The Overnight Report: Tech Pullback

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

By Greg Peel

What Goes Up…

The futures suggested up 2 yesterday morning and the ASX200 closed up 1. As to why the index was up 50 points in the first hour is unclear, but given the amount of green-on-screen at that time, I’d suggest a big buy order hit the market.

If so, it was ill-timed. When the jobs data dropped at 11am, the index headed all the way back down.

Australia added 32,000 jobs in June, down from 76,500 in May, but well ahead of forecasts of 15,000. The unemployment rate was 3.5%, having been 3.6% in May, but May was revised down to 3.5%.

The three-month average is 40,000 per month – about the same as the average for all of last year, despite 400 points of rate rises from May last year to June this year. And the numbers are not distorted by part-time workers. Year to date, 218,400 full-time jobs having been added year to date to only 35,900 part-time, and hours worked is up 3.0% compared to 1.9% to June last year.

The numbers have somewhat dashed hopes of another RBA pause next month, hence the stock market sell-off. Next week’s June quarter CPI data will be critical, but with inflation on a downward trajectory, the RBA is more keenly focused on the tight labour market.

400 points hasn’t worked so far. Will 425 make the slightest difference?

From all sectors being in the green before 11am, only three managed to close to the good. Most notable of those were the banks (+0.4%), which continue to enjoy a US bank-driven tailwind.

Technology managed 0.4% but will be in trouble today, while industrials rose 0.2%.

Healthcare was back to its old self in falling -0.5% to be the worst performer. But if the worst was -0.5% and the best was 0.4%, you be forgiven for thinking nothing happened all day. The resources sectors both closed as good as flat.

It happened for Telix Pharmaceutical ((TLX)) nonetheless, which fell -14.6% on its earnings report to be the worst index performer. Next worst was Northern Star Resources ((NST)), down -6.5% on its production report.

Topping the index was Mineral Resources ((MIN)), up 5.1% after selling its interest in a lithium refinery.

It’s notable that those sectors most exposed to interest rates did not cop more of a hiding. Bond yields rose 9-12 points on the jobs report. Real estate fell only -0.3%. All sectors did fall back a long way after 11am from the early spurt, but one wonders where we might have been if the index didn’t strangely jump 50 from the open.

Still, Wall Street fell last night but our futures are showing up 6 this morning.

Tech Wreck

Having reported earnings in Wednesday night’s aftermarket, Netflix fell -9% last night and Tesla fell -10%. Now Netflix is only up 47% year to date and Tesla is only up 112%.

These moves alone were enough to weigh on the Nasdaq, but more consternation was forthcoming when European enterprise software company SAP reported earnings, and warned of cloud revenues slowing. SAP fell -6%.

Yesterday (our time) Taiwan Semi (TSMC) reported and warned of slow smart phone and PC sales weighing on chip demand. The stock fell -5% in New York.

Put it all together and it was a good excuse to bank some of the super-profits achieved in tech stocks this year. There was a lot of red across the board, particularly in cloud and chip names. Pullbacks were seen for the likes of Microsoft, Amazon and Nvidia.

The Nasdaq fell -2%, dragging the S&P500 down -0.7%. But the Dow posted its ninth consecutive up-day, underscoring that last night was all about tech, and there was some rotation afoot.

Investors have been buying the banks all week and that continued last night, with gains seen across regional banks as well. Oil prices have been back on the rise, so energy is once more in favour.

Johnson & Johnson reported last night and jumped 6%. Travelers reported and put on 1%, while IBM, having reported in Wednesday night’s aftermarket, rose 2%. All three helped the Dow to its longest winning streak in almost six years.

The bottom line is no one is much fussed about the S&P’s -0.7% fall. Wall Street is due a (healthy) pullback, and commentators agree a bit more would be nice.

A bit more would bring in the players who were a bit slow off the mark this year – most fund managers entered the year with a heavy overweight in cash, ahead of the recession that never comes. To that end, bull voices are becoming noticeably louder than bear voices.

Still a long way to go in earnings season nevertheless, with a raft of Mega Techs reporting next week.

Commodities

China left its interest rates on hold yesterday. One might have heard groans from commodity traders, but word is Beijing is looking at supportive measures for the real estate market, considering easing restrictions on home purchases in the nation's biggest cities.

Real estate accounts for the bulk of Chinese metals demand. Pops for base metal prices last night were attributed to traders being very short.

More gains in US bond yields had the US dollar up and gold down.

The stronger dollar (+0.5%) held back the Aussie, thus despite the strong jobs numbers it's up only 0.1% at US$0.6782.

Today

The SPI Overnight closed up 6 points. Futures traders have figured out that EV’s, streaming, clouds and chips are not big on our market.

Atlas Arteria ((ALX)) provides a quarterly update today and Coronado Resources ((CRN)) releases its production report.

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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