The Overnight Report: Onward Ever Upward

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This story features CORE LITHIUM LIMITED.
For more info SHARE ANALYSIS: CXO
The company is included in ALL-ORDS

By Greg Peel

Not Risking It

The futures closed up 29 points on Saturday morning but yesterday the ASX200 closed down -7. That 29 looked ambitious with Wall Street lower on Friday night, but clearly the market is holding steady ahead of tomorrow’s CPI release to provide a clue as to what the RBA will do next week.

That will be followed by a Fed decision tomorrow night.

That would suggest another subdued session today, but with the S&P500 up 0.4% last night, our futures are up 0.6% this morning, so ambition still reigns.

Economists are forecasting a June quarter headline CPI just above 6%, which is lower than the March quarter, but still too high to guarantee another pause. The RBA is nonetheless keeping an eye on offshore economies to provide direction, and the US CPI was down to 3.0% in June.

A hike would take the cash rate to 4.35% from 4.10%. The two-year yield is sitting just under 4%, having dipped a bit yesterday.

That was good for real estate (+0.9%), but energy stole the show (+2.2%) on higher oil and coal prices.

Materials went the other way (-1.4%) as the wait for Chinese stimulus grinds on, with lithium miners hardest hit. The top four index losers on the day were lithium miners, led out by a -17.2% plunge for Core Lithium ((CXO)), on its production report release (with downgraded guidance).

Communication services was another winner (+0.8%) while the banks and healthcare sat it out, as did technology.

The Nasdaq was modestly higher last night.

It might be different tonight when Microsoft and Google report earnings. Is AI all it's trumped up to be?

So we’ll see whether that 41 point gain in the futures has any backing, or else we’re likely in for another quiet one today.

Risking It

The Dow took its winning streak to eleven days last night, again outperforming the other indices. The record for a Dow run is 13 days, set in 1987.

So nothing to be worried about there then.

There was no obvious impetus for Wall Street to close higher last night other than momentum. The momo trade will continue until it doesn’t, backed up presently by the FOMO trade, as the bears continue to get run over.

Chevron (Dow) was the major reporter last night, rising 2% on preliminary results.

While the Dow is not a great indicator, much has been made of the S&P500 Equal-Weight index, which, as the name suggests, simply ascribes the same cap weight to all 500 stocks. This negates the impact of the Mega Techs, which otherwise account for around 30% of the standard S&P500.

2023 began with the Mega Techs soaring and the rest of the market being left in the wake, leading to underperformance of the Equal-Weight and warnings a lack of market breadth may lead to disaster. But more recently the Equal-Weight has at least matched, and occasionally outperformed, the S&P.

Hence commentators have highlighted the recent surge on Wall Street is supported by breadth that was missing previously, as investors quietly move into other sectors while tech stocks are trading at stretched PE multiples. A bull market needs breadth.

Wall Street was not worried about what the Fed will do tomorrow night, as a rate hike is fully expected. More important is what it will do at the next meeting, but that’s not until September. So there’ll be a lot to absorb in between for a data-dependent Fed.

On Friday night we’ll see US June PCE inflation.

This week sees 150 of S&P500 stocks reporting earnings, representing around 30% of market cap. Plenty to absorb there, but still the focus will be a on the Mega Techs. If they go down, everything goes down.

Another earnings result of note last night was that of Mattel, maker of you know who. Mattel only rose 1.8% but its September quarter results might have the stock really in the pink.

Commodities

Goldman Sachs expects record demand in oil markets to drive crude prices higher in the near term.

“We expect pretty sizable deficits in the second half with deficits of almost two million barrels per day in the third quarter as demand reaches an all-time high,” Goldman’s chief oil analyst told CNBC. He has forecast a Brent price of US$86/bbl by year end, up from US$80/bbl previously.

As the table above suggests, that is not far away. Not good news on the global inflation front.

As the US dollar index continues to tick up on rising yields, gold continues to tick down. Until something happens to once more boost its safe haven status.

The Aussie is up 0.2% at US$0.6743.

Today

The SPI Overnight closed up 41 points or 0.6%.

The US will see monthly consumer confidence tonight.

Microsoft and Google report earnings.

Locally, Newcrest Mining ((NCM)) provides its production report today.

Blackmores ((BKL)) goes ex-div.

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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