The Overnight Report: Momentum Reinstated

Array
(
    [0] => Array
        (
            [0] => ((EDV))
            [1] => ((ALD))
            [2] => ((CQE))
            [3] => ((HUB))
            [4] => ((RIO))
            [5] => ((SYR))
            [6] => ((AZJ))
        )

    [1] => Array
        (
            [0] => EDV
            [1] => ALD
            [2] => CQE
            [3] => HUB
            [4] => RIO
            [5] => SYR
            [6] => AZJ
        )

)

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

By Greg Peel

Thrill Ride

The ASX200 was down -2 points after the first half hour yesterday and closed down -4. It was that sort of day. There were, however, notable moves among sectors.

The major news of the day was China’s June quarter GDP growth, coming in at 6.3% year on year when forecasts were for 7%-plus. In a clear sign the anticipated economic reboot after lockdowns has lost momentum, growth in the March quarter was 2.2% from December, and only 0.8% in June from March.

Part of the problem is the GDP was cycling only 0.4% year on year growth in the June quarter 2022 when China was locked down. There was nevertheless some slightly better news amongst month of March data.

Retail sales grew 3.1% year on year, albeit missing 3.2% expectation. Industrial production rose 4.4%, beating 2.7% expectation, and similarly fixed asset investment year to date rose 3.8%, beating 3.5%.

But perhaps most troubling for Beijing was a record youth unemployment rate at 21.3%.

In isolation, these numbers should spell bad news for the Australian economy, but the trade-off is enhanced expectation Beijing simply must now pull out the big stimulus guns rather than tinkering around the edges as has been the case so far.

Materials and energy were nevertheless the worst performers on the day, each falling -0.8%. Falls in commodity prices overnight confirm this response.

In other news, stricter Victorian pokie rules had investors bailing out of Endeavour Group ((EDV)), sending the stock down -9.9% and staples down -0.7%. Yes, booze and pokies are staples.

Endeavour topped the index losers’ list and the rest of the top five losers were miners.

Healthcare was the only other sector to close in the red (-0.2%), still having issues with the stronger Aussie.

Balancing out the session were the banks (+0.4%), discretionary (+0.6%) and technology (+0.9%). Interest rate futures are now implying only a 40% probability of one more RBA rate hike in August, and feedback suggests a lot of economists are now edging back from their calls for more hikes.

ANZ Bank economists had been confident there’s be two more hikes to come, but now believe we’ll see an extended pause.

Easing expectations of further rate hikes is another reason the local market did not take any major bets either way yesterday. And we’ll soon move to only eight RBA meetings a year from the current eleven, giving the new governor more time to cook, clean and look after the kids.

Oh stop it. I’m just kidding.

Looking Ahead

Wall Street was also struck by China’s weak data last night, but was more confident than us that Beijing will be upping the ante.

Otherwise momentum has reappeared to the upside following what looked a bit dangerous on Friday night.

On Friday night better than forecast big bank results had JPMorgan up only slightly, Wells Fargo down slightly, and Citigroup down -4%, suggesting positive earnings results may be met this season with a sell-the-fact response, given overheated valuations. Last night JPMorgan rose 2.4%, Wells 2.7% and Citi 1.1%.

So as you were.

Results are due tonight from Bank of America and Morgan Stanley, followed by Goldman Sachs on Wednesday and Tesla and Netflix later in the week.

If you’re a Netflix fan, note that analysts believe the streamer will actually be the beneficiary of the US actor/write strike given it is stream-only, whereas your newer streaming players – traditional media companies owning TV networks and film studios – will suffer. And they all did last night, falling in unison while Netflix rose 1.8%.

Wall Street is also poised for tonight’s June retail sales numbers, which will indicate whether the US consumer is still hanging in there despite the headwinds.

I noted yesterday the weak June CPI numbers which have pushed Wall Street (and thus the ASX) higher may still give way to rising oil prices this month. Oil was nonetheless lower last night.

News not being highlighted is that of Russia pulling out of its deal to allow grain shipments out of Ukraine, so as to prevent global starvation. Grain prices have soared in response, which brings back memories of 2021-22 grocery price surges.

Commodities

See: China.

The Aussie is down -0.2$ at US$0.6821.

Today

The SPI Overnight closed down -20 points or -0.3%, which may hint of a doubling up of yesterday’s falls for the resource sectors in anticipation of lower commodity prices, which have been confirmed.

The minutes of the July RBA meeting are out today.

The US will see retail sales and industrial production.

Quarterly updates are due today from Ampol ((ALD)), Charter Hall Social Infrastructure REIT ((CQE)) and Hub24 ((HUB)).

Production reports are due from Rio Tinto ((RIO)) and Syrah Resources ((SYR)).

Aurizon Holdings ((AZJ)) hosts an investor day.

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.

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