The Overnight Report: Nothing To See Here

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This story features KOGAN.COM LIMITED, and other companies.
For more info SHARE ANALYSIS: KGN
The company is included in ALL-ORDS

By Greg Peel

Hope Springs Eternal

It was a game played in two halves – before the CPI and after the CPI. In the first half, the ASX200 was slightly higher. By full time, it was up 62 points.

Australia’s headline CPI fell to 6.0% in the June quarter, down from 7.0% in March. Economists had forecast 6.2%, and the RBA had forecast 6.3%. Over the quarter inflation rose 0.8%, down from 1.4% in the March quarter.

The core rate rose 0.9%, having risen 1.3% to March, for an annual rate of 5.9%, down from 6.6%. The market had expected 6.0%.

Investors made the assumption yesterday the RBA would pause again in August. It’s not a given – the market is still pricing in a 54% chance of a hike. We recall the June jobs numbers showed the labour market remains very tight.

The RBA suggested at the last meeting policy is now “restrictive”, although the cash rate is 4.10% and inflation is 6.0%. Last night the Fed hiked again, to a top-end 5.50%, when US inflation last printed at 3.0%.

Economists are split between a hike and a pause next month. But they’re still expecting at least one more hike in the near term.

The Aussie two-year yield fell -7 points yesterday to 3.95% and the ten-year fell -2 points to 4.01%. Not a convincing pause expectation.

The lower CPI’s impact was most felt in the banks (+1.1%). Materials was up 1.8% and energy 0.6% but that was a flow-on from talk of Chinese stimulus from yesterday, rather than domestically related.

The only other sector to really see a benefit was consumer discretionary (+1.1%). Otherwise, sector moves were fairly muted, which goes to show what impact strength in banks and miners has on the ASX200.

Technology rose 1.2% but is too small to move the market. The sector would have weighed up opposing Microsoft and Google earnings responses yesterday morning, then taken heart in lower Aussie yields.

Yet real estate fell -0.5% and utilities -0.3%, while healthcare fell -0.5% despite a lower Aussie on the CPI numbers.

Nor were there any remarkable moves among individual index stocks. Outside the index, online retailer Kogan ((KGN)) jumped 10.0% on an update which suggested Australian consumers are yet to roll over, while the US Navy’s favourite shipbuilder Austal ((ASB)) lost -10.5% after downgrading guidance.

We don’t have to wait too long – the next RBA meeting is on Tuesday.

At 7400, the ASX200 has now surpassed the April peak. Next stop February, at 7567. It won’t be today – the futures are down one point this morning.

Not a Clue

I suggested day Wall Street wouldn’t blink if the Fed hiked again last night, and it didn’t, having fully expected it to. The Fed raised its funds rate to 5.25-5.50% — the highest level since 2001.

We won’t mention what happened in 2001.

Despite what proved to be a -4% fall for Microsoft post result, the Dow managed to clock its thirteenth straight up-session, matching the record set in 1987.

We won’t mention what happened in 1987.

The Dow can thank Boeing, which jumped 9% on an earnings beat.

Google rose 6% post result, but could not spark up the Nasdaq on Fed Day. Meta has reported this morning in the aftermarket, and is currently up 7%.

The Fed statement, and Powell’s press conference, were inconclusive as to whether another hike may be needed in September, or any later time. This is a slightly more dovish tone than the “still work to be done” mantra we’ve heard from Fed members all year. Rather, “more work may be still needed”. [My emphasis]

Subtle. But what the Fed pressed home is that it will all simply come down to the data.

The committee remains “highly attentive” to inflation risks, and the committee will “continue to assess additional information and its implications for monetary policy” by assessing upcoming economic data, the cumulative monetary tightening to date, and the lags with which interest-rate policy affects the economy “in determining the extend of additional policy firming that may be appropriate.”

In other words, maybe/maybe not.

With nothing to go on, Wall Street stood still. US bond rates eased slightly. The market is now pricing in only a 29% chance of another hike this year, and the chance of a first rate cut not until July 2024.

Commodities

A bit of gloss came off last night after Tuesday night’s Chinese-driven pop, with the Fed hike not unnoticed.

The Aussie is down -0.5% at US$6757 even as the US dollar is down -0.3%.

Today

The SPI Overnight closed down -1.

The ECB meets tonight.

The first estimate of US June quarter GDP is due.

Locally it’s the biggest day for corporate events so far, ahead of result season proper.

Champion Iron ((CIA)), Garda Diversified Property ((GDF)) and UR-Westfield ((URW)) report earnings.

Macquarie Group ((MQG)) holds its AGM. Abacus Property ((ABP)) holds an EGM on the planned storage business spin-off.

Several miners post production reports, including Fortescue Metals ((FMG)).

Megaport ((MP1)) provides a quarterly update.

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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