The Monday Report – 24 July 2023

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

By Greg Peel

Low Conviction

The ASX200 fell -37 points to 11am on Friday before spending the rest of the session grinding back to an -11 point loss, holding on to 7300. For the week, the index was up 11 points.

For sectors it was a mixed bag, with a -2.7% drop for technology the stand-out, following a tech pullback on Wall Street.

Energy won the day (+1.3%) on stronger oil prices, but otherwise the proceeds of tech sales appeared to make it into defensive sectors, with staples up 1.2%, healthcare 0.6% and utilities 0.4%.

Materials fell -0.5% as falls in gold and lithium offset gains for iron ore. A disappointing result from Newcrest Mining ((NCM)) suitor Newmont in the US spooked gold miners. Newcrest fell -5.2%. Among the lithium players, Mineral Resources ((MIN)) fell -7.5% to be the worst index performer.

The banks also fell back again (-0.5%) after having been strong early in the week on US bank results.

Communication services – also strong earlier in the week — fell -0.5%.

Bond yields crept up by 3-6 points, with the two-year back at 4.0% again. Real estate nonetheless closed flat.

Bond yields moving up last week suggests traders are expecting an RBA rate rise next month, but on Wednesday we’ll see the June quarter CPI numbers which may have some influence on the decision.

That release will be critical downunder and that night the Fed makes its next rate decision.

Wall Street is looking ahead to a raft of Mega Tech results this week but as to how our market will respond is unclear, but then the -2.7% fall for technology on Friday, following weakness in New York for the likes of Tesla, Netflix and chip companies, suggests we may have to play sheep.

That said, Wall Street closed lower again on Friday night, commodity price moves were not substantial yet our futures were up 29 points on Saturday morning.

Mega Week

The question for Wall Street is whether the selling in tech stocks that featured late last week, after a first half of extraordinary gains, will continue into this week.

On Friday night the Nasdaq was just hanging in there heading into the final hour but late selling sent it southward once more, along with the other two indices. The Dow just managed to scrape in for a ten-day winning streak – the first since 2017.

For the week, the Dow gained 2.1% and the S&P500 0.7%, while the Nasdaq lost -0.6%. Outperformance in the Dow underscores a move to cash in on tech and rotate into old-school industrials ahead of earnings results which will have to be very solid to justify current valuations.

Tesla and Netflix copped heavy selling last week on results that were not at all bad.

Microsoft and Google report tomorrow night and Meta on Wednesday night. There will also be reports from the likes of Intel, Visa and McDonalds across the week, among others.

With a Fed rate hike on Wednesday night already priced in, Wall Street will be keenly focused on earnings.

To date, 18% of the S&P500 has reported for a net 75% beats, which is slightly ahead of average. But the March quarter saw earnings fall -2.0% and the June quarter is forecast to see a fall of -9.6%.

Tonight brings another source of volatility in tech. The Nasdaq100 will be rebalanced.

American Express (Dow) reported on Friday night, beat on earnings, and fell -3.9%. Rail company CSX fell -3.7%, although did actually report a miss. But not so for used car chain AutoNation, which reported a beat and fell -12.3%.

The early trend is a tad ominous.

Commodities

Metals prices are slipping again on no word out of China.

Oil prices closed higher for the fourth straight week as signs of a tightening in supply in the second half are growing. Escalation in the war, specifically Russia’s attack on global grain supply in retaliation for hurting Vlad’s bridge, is seen as a flow-on risk to energy markets.

The US dollar continues to fight back which is weighing on gold, and the Aussie has been slapped -0.8% with the dollar index up only 0.3%, perhaps setting up ahead of a Fed rate hike.

The SPI Overnight closed up 29 points or 0.4%.

The Week Ahead

The Fed will deliver its decision on Wednesday night.

The day after the Fed meeting the first estimate of US June GDP is released, and the next day, June PCE inflation.

The US also sees consumer confidence, new home sales and durable goods orders over the week.

Flash estimates of July PMIs will be released across the globe and both the ECB and Bank of Japan hold policy meetings, post Fed.

Locally, the CPI is out on Wednesday and Friday brings June retail sales.

Quarterly reports flow thick and fast this week, mostly from miners. Newcrest Mining ((NCM)), Mineral Resources ((MIN)), Fortescue Metals ((FMG)) and Sandfire Resources ((SFR)) are among that number.

Rio Tinto ((RIO)), Champion Iron ((CIA)) and Garda Diversified Property ((GDF)) report earnings.

Macquarie Group ((MQG)) and Abacus Property ((ABP)) are among a handful of companies holding AGMs. The latter is ahead of the planned spin-off of Abacus’ Storage King assets.

South32 ((S32)) and Pilbara Minerals ((PLS)) provide production reports today.

The Australian share market over the past thirty days…

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