The Overnight Report: Sell First

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            [1] => ((SUN))
            [2] => ((RMD))
            [3] => ((AGL))
            [4] => ((BLD))
            [5] => ((QBE))
            [6] => ((RIO))
            [7] => ((DOW))
            [8] => ((AMP))
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            [1] => SUN
            [2] => RMD
            [3] => AGL
            [4] => BLD
            [5] => QBE
            [6] => RIO
            [7] => DOW
            [8] => AMP
        )

)

This story features COMMONWEALTH BANK OF AUSTRALIA, and other companies.
For more info SHARE ANALYSIS: CBA
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

All the way with CBA

Of eight brokers monitored daily or not quite daily by FNArena that cover Commonwealth Bank ((CBA)), five went into the bank’s earnings result yesterday with Sell or equivalent ratings, with the other three on Hold. Aside from a recent downgrade from Jarden, Sell ratings for CBA are pretty much carved in stone.

Australia’s largest bank, deemed first by Moses to be overvalued, posted another record profit and its shares rose 2.6%, dragging peers up in anticipation. The sector closed up 1.2%, to be not just the highest percentage mover but to basically provide all of the upside. Other sectors fought it out.

That sector gain was also net of a -1.5% drop for Suncorp Group ((SUN)) on earnings, which featured a disappointing dividend.

For the ASX200 as a whole, it was not until the afternoon the buyers began to gain traction. The index chopped around in the morning to be flat at lunchtime.

Healthcare provided the biggest counter to the banks (-0.9%), with selling in ResMed ((RMD)) firing up again (-4.6%). Real estate lost -0.7%, with bond yields little moved.

Investors were not quite sure what to do late morning with China’s July inflation data. China’s headline CPI fell -0.3% year on year, after being flat in June, to mark the first fall since February 2021. The PPI fell -4.4%.

Yet the core CPI rose 0.8% to mark its biggest gain since January. And despite slipping into annualised deflation, the headline CPI actually rose 0.2% month on month. A lot of the headline weakness is to do with China’s staple source of protein, being pork. Fluctuations in pork prices play havoc with monthly data.

Either way, economists warn that China is at risk of becoming the new Japan of the nineties – beset by deflation and a stagnant economy, in which there is little desire to spend or invest. All it will take is a big stimulus boost from Beijing but economists agree, China is simply too indebted to risk it.

China’s covid rescue package in 2020 was only a third of that of the US.

The materials sector closed up 0.2% yesterday, and metals prices have rebounded somewhat overnight after falling heavily on China’s trade data earlier in the week. Are traders still hopeful of stimulus, or did they like improved month-on-month inflation?

For Australia right now, the focus is on the earnings season, which is quietly beginning to ramp up. Today we’ll see results from AGL Energy ((AGL)), Boral ((BLD)) and QBE Insurance ((QBE)), amongst others.

Do not freak out when the materials sector takes a dive this morning. Rio Tinto ((RIO)) goes ex today.

Sellers Win

On Tuesday night Wall Street fell heavily early before recovering a lot of that loss by the close, suggesting buyers continue to look for opportunities at lower prices. Last night the story repeated. The Dow was down -250 points at midday and back to square at 2.30pm.

But this time, the sellers moved back in, and the Dow closed down -190. The selling was nonetheless more evident in Big Tech, with the Nasdaq dropping -1.2%.

It was an unusually volatile session ahead of tonight’s July CPI release. We might put this down to forecasts suggesting headline inflation will have risen in July, to 3.3% annual from 3.0% in June. If so, Wall Street would not be pleased, so best trim those overvalued Big Tech positions.

The forecast of a tick up in the headline is all about oil prices, which have risen 20% since the mid-June low. No one seems to mention wheat prices, but that impact is likely to not have reached the supermarket shelf as yet. The core CPI, on the other hand, is forecast to fall to 4.7% from 4.8% in June.

While positive on the Fed front, such an incremental tick down implies reaching the 2% target will be a long and bumpy road. (That target reflects the core PCE, but the core CPI is still an indicator).

Despite this, the market is still pricing in an 86.5% chance the Fed will leave rates on hold in September, despite another month’s worth of data to flow in between.

One factor to consider is China. While the second largest economy may be suffering from deflation, which is not great news for global growth, the implication of lower prices for Chinese goods could help to lower inflation in the US.

In other news, Disney (Dow) has reported in the aftermarket this morning and is currently up 3%, despite all not being well at the House of Mouse. Disney is trying to work out what to do with its fading “linear” TV assets and sliding cable sports network EPSN, which are like sooo twentieth century.

Meanwhile Disney, Netflix and others are looking at serious long term issues in content production as the writers/actors strike drags on. Short term, they’re saving lots of money.

Commodities

Metals prices are trying to find something positive, gold is back to the low end of its recent range and oil prices just keep going.

The Aussie is down -0.2% at US$0.6531.

Today

The SPI Overnight closed up 4 points.

US CPI tonight.

Along with aforementioned names, Downer EDI ((DOW)) and AMP ((AMP)) report today.

Rio’s dividend is worth around -A$2.61.

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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