green.

In order to make the top five index winners on the day you needed at least 5.8% — DeGrey Mining ((DEG)) – and to make the top five losers’, -0.4% — Abacus property ((ABP)). The biggest loser – Johns Lyng Group ((JLG)) fell only -1.9%.

Wall Street was throwing caution to the wind last night ahead of tonight’s CPI release, with the S&P500 up 0.7% and our futures up 0.5%.

Who Cares?

Having cheered on solid economic data recently in an economy at risk of recession, Wall Street ran scared last Thursday when the June private sector jobs report came in way over expectation, implying the Fed still has plenty of work to do. But Friday’s weaker than expected non-farm payrolls report helped soothe the nerves.

Either way, Wall Street was already pricing in around an 80% chance of a July Fed rate hike and the jobs reports only served to shift that up into the nineties. So does it really matter?

Many a commentator has questioned whether another 25 point hike on top of 525 is going to really be the straw, and, more importantly, (at the risk of mixing metaphors) investors can see light at the end of the tunnel. With a July hike baked in, the jury is still out on whether another hike will follow in September, as the Fed has hinted.

The Fed remains data-dependent and as such much rides on tonight’s CPI release, with the PPI following on Thursday night. Economists are forecasting a headline 3.1%, but what really matters is the core reading, which has only been ticking down incrementally.

The real concern is wage growth, which the June non-farm payrolls report showed was still strong. The Fed is determined to crack the labour market and, until it does, more rate hikes can be expected.

If wage growth does ease, and unemployment rises, that’s good news on the rate hike front, but suggests that long-awaited recession may finally be making itself known.

Late this week, the big US banks report June quarter earnings, and here we’ll begin to see what’s really going on in the US economy. The banks will soon be followed by the Mega Techs, who will have to show some pretty good numbers to justify their elevated PE multiples.

It has been noted that for the first time in a while, earnings forecasts have remained steady on a net basis coming into result season when normally they are pared back. This implies there may not be too much room for upside surprise, and plenty for downside.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1924.40	+ 13.60	0.71%
Silver (oz)	23.06	+ 0.38	1.68%
Copper (lb)	3.75	+ 0.00	0.01%
Aluminium (lb)	0.95	+ 0.01	0.89%
Nickel (lb)	9.33	– 0.23	– 2.41%
Zinc (lb)	1.06	– 0.00	– 0.43%
West Texas Crude	73.86	+ 2.06	2.87%
Brent Crude	78.47	+ 1.96	2.56%
Iron Ore (t)	110.54	– 1.73	– 1.54%

Metal prices have not much reacted to China’s latest stimulus.

The International Energy Agency last night said the oil market should remain tight in the second half of 2023, citing strong demand from China and developing countries combined with recently announced supply cuts, including by top exporters Saudi Arabia and Russia.

The US dollar has also been falling on Fed talk of being near the end of the hiking cycle, falling -0.6% last night, which is a boost to commodity prices.

The Aussie is up 0.2% at US$0.6690.

Today

The SPI Overnight closed up 35 points or 0.5%.

The RBNZ is holding a policy meeting this morning.

Philip Lowe will speak today.

Along with tonight’s US CPI data, the Fed Beige Book will be released.

The Australian share market over the past thirty days…

Index	11 Jul 2023	Week To Date	Month To Date (Jul)	Quarter To Date (Jul-Sep)	Year To Date (2023)
S&P ASX 200 (ex-div)	7108.90	0.95%	-1.31%	-1.31%	1.00%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
EVN	Evolution Mining	Upgrade to Neutral from Sell	UBS
FPR	FleetPartners Group	Downgrade to Equal-weight from Overweight	Morgan Stanley
IDX	Integral Diagnostics	Downgrade to Underweight from Equal-weight	Morgan Stanley
IGO	IGO	Downgrade to Neutral from Buy	Citi
LTR	Liontown Resources	Downgrade to Sell from Neutral	Citi
MFG	Magellan Financial	Downgrade to Underperform from Neutral	Macquarie
TLC	Lottery Corp	Downgrade to Equal-weight from Overweight	Morgan Stanley
TWE	Treasury Wine Estates	Downgrade to Sell from Neutral	Citi

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