The Overnight Report: Good Start

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This story features CREDIT CORP GROUP LIMITED.
For more info SHARE ANALYSIS: CCP
The company is included in ASX300 and ALL-ORDS

By Greg Peel

Becalmed

While it looked like a flat session on the ASX yesterday ahead of today’s RBA meeting, the ASX200 opened up 30 points before sliding to be down -30 points around 2pm, and then recovering to back above the 7400 mark.

Where it is now poised. With Wall Street also posting a flat end-of-month session last night, we would expect little from the market today ahead of 2.30pm, when it will face simple binary risk. That said, the futures closed up 25 points this morning.

China’s manufacturing PMI for July came in at 49.3, up from 49.0 in June and better than 49.2 forecasts, but still in contraction for the fourth straight month. The services PMI hung on to expansion at 51.5, but was down from 53.2.

How to respond?

China’s National Development and Reform Commission released a wide-ranging policy plan yesterday, focusing on removing government restrictions on consumption, such as car purchase limits, improving infrastructure and holding promotional events like food festivals.

Yeah great. That should do it. Metals prices were nonetheless all stronger last night, which probably explains the futures’ 25 points.

Otherwise, materials was among the many sectors that did little yesterday by the close. The only movement of note appeared to be a switch out of staples (-0.8%) and into healthcare (+0.6%), being the two biggest movers on the day.

Otherwise, utilities lost -0.5% but the big guns of banks, materials and energy did not much trouble the scorer.

Among individual stocks, gold/copper miner Silver Lake Resources ((SLR)) reported record production in the June quarter and has met FY23 production and sales guidance. It fell -20.2%.

The company is thinking of idling its Sugar zone mining and processing activities in 2024.

Interestingly, ahead of the RBA today, the Aussie has shot up 1.0% with the US dollar index up 0.3%. That’s a big bet ahead of the decision.

It can only reflect the excitement of Chinese stimulus, and related commodity price moves, while most commentators consider the latest tweaking a damp squib.

This morning might see those healthcare buyers switching into materials.

And Breathe

It’s rare that Wall Street would see a flat end-of-month session, but the month itself has hardly been flat.

The S&P500 rose 3.1% in July to be up 19.5% year to date. That’s the best seven-month start to a year since 1977.

But wait. The Nasdaq rose 4% for the month to be up 37.1% for the year – its best since 1975.

And they said there was going to be a recession.

Making investors more confident in the stock market is the matter of breadth. Over the first half to June, only 25% of stocks in the S&P outperformed the index, which is the narrowest breadth ever recorded. But since July, the rest of the market has been catching up to tech, leading to the S&P500 equal-weight index catching up.

One of the biggest concerns of the bears earlier in the year was lack of breadth.

Another concern was that the Fed would push rates too far, forcing second half cuts as recession bit. But no one expects second half cuts anymore, least of all the Fed, and if not already over, the Fed’s hiking cycle is close to ending.

As to a recession, the “soft landing” camp is building by the day. The “no landing” camp is also strong, which includes those who believe the US had already seen a “rolling” recession across different sectors in 2023.

With just over half of S&P500 companies having reported results to date, 80% delivered a positive earnings per share surprise and 64% a positive revenue surprise. Earnings have posted a “not as bad as feared” scorecard, running at around a -6% (year on year) contraction when over -9% had been forecast. The June quarter is expected to be the earnings trough.

Mind you, analysts always play it safe and go low, hence results always beat on a net basis.

Still, with PE multiples stretched, it is incumbent on earnings to “grow into” those multiples, which has the impact of reducing PEs. At least until investors decide to push P higher again.

While there’s another slew of earnings reports to come this week, the big night will be on Thursday, when Apple and Amazon report.

Commodities

Well, stimulus is stimulus.

We might note, on the falling inflation front, that crude oil prices are up 20% from their June low.

The Aussie is up 1.0% at US$0.6722.

Today

The SPI Overnight closed up 25 points or 0.3%.

Ahead of the RBA meeting we’ll see numbers for building approvals, house prices and housing finance.

Manufacturing PMIs will be released across the globe from today.

Credit Corp ((CCP)) and Janus Henderson ((JHG)) report earnings.

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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