The Monday Report – 18 September 2023

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            [1] => ((ZIP))
            [2] => ((COH))
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This story features NOVONIX LIMITED, and other companies.
For more info SHARE ANALYSIS: NVX
The company is included in ALL-ORDS and ALL-TECH

By Greg Peel

Thank You China

The Australian market showed signs all last week of built-up buyer demand, each day saving sessions from ex-dividend-driven early lows. The one exception was Wednesday, ahead of US CPI. Wall Street then gave the buyers the green light on Thursday night and Friday saw buyer demand unleashed.

The index shot up 100 points from the open. This could have been a cue for the sellers to step in on over-exuberance but then followed the Chinese data.

Chinese industrial production rose 4.5% in August year on year, beating 3.9% expectations and July’s 3.7%. Retail sales grew 4.6% against 3.0% expectations and ahead of 3.7% in July.

Fixed asset investment let the side down somewhat, rising 3.2% year to date against a 3.3% forecast and 3.4% in July. But unsurprisingly, this reflected a big drop in property investment.

The index hit 7319 at lunchtime, up 133 points, and that did seem a bit overwrought. Hence a fade to the bell and close of 7279, suggesting we’re not going to break through the 7300 pivot level without some work.

It won’t be today, with Wall Street having turned tail on Friday night and our futures down -41 points on Saturday morning. Although one might question the connection to companies making chip-making products and equipment.

Materials stole the show on Friday with a 2.5% leap, as iron ore prices crept ever higher. Energy gained 1.7%.

The banks did their bit with 1.0%, industrials also clocked 1.0%, and technology followed Nasdaq strength with 1.9%.

Even the consumer sectors got in on the act, with discretionary up 1.1% and staples 0.8%. Other defensives were less excited on the day – comm services up 0.6%, healthcare and utilities 0.3% and real estate 0.4%.

Bond yields were unmoved.

While there were many individual winners to choose from on the day, Novonix ((NVX)) starred with a 38% leap following an update. Novonix had previously reported its high-performance battery grade synthetic graphite met specification targets from its furnaces.  According to the update, in the most recent campaign, material was produced that met all specifications while also reaching the equipment design throughput targets.

Zip Co ((ZIP)) rose 14.3%, following BNPL players in the US, but boy, it’s a long way back.

The good news for this week is that we have passed the peak of ex-dividend season, and both the numbers each day and the size of those companies drop off. We do have one exception today, being Cochlear ((COH)).

About Face

After surging on Thursday night to post its best one-day gain in weeks, Wall Street turned tail and gave it all back on Friday night.

The main driver was news that chipmaker Taiwan Semi, aka TMSC, had told its suppliers of products and equipment it purchases to make chips that orders will be reduced due to weakening chip demand, particularly in China.

So much for the great AI surge, although pundits did insist earlier in the year that AI is not an overnight story. Recently we’ve seen signs that frenzy has ebbed.

The news sent all related companies southward and sparked general selling across what is still considered an overvalued tech sector. All of the Magnificent Seven fell on the day.

Tech also thus took down the S&P500 but in other news, the feared strike by US autoworkers began on Friday, albeit so far less than 10% of workers have hit the picket lines. Americans do love their picket lines. Negotiations with the Big Three continued over the weekend but it doesn’t look promising at this stage, given the UAW wants a 40% pay rise over four years (equivalent to executive pay rises over the past four) and so far GM has made the best offer, of 20%.

Given the UAW accounts for 146.000 members, a full strike is not inconsequential, and that doesn’t include the spillover to companies making parts for the automakers and other related businesses.

Otherwise, economic data on the day were mixed.

US industrial production rose 0.4% in August when 0.2% was forecast. Production has been rising steadily these past few months.

The Michigan Uni gauge of consumer sentiment fell for a second month in a row, to 67.7 from 69.5 in August. The academics blame rising fuel prices.

US bond yields ticked up a few points, which didn’t help the Nasdaq. Although it seems investors choose which days to respond to yields and which days not to.

When it’s all said and done, this consolidation period which began in August is merely continuing, and so far September has not been as negative as history might suggest. After Friday night the S&P is down only about -1% from its previous high.

The Fed statement is out on Wednesday night.

Commodities

Iron ore may have liked it but base metals could not get excited about the Chinese data, likely because of the property investment element.

The Aussie is little changed at US$0.6439.

The SPI Overnight closed down -41 points or -0.6% on Saturday morning.

The Week Ahead

With Wall Street forecasting a 97% chance of the Fed pausing, such a result will not be a market-mover. More important will be any clues about November, for which the market has a 32% chance of a 25 point hike.

There will be plenty more data for the Fed to absorb before that meeting, so the Fed will be “data dependent” as always, and likely provide nothing definitive.

The US will also see numbers for housing sentiment, starts and existing home sales this week.

Following on the Fed meeting will be meetings of the Banks of England and Japan.

Japan is closed today.

New Zealand reports its June quarter GDP on Thursday.

Friday brings flash estimates of September PMIs from across the globe.

The minutes of the September RBA meeting are out tomorrow.

Quarterly changes to ASX indices come into effect from the open today (and there are a lot of them).

Thursday brings the quarterly expiry of equity derivatives (futures, options).

The peak of the local ex-dividend season is past, but ex-divs continue to flow this week. Big names are nevertheless now few and far between. Cochlear, as noted, is today’s biggie.

New Hope Corp ((NHC)) reports earnings today.

The Australian share market over the past thirty days…

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