The Overnight Report: One-Day Wonder

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This story features JAMES HARDIE INDUSTRIES PLC, and other companies.
For more info SHARE ANALYSIS: JHX
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

China Syndrome

The ASX200 opened up a solid 33 points yesterday, following Wall Street’s rebound and in line with the futures move overnight. At 11am the index dropped -30 points in response to China’s trade data.

China’s imports fell -12.4% year on year in July, missing a forecast fall of -5% and down from a -6.8% decline in June. Exports contracted -14.5%, steeper than an expected -12.5% decline and the previous month's -12.4% fall.

The pace of export decline was the fastest since the onset of the pandemic in early 2020 and the tumble in imports was the biggest since January this year, when covid lockdowns were in place.

Only recently, such a weak result could have sparked a jump up in commodity prices and related sectors on the assumption Beijing would be forced to bring out the stimulus big guns. But each release of ever-weaker data to date has been met with underwhelming monetary and fiscal responses – incremental policy easing; tinkering around the edges of the property and consumer markets.

Clearly Beijing either does not have the firepower, or is not game to risk the country going further into debt. Meanwhile, the Indian economy surges on.

Australia does not have time to wait for India to replicate China’s economic growth early this century.

By the close of trade, the sector scoreboard was largely benign. Only healthcare stood out with a 0.6% gain.

Materials managed to close flat, but only because James Hardie’s ((JHX)) 14.4% pop on earnings managed to offset falls in miners. James Hardie’s outlook helped to spark up lighting and plumbing suppliers as well, as Reece ((REH)) took the silver on the day with 3.9% and Reliance Worldwide ((RWC)) took bronze with 2.8%.

Energy also managed to do well (+0.2%) on higher oil prices, despite the Chinese data and an -11.5% plunge for coal miner Coronado Resources ((CRN)) on its result (with a tiny dividend).

Staples were a little weak on -0.3% and other sector moves are not worth mention.

In Australia, confidence is waning. RBA pauses had previously brought some relief for consumers, but not this month. Westpac’s index of consumer confidence slipped -0.4 to 81.0 in the latest survey, to remain well in pessimistic territory.

NAB’s July Business Survey included a large jump in cost and price growth indicators. The increase in selling costs and retail prices suggests businesses are continuing to pass on higher running costs to households, which would help explain the above.

That jump includes the impact of the minimum wage increase last month.

Business conditions remain buoyant, falling -1 point to +10, and confidence actually improved, but only by 2 points to +2.

Having posted a snap-back rally on Monday night, Wall Street gave some of it back last night, but our futures are only down -5 points this morning. The US, too, was responding to the Chinese data.

Metals prices were nonetheless slapped overnight. Investors are still perhaps risk-averse either way until the biggies begin reporting earnings.

That starts today with Commonwealth Bank ((CBA)).

Don’t Bank On It

Remember the US regional banks? SVB was one of them. But that little storm back in March had appeared to have blown over.

Last night Moody’s downgraded the credit ratings of ten smaller regional banks and put six bigger banks on credit watch, including State Street, US Bancorp and Bank of New York Mellon.

“Many banks’ Q2 results showed growing profitability pressures that will reduce their ability to generate internal capital” as a “mild recession looms and asset quality looks set to decline” particularly in some banks’ commercial real-estate portfolio, Moody’s said.

Combine the Chinese data and this sudden move from Moody’s and the S&P500 was down over -1% earlier in the session. Wall Street did well to recover a lot of those early losses.

We recall ratings agency Fitch last week downgraded US Treasuries to AA+ from AAA. Not only was the move seen by commentators as largely inconsequential, last night’s auctions of US bonds were well received, taking yields down a little further and again narrowing yield curve inversion.

There was also more Fedspeak, with the Philadelphia Fed president suggesting “we may be at the point where we can be patient and hold rates steady”.

Either way, the swift fall on Wall Street that followed the encouraging snap-back on Monday night rather took the wind out of investors’ sails. August, being the equivalent of January in Australia, typically sees market consolidation.

Hence most do not expect any major pullback at this time.

We can save that for the weakest month of the year – September.

Commodities

What will China do now?

Can’t stop those oils though.

The US dollar jumped up 0.5% on the Treasury auctions, which weighed on gold, and has the Aussie down -0.5% at US$6544.

Today

The SPI Overnight closed down -5 points.

China reports July inflation numbers today, so watch out.

A handful of companies report today, including CBA and Suncorp Group ((SUN)).

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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