The Overnight Report: When Everything Good Is Bad Again

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            [5] => ((SGM))
            [6] => ((PME))
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            [7] => TPW
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This story features CSL LIMITED, and other companies.
For more info SHARE ANALYSIS: CSL
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Healthy Session

The local market appeared to focus solely on earnings results yesterday, was no doubt happy with the wage price index and RBA minutes, and appeared to ignore more weak Chinese data, offset only by a small PBoC rate cut.

Wall Street did not ignore Chinese data. As a result, our futures are down -75 points this morning. It’s going to require some pretty stellar earnings results today to prevent a wholesale sell-off, and unfortunately, unlike yesterday there are few big hitters in today’s list.

Healthcare shone yesterday. Following results, CSL ((CSL)) rose 3.7% and Cochlear ((COH)) 5.7%. The sector gained 3.2%. Technology was next best on 1.8%, while no other sector saw an increase of as much as 0.5%.

National Bank’s ((NAB)) quarterly update was worth 1.3%, and 0.3% for the bank sector.

Real estate was the worst performer (-0.5%), as bond yields rose yet again, with communication services and materials the only other losers.

Materials fell only -0.3%, yet:

Chinese retail sales rose 2.5% year on year in July, when 4.5% was forecast. Industrial production rose 3.7% when 4.4% was expected, and fixed asset investment rose 3.4% year to date, against a forecast of 3.8%. Further evidence of China’s crumbling economy.

Beijing has announced it will stop releasing youth unemployment numbers, lest it looks bad.

The PBoC responded by cutting its one-year rate by -15 basis points to 2.50%. That oughta do it.

The minutes of the August RBA meeting confirm a rate hike was considered but members “agreed that the argument to leave the cash rate unchanged at this meeting was the stronger one”. There is no reference to the decision being finely balanced, ANZ Bank economists noted, although the length given to the discussion around both arguments is broadly equal.

And: “it was possible that some further tightening of monetary policy might be required to ensure that inflation returns to target in a reasonable timeframe,” which is unchanged from July.

If the RBA is data-dependent, yesterday’s June wage price index should provide more cause for pause. Wages rose 0.8% in the quarter when 0.9% was expected, taking annual growth down to 3.6% from 3.7% in March (which was a decade-high).

So monetary considerations may also have kept the market buoyant yesterday. The ASX200 did however come off a peak of up 52 points, but held 7300.

Among other reporting winners yesterday were GUD Holdings ((GUD)), up 14.9%, Life360 ((360)), up 12.3%, Sims ((SGM)), up 6.3%, and Pro Medicus ((PME)), up 4.2%.

On the losing side were Temple & Webster ((TPW)), down -4.5%, and Seek ((SEK)), down -4.3%.

To stop the rot today we’d need some pretty damn good numbers out of the likes of Transurban ((TCL)), Endeavour Group ((EDV)) and Mirvac Group ((MGR)), being the larger cap names on today’s list.

We also have Commonwealth Bank ((CBA)) going ex today, which won’t help sentiment even though it's zero-sum. ResMed ((RMD)) also goes ex.

A Tale of Two Economies

US retail sales rose 0.7% in July, when 0.4% was forecast. Go back a couple of months and Wall Street would have liked that result, as it suggests talk of a recession is vastly exaggerated. But now, investors have turned from foreseeing a “soft landing” to worrying that there may be “no landing”, meaning the economy doesn’t even slow let alone contract.

Which implies more Fed rate hikes. The ten-year yield rose 4 points to 4.22% last night, to mark the highest level since last October, when the yield peaked at 4.25% and Wall Street hit its 2022 low.

Good news is bad again.

Meanwhile the news out of China is just bad.

Uniform falls across all three indices suggest this was a Sell Everything session. The Nvidia-led tech rebound on Monday night proved but a one-day wonder. The bears, who have been proven wrong year to date, are beginning to relax.

Wall Street bounced off its October low when the Fed was hiking in 75 point increments, and assumptions of a pending recession were strongest. This had the effect of taking US yields back down a long way, spurring the 2023 rally. Expectations were that the Fed would be forced to begin cutting in the second half of 2023.

Now it’s expected in the second half of 2024. The earnings season is all but over (Nvidia next week nonetheless) and if economic data continue to be strong, yields will continue to rise, into the seasonally weakest month of the year.

Jerome Powell will speak at Jackson Hole next week. Last year’s Jackson Hole speech sent Wall Street crashing towards that October low.

At around 3600 on the S&P500, it’s a long way back down. The bulls still consider any pullback from lofty valuations to be healthy, and typical of a bull market.

It depends on whether the buyers lower down are still in waiting.

Commodities

Could have been worse.

The Aussie is down -0.5% at US$0.6458.

Today

The SPI Overnight closed down -75 points or -1.0%. That will put solid support at 7200 in the ASX200 in sight. If that level breaks, man the lifeboats.

The RBNZ holds a policy meeting this morning.

The minutes of the July Fed meeting are out tonight.

Today’s major earnings reporters have been noted. We can also add the likes of Bapcor ((BAP)), Dexus ((DXS)), Fletcher Building ((FBU)), Netwealth Group ((NWL)) and Vicinity Centres ((VCX)), among others.

Don’t forget those ex-divs.

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.

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