The Overnight Report: AI Fights Back

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This story features GWA GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: GWA
The company is included in ASX300 and ALL-ORDS

By Greg Peel

In a Chinese Country Garden

I noted yesterday morning Chinese property giant Country Garden had warned of a potential -US$7.6bn loss, sparking fears it may default on its loans. Yesterday, the company announced it will suspend trading of its 11 onshore bonds from Monday, and revealed it had not paid two US dollar bond coupons due on August 6 totalling US$22.5bn.

The futures had suggested down -30 for the ASX200 from the open and that’s exactly what transpired, which around midday took the index down to 7300, and then rapidly through on the technical trade.

Investors responded to the news by selling both stocks and bonds, remembering the impact in 2021 when Evergrande announced similar issues, sparking the Chinese property crisis. With the Chinese economy struggling to gain any traction, the timing is not great for Beijing, which had been forced to rescue, or at least stabilise, Evergrande.

Aussie bond yields rose 7-8 points, weighing on rate-sensitive sectors, notably the banks (-0.8%) and real estate (-1.1%), along with utilities (-0.6%) and the consumer sectors, each down -0.5%.

Materials was nonetheless the hardest hit, down -1.7%.

Only energy (+0.5%) and technology (+0.1%) managed to buck the trend.

The sell-off came during what was otherwise quite a good day for companies reporting earnings. In the winners’ circle were GWA Group ((GWA)), up 7.3%, Carsales ((CAR)), up 7.0%, and JB Hi-Fi ((JBH)), up 2.8%.

There were also losers. Bendigo & Adelaide Bank ((BEN)) fell -2.9%, which helped weigh on the banks, Beach Energy ((BPT)) dropped -3.6% and Aurizon Holdings ((AZJ)) lost -3.0%.

Separately, Elders ((ELD)) fell -6.1% after Citi initiated coverage with a Sell rating.

Otherwise the losers’ table was dominated by miners.

Outside of the index, Baby Bunting ((BBN)), which had been trashed -20% a couple of weeks ago when it pre-released earnings numbers, jumped 9.6% yesterday after brokers upgraded following Friday’s actual result.

The good news is Wall Street has rebounded overnight, with the S&P500 rising 0.6%.

The bad news is commodities prices are all lower, but we did rather anticipate that yesterday.

The other bad news is the ASX website is not updating at this point, so I don’t know what the futures did overnight.

Feeling Chipper

Last night Morgan Staney posted a report suggesting chip-maker Nvidia was its “top pick”, with a “backdrop of the massive shift in spending towards AI, and a fairly exceptional supply demand imbalance that should persist for the next several quarters,” and that the sell-off of the past two weeks has provided a good entry point.

Nvidia reports earnings next week. The stock to a great extent led the Nasdaq down these past two weeks, if for no other reason that its valuation had become overblown. Other Big Tech stocks followed the lead.

Last night Nvidia jumped 7.1% and led Big Tech back up again, at least for one session. All three indices closed in the green, with the Dow, which was down over -100 at one stage, just scraping in with the likes of Apple and Microsoft posting gains.

The tech rebound came even as the US ten-year bond traded as high as 4.20% in the session before closing at 4.18%, up 2 points, while the two-year rose 7 points.

The rebound in general came despite Wall Street concerns over Country Garden, and over the potential for inflation to turn back upward.

The US national average petrol price is US$3.851/gal as of last night, up from US$3.566/gal a month ago. Diesel and jet fuel price rises have been even more dramatic.

This, of course, brings into question whether the Fed is indeed done. The Fed might focus specifically on core inflation, which does not include energy prices, but energy prices bleed into the cost of everything one way or another, so price rises will still impact the core.

The other problem with last night’s rebound was the fact it was all about Big Tech. Breadth on the exchanges was actually negative – meaning more losing stocks than winners.

In other news, one of America’s oldest listed companies, US Steel, received a takeover bid last night from another US steel company and jumped 35%. The company was founded by one Mr Carnegie, of “Hall” fame.

The ticker code is X. Maybe Elon will have a swing.

Speaking of Elon, Tesla has been forced to cut prices on its EVs in China, and did not participate in last night’s tech comeback.

Commodities

You get the picture.

The Aussie is down -0.2% at US$0.6488.

Today

The SPI Overnight has still not updated on the ASX website. Maybe by the time you read this it will have.

The minutes of the August RBA meeting are out today. Informing the incoming governor ahead of the September meeting will be today’s June quarter wage price index data.

Be afraid. China reports July retail sales, industrial production and fixed asset investment today.

Japan reports June quarter GDP.

The US reports July retail sales.

It’s the biggest day on the results calendar to date, with highlights including CSL ((CSL)), Cochlear ((COH)), Challenger ((CGF)) and Computershare ((CPU)).

National Bank ((NAB)) provides a quarterly update.

For all company reporting dates, please refer to the FNArena Calendar (https://www.fnarena.com/index.php/financial-news/calendar/) or the Corporate Results Monitor (https://www.fnarena.com/index.php/reporting_season/). The latter summarises result responses from brokers following each day’s result releases.

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.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

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