The Overnight Report: Good Start

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            [6] => ((NST))
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This story features CSL LIMITED, and other companies.
For more info SHARE ANALYSIS: CSL
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

RBA Caution

“…some further tightening of monetary policy may be required to bring inflation back to target within a reasonable timeframe, but that this depended on how the economy and inflation evolve.”

And there we were thinking the RBA is more likely to pause next month. But a lot of that view had to do with weaker than expected US inflation data, released after the July RBA meeting, and Philip Lowe subsequently watered down the rhetoric in saying “may possibly be required”.

And:

“At the August meeting, the Board would have the benefit of additional data on inflation, the global economy, the labour market and household spending, as well as an updated set of staff forecasts and a revised assessment of the risks.”

As for data on inflation, that will come with net week’s June quarter CPI release. As for global economy, well that would include your US inflation numbers.

So the jury’s still out. Investors were cautious yesterday, but only to the tune of -19 points, having been down as much as -37 at midday. Sector moves were nonetheless quite mixed.

Blow me down if healthcare didn’t win the day with 0.9%, as CSL ((CSL)) finally found some love. And that’s with Ansell ((ANN)) falling -14.0% after warning of rising costs, on top of bloated inventories inside distribution channels.

Real estate was back in familiar territory (-1.6%), despite bond yields first rising then falling back again yesterday. Communication services showed some rare volatility (-1.3%), as Telstra ((TLS)) fell on some hullaballoo about customers being hit with a fee if they paid their bills in cash.

Staples (-0.8%) and discretionary (-0.9%) were pricing in another rate rise but the banks (+0.8%) felt differently.

Materials (-0.6%) and energy (-0.8%) were weak on lower commodity prices post China’s GDP miss. Syrah Resources' ((SYR)) quarterly report was worth -16.3%.

Netwealth Group’s ((NWL)) quarterly report was, on the other hand, worth 5.1%, to be the index winner.

Local investors may also have been a bit timid yesterday ahead of US earnings results and more economic data. They didn’t need to be, and this morning our futures are up 39 points.

Ai, ai, ai

Microsoft revealed pricing last night for its new AI-enhanced Office software, which at US$30 per month was a lot more than the US$10pm Wall Street was toying with. Yet all agree customers will happily (or have no choice but to) pay up, so Microsoft jumped 4% to a new all-time high.

Microsoft appears in all three major indices, which all last night hit 15-month highs.

Earlier, Morgan Stanley released its earnings report and jumped 6.5%, and ditto Bank of America, which rose 4.4%.

Hence, Wall Street took off again.

In so doing Wall Street ignored a big miss on US June retail sales, which booked only a 0.2% rise when 0.5% was expected. Much faith is being placed in the US consumer, given low unemployment, leftover covid savings and a wage growth rate now well ahead of headline inflation.

However, economists point to the fact retail sales measures sales of goods, not services, and consumers have moved away from buying goods and are spending their money on services. Had the result been a beat, no one would have mentioned this.

June industrial production fell -0.5% when economists had forecast 0.0%, having fallen -0.5% in May.

Either way, Wall Street still expects the Fed to hike again next week, but probably no further, so with that baked in, investors can concentrate more on earnings results, which are off to a good start.

The recent resolution of the debt ceiling sparked warnings of a liquidity drain, as the US Treasury would start madly issuing bonds again in order to refill the empty coffers. As it has transpired, money market funds have been buying those bonds, thus adding that liquidity back.

The bears are nervous, but stoic. If anything, there are no longer loud calls for a fall all the way back to the October low, rather those still expecting a pullback have shifted up their forecast range, from a prior 3600-4200 for the S&P500 to more like 4000-4500.

A hard landing now seems but a distant fear. A soft landing is nevertheless still anticipated. It was anticipated this year, then at least in the second half of this year, and now some time in 2024.

The bulls say don’t hold your breath. While technically a recession is yet to be marked, those who scoff at such definitions suggest the US is already in one, or has been in one, and is beginning to come out.

Earnings forecasts for 2024 are on the rise.

Commodities

Base metal prices continue to reflect Chinese weakness, but having slipped for the same reason, the oils were back in business last night on a reinstatement of assumptions demand will exceed supply.

Soft commodity prices are moving up again, following Russia’s withdrawal from the grain deal, although it’s a long way back to war-driven highs. Rising food and energy costs suggest a possible bump up in headline inflation at the next print, against the prevailing trend.

Gold has had a good session, despite little movement in US bonds or the dollar. Perhaps the weak retail sales data point to lower yields ahead, or perhaps Russia has further stirred the safe haven trade.

The Ausie is down a tad at US$0.6814.

Today

The SPI Overnight closed up 39 points or 0.5%.

New Zealand, the UK and eurozone all report inflation numbers today.

Beach Energy ((BPT)), Northern Star Resources ((NST)) and Woodside Energy ((WDS)) all report quarterlies.

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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