The Overnight Report: Beware The Dots

Array
(
    [0] => Array
        (
            [0] => ((WHC))
            [1] => ((BHP))
            [2] => ((SLR))
            [3] => ((RED))
            [4] => ((NVX))
            [5] => ((WBT))
            [6] => ((CGC))
            [7] => ((A2M))
            [8] => ((SM1))
            [9] => ((NHC))
        )

    [1] => Array
        (
            [0] => WHC
            [1] => BHP
            [2] => SLR
            [3] => RED
            [4] => NVX
            [5] => WBT
            [6] => CGC
            [7] => A2M
            [8] => SM1
            [9] => NHC
        )

)

This story features WHITEHAVEN COAL LIMITED, and other companies.
For more info SHARE ANALYSIS: WHC
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Two Steps Forward…

Failing to close above 7300 on Friday despite a strong rally set the foundation for the ASX200 to fall back yesterday. Add in weakness on Wall Street and a big jump in Aussie bond yields and the fate was sealed. The index gave back half of Friday’s gain.

As for the connection to weaker demand for US chip hardware, which drove Wall Street lower, well…the Nasdaq fell so our technology sector blindly lost -2.7%. Mind you, those bond yields didn’t help.

The ten-years rose 11 points to 4.21% and two-years 7 points to 3.92%. I don’t know what bond traders did over the weekend, but they seemed to decide yesterday there is a risk of the Fed becoming more hawkish in the face of rising oil prices as it delivers its rate decision on Wednesday night. They weren’t following US yields.

All and sundry expect the Fed to remain on hold, and many believe the Fed is done with rate hikes, but the September meeting will bring a fresh round of FOMC projections (dot plots) that will inform consensus on the necessary peak rate and how long it will have to be held there.

Every sector closed in the red yesterday in a complete reversal of Friday.

The next-worst sector was energy -1.3%, despite ever rising oil prices, impacted by goings on in the coal sector. Whitehaven Coal ((WHC)) dipped after the miner confirmed it was in the running to snap up BHP Group’s ((BHP)) coking coal mines, along with everyone else. The clue was already apparent when the company suspended its buyback at its recent result release.  

There was also a lot going on at the individual stocks level elsewhere.

Gold miner Silver Lake Resources ((SLR)) fell -8.3% after taking a stake in Red 5 ((RED)), which jumped 20.5%.

In a bad day for tech, Novonix ((NVX)) gave back -9.5% after shooting up on Friday and Weebit Nano ((WBT)) lost -9.5% despite being promoted to the ASX200.

Costa Group ((CGC)) fell -3.4% after private equity dropped its takeover offer to $3.20 from $3.50.

A2 Milk ((A2M)) lost -1.1% after axing its exclusive deal with Synlait Milk ((SM1)), which fell -8.5%.

For all that was going on, a fall of only -0.5% for materials following Friday’s big jump, and -0.5% for the banks on higher bond yields, kept the losses to only half of Friday for the index.

Sentiment remains weak, going into today’s release of the RBA minutes. Wall Street closed flat but our futures are down -21 points.

Poised

Last night Wall Street rallied in the morning after Friday’s fall and then gave it all back in the afternoon, to close flat ahead of the Fed. This would suggest tonight will be much the same, barring any other influence.

As noted, the market is not expecting the Fed to hike again so all focus will be on those quarterly dot plots. The last round in March had FOMC consensus of four -25 point rate cuts in 2024 as the US dived into recession. But recession fears have abated, at least in terms of severity.

Yet inflation remains stubbornly above the Fed’s target. So any easing of rate cut expectations next year, leaving the cash rate at peak for longer, will not be well received.

In other news, no progress had been made between automakers and the UAW and the strike has thus widened. Investors began to sell GM, Ford and Stellantis last night as hopes of a quick settlement fade.

Sentiment among US home builders has weakened again, with the index falling for the fifth straight month by -5 points to 45. This is a 50-neutral index, so it has now fallen into negative territory.

The issue is mortgage rates above 7%. That’s more than a percent above what you can get here but in the US we’re talking 30-year fixed rate mortgages. There is little demand for new homes, requiring new mortgages at that price, and nobody who owned a home in 2021 would even dream of selling right now, given they have a sub-3% fixed rate.

So the US housing market is stuck between a rock and a hard place.

Apple had a good day nonetheless, rising 1.7% as it turns out demand for the new iPhone 15 is a lot stronger than feared. And demand is greatest for the top-end iPhone 15 Pro Max, which was the only model to be be hit with a price rise.

Here’s a fun fact. It’s only the top-end iPhones that actually have any new features in each cycle. The standard iPhone 15 is just an iPhone 14 Pro, but cheaper.

Anyway, we now wait.

Commodities

Nothing to get excited about.

Gold’s looking a bit more healthy, iron ore continues to confound and the oils just keep going up.

Saudi Arabia is set to update on its production cuts, but meanwhile the oils are now at their highest level in 2023.

Today

The SPI Overnight closed down -21 points or -0.3%.

The minutes of the September RBA meeting are out this morning.

The eurozone reports August CPI tonight.

The US will see housing starts, which presumably won’t be very encouraging.

New Hope Corp ((NHC)) reports earnings 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.

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)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms