The Overnight Report: Global Weakness

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            [3] => ((SEK))
            [4] => ((SHL))
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            [4] => SHL
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This story features ORIGIN ENERGY LIMITED, and other companies.
For more info SHARE ANALYSIS: ORG
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

No Response

It would be easy to assume the RBA pause saved the day yesterday for the local market as the ASX200 was down -48 points at 11am and closed down -4. But that was not the case.

The index had recovered the bulk of the early plunge by 2.30pm, and sat poised right on 7300. As a pause was widely expected, when the statement was released the index didn’t move. Only a market-on-close order pushed the index higher after the bell.

The Aussie two-year yield was also unchanged. The ten-year rose 4 points, reflecting a decent current account result that had economists lifting their final forecasts for today’s GDP numbers. Consensus has June quarter on quarter growth of 0.3%, up from 0.2% in March, but down to 1.8% annual from 2.3%.

It seems only forex traders didn’t get the memo. The Aussie has plunged -1.2% to be under US64c, although the US dollar did jump 0.7% overnight.

The final gesture from Philip Lowe meant he dodged the tomatoes as he headed out the door. Can’t say the same for Alan Joyce, who got a tap on the shoulder and has disembarked.

There was little different in the RBA statement.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will continue to depend upon the data and the evolving assessment of risks. In making its decisions, the Board will continue to pay close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market.”

So still no clues. The statement noted “significant uncertainties” around the outlook. It may be that the RBA is on an extended pause as it examines how the 400 basis points of monetary tightening to date washes through the economy.

The pause was good for the consumer sectors, healthcare and industrials, which posted modest gains. Healthcare topped with 0.8%.

The banks slipped -0.2%, technology was a stunned rabbit, and the resource sectors gave back some of Monday's gains.

Utilities was the worst performer (-1.2%), but only because Origin Energy ((ORG)) went ex.

With Wall Street weaker overnight, our futures are down -17 this morning, so again we’ll be toying with the 7300 level. The GDP result may determine direction to the close.

There are more sizable ex-dividends today which will again exacerbate a weaker opening.

Trouble Abroad

The independent Caixin services PMI for China fell to 51.8 in August from 54.1 in July. That’s a big fall, and while still in expansion, suggests it may not be for long.

The eurozone composite (manufacturing plus services) PMI fell to 46.7 from 48.6 – a low not seen since November 2020 lockdowns.

With the US economy so far hanging in there, and weakness in the next two largest economies, the US two and ten-year bond yields both jumped 10 points last night.

The implications of a slower global economy and the yield jump prompted selling on Wall Street.

Also impacting was news Saudi Arabia is extending its crude production cuts through to the end of the year, and Russia will extend its export cuts. Brent crude hit US$90/bbl for the first time since November, and is up around US$20 from the low earlier this year.

This does not bode well for headline inflation, and while core inflation omits energy prices, there is still a flow-through via transport and utility costs.

The expectation is US inflation will extend its bump upwards in August, with the July headline CPI having risen to 3.3% from 3.0%. The numbers are still way lower than a year ago, but underscore the reality the path to 2% is a long one.

The Fed is still expected to pause this month. Last night the Fed governor told CNBC “There is nothing that is saying we need to do anything imminent, anytime soon, so we can just sit there [and] wait for the data.”

As for the November meeting, that’s another matter.

Last night Goldman Sachs put out a note suggesting the chances of a US recession in the coming twelve months have dropped to 15% from a call of 20% in July and 35% in March. That’s not to say there will not be a slowdown — just that the year-end slowdown will be “shallow and short-lived,” the note declared.

This again suggests a soft landing and not a hard one, and would imply the Fed is right to wait and see how the lag effect of rate hikes to date flow through.

Commodities

While services don’t consume a lot of commodities, the implications of a weaker Chinese economy have a knock-on effect.

The Aussie is down -1.2% at US$0.6382. The jump in US bond yields and subsequent rise in the dollar exacerbated the fall.

Today

The SPI Overnight closed down -17 points or -0.2%.

Australia’s June quarter GDP is out today.

The US will see its own services PMI number today, delayed by a day due to Monday’s holiday. The Fed will also release a Beige Book.

Amcor ((AMC)), Ramsay Health Care ((RHC)), Seek ((SEK)) and Sonic Healthcare ((SHL)) are among those stocks going ex today.

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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