The Overnight Report: Down But Not Out

This story features BLOCK INC, and other companies. For more info SHARE ANALYSIS: SQ2

World Overnight
SPI Overnight	7238.00	– 7.00	– 0.10%
S&P ASX 200	7311.70	– 42.90	– 0.58%
S&P500	4501.89	– 11.50	– 0.25%
Nasdaq Comp	13959.72	– 13.73	– 0.10%
DJIA	35215.89	– 66.63	– 0.19%
S&P500 VIX	15.92	– 0.17	– 1.06%
US 10-year yield	4.19	+ 0.11	2.72%
USD Index	102.51	– 0.11	– 0.11%
FTSE100	7529.16	– 32.47	– 0.43%
DAX30	15893.38	– 126.64	– 0.79%

By Greg Peel

Some Relief

The bad news is the ASX200 followed through yesterday morning in the wake of Wednesday’s sell-off and the index was down another -67 points at 11am.

The good news is there it found buyers, under 7300, and was quickly down only -30, before drifting off in the afternoon, still closing above the round number.

With Wall Street slightly weaker but tentative overnight, ahead of big name earnings results this morning and tonight’s jobs numbers, our futures are down only -7 this morning.

Technology was always destined to follow down the Nasdaq yesterday and proved the worst performer (-1.5%).

Materials was always under pressure from lower commodity prices and fell -1.1%. That included a solid fall for iron ore on the day, weighing on the big names. Energy was down -0.8% but oil prices have rebounded overnight.

The Aussie ten-year yield rose another 8 points yesterday to 4.10%, and will likely be up again today following another move up in the US ten-year.

The banks fell another -0.5% and real estate -0.5% while healthcare also joined in with -0.5%.

Staples closed flat and communication services was the only sector to close in the green, up 0.2%.

In economic news, Australia’s trade surplus rose to $11.3bn in June from $10.5bn in May, despite a -1.7% drop in exports on lower commodity prices, given imports fell -3.9%.

The imports number was impacted by lumpy auto sales, which provide for volatility.

Following on from the June retail sales decrease of -0.8% reported earlier, yesterday’s data showed retail volumes fell -0.5% in the June quarter, having dropped -0.8% in the March quarter, as consumers continue to tighten their belts.

Encouragingly, say ANZ Bank economists, the implied retail deflator (measuring average price growth of what was sold) came in under 1% quarter-on-quarter for the second time since September 2021, at 0.9% qoq. Annual price growth fell sharply from 6.0% year on year to 4.9%, though is still far above the 2015-2019 average of 1.0%.

Inflation is easing, slowly.

After the close of Wall Street last night, two big earnings reports dropped – big enough to move the market. The responses are currently mixed.

Call it a Draw

As I write, Apple shares are down -2.7% in the aftermarket, while Amazon is up over 10%. While Apple is the biggest company on the market, together the two make up 10% of the S&P500 market cap. Both are up around 50% year to date.

Maybe Amazon’s move outweighs Apple’s, but it’s largely a net-out in terms of tonight’s trade, which will be focused on the jobs report anyway.

Wall Street also began with follow-through selling last night, in the wake of the Fitch rating downgrade, which was really just an excuse to take profits. The risk was that excuse would bring in more sellers fearful of a substantial pullback, but by the close, falls were more modest.

Picking indices up from the lows was last night’s June quarter productivity report, which showed 3.7% annual growth compared to 1.3% in March. If wages rise but productivity doesn’t, inflation is fuelled. So stronger productivity is further good news on the inflation front.

Not helping sentiment, nevertheless, was news the US Treasury has increased the size of its quarterly long-term debt selling (issuing bonds) for the first time in two and a half years. While the US two-year yield stood still, the ten-year jumped 11 points to 4.19%.

The peak was 4.25% back at the October low for equities. If that level is breached, it could be another signal to Wall Street it’s time to sell.

The other issue: responses to positive earnings and/or revenue results. None of PayPal, Qualcomm, MGM Resorts or Robinhood posted weak numbers last night, but PayPal fell -12%, Qualcomm, which makes chips for smart phones, fell -8%, casino operator MGM fell -7%, and retail stock/crypto broker Robinhood fell -7%.

Admittedly, they all reported into a nervous market, but the theme has been persistent in the earnings season to date. With valuations stretched, a result must not just beat but beat resoundingly to prevent a sell-the-fact response, and guidance is also important.

Amazon clearly is one stock that has bucked the trend. While still predominantly an online department store in terms of revenues, Amazon’s AWS cloud service – 20% of revenues – is where all the earnings are being made.

Investors were worried when Amazon poured millions into improving its logistics over the course of the pandemic, and now they’re worried the company is about to pour millions into AI. But something must be working.

For Apple, a lot will depend on the release of the iPhone 15, due next month.

In other news, the Bank of England hiked again last night, by 25 points to 5.25%.

Block ((SQ2)) is another company that has reported after the bell this morning, and its shares are currently down over -5%.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1933.30	– 0.90	– 0.05%
Silver (oz)	23.56	– 0.09	– 0.38%
Copper (lb)	3.85	– 0.00	– 0.13%
Aluminium (lb)	0.98	+ 0.00	0.39%
Nickel (lb)	9.76	+ 0.10	1.06%
Zinc (lb)	1.12	– 0.01	– 0.97%
West Texas Crude	81.55	+ 2.06	2.59%
Brent Crude	85.28	+ 1.96	2.35%
Iron Ore (t)	104.26	– 3.15	– 2.93%

Iron ore futures slumped yesterday on fresh concerns about China’s steel production curbs and recovery prospects for the struggling domestic property sector, with sentiment further dampened by flooding in the top steelmaking province of Hebei, Mining.com reports.

Saudi Arabia announced last night it would extend its production cut through to September.

The Aussie is up 0.2% at US$0.6553.

Today

The SPI Overnight closed down -7 points.

The RBA issues a Statement on Monetary Policy today.

US jobs tonight.

ResMed ((RMD)) reported earnings this morning Australian time and at face value disappointed on the gross margin yet again. James Hardie ((JHX)) holds its AGM.

The Australian share market over the past thirty days…

Index	03 Aug 2023	Week To Date	Month To Date (Aug)	Quarter To Date (Jul-Sep)	Year To Date (2023)
S&P ASX 200 (ex-div)	7311.70	-1.24%	-1.33%	1.50%	3.88%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AGL	AGL Energy	Downgrade to Neutral from Outperform	Macquarie
BBN	Baby Bunting	Upgrade to Neutral from Sell	Citi
CBL	Control Bionics	Downgrade to Hold from Speculative Buy	Morgans
DHG	Domain Holdings Australia	Downgrade to Neutral from Buy	Citi
EVT	EVT Ltd	Downgrade to Neutral from Buy	Citi
FCL	Fineos Corp	Upgrade to Buy from Neutral	Citi
GOR	Gold Road Resources	Upgrade to Outperform from Neutral	Macquarie
MME	MoneyMe	Upgrade to Speculative Buy from Hold	Morgans
ORI	Orica	Upgrade to Buy from Neutral	Citi
SWM	Seven West Media	Downgrade to Neutral from Buy	UBS
ZIP	Zip Co	Upgrade to Neutral from Sell	Citi

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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