The Monday Report – 25 September 2023

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This story features SIGMA HEALTHCARE LIMITED, and other companies.
For more info SHARE ANALYSIS: SIG
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Lazarus

The ASX200 fell into a hole on Friday morning, plummeting -108 points capitulation-style after bottling at the end of a week driven by Fed hawkishness and a Wall Street pullback. The index ignored July-low support at 7000, heading straight towards the March low near 6950 (SVB collapse).

There it found the buyers locked and loaded. The whole process took ten minutes, meaning the opening rotation was not yet complete when buying drove the index all the way back on a steady upward path to the close. Momentum, which had exacerbated the week’s falls, flipped.

It was not, nevertheless, a case of all sectors falling then all sectors recovering. With the Aussie ten-year ticking up another 4 points and the two-year stuck over 4%, the interest rate-sensitive sectors still had a tough session.

Real estate performed the worst (-1.4%) followed by healthcare (-1.0%), technology (-0.7%), discretionary (-0.6%) and communication services (-0.3%).

Utilities nonetheless bucked the trend (+0.8%), industrials were positive (+0.5%) and the banks hung in there (+0.2%). Comeback strength was driven by materials (+0.6%) and energy (+0.7%) with some help from staples (+0.3%).

Staples saw support from Costa Group ((CGC)), which rallied 6.6% after agreeing to be taken over by private equity. Another one bites the dust.

Sigma Healthcare ((SIG)) was the worst performer (-0.6%), having reported earnings the day before.

Aside from following Wall Street, local investors were last week worried that Fed hawkishness, suggesting higher for longer rates and potentially another rate hike, would force the RBA into action again when it had appeared a pause was the stance for now.

On Wednesday we’ll see the August CPI and on Thursday retail sales, both of which will provide more clues as to whether the RBA might be able to hold on.

The risk is the headline CPI will have ticked up somewhat, as it has in the US, given higher petrol prices. The core rate is more critical, but is only published quarterly.

Wall Street struggled to find a base on Friday night as it tried at best to close flat, giving away ground right at the death. Our futures closed down -18 points on Saturday morning.

The local index battled back well past the 7000 mark on Friday, and it appears a safe bet for now that the bottom of the range is still the bottom of the range.

Lacking Traction

A flash estimate of the US service sector PMI for September released on Friday night showed a fall to 50.2 from 50.5 in August. The manufacturing PMI rose to 48.9 from 47.9 but remains in contraction.

Whether or not this is “good” news vis a vis Fed policy, suggesting the US economy is slowing, it was by the by as Wall Street tried to find a base following the post-Fed falls last week, but unable to hold on it saw late selling to the bell.

A -4 point pullback in the US ten-year failed to provide enough relief.

The S&P500 fell -2.9% for the week and the Nasdaq -3.6%, marking a third week of losses. The S&P500 is down around -6% over that period, now matching the June low.

The ten-year rose 12 points over the week, hitting a level not seen since 2007 on Thursday night.

While the consumer discretionary sector was the worst performer of the week, down -6%, despite constant surprise at the “resilient” consumer, chipmakers were the hardest hit in the dominant technology space. It is of little surprise valuations are retreating from lofty levels driven by the AI frenzy.

To that end, British chip hardware manufacturer ARM Holdings, which IPO’d on September 14 and shot up 28%, closed Friday almost back at its IPO price. Analysts have pointed out that as primarily a supplier to smart phone manufacturers, ARM is not really an AI story.

As for Wall Street finding a base, this week brings a data-dependent Fed numbers for consumer confidence, new home sales (both of which will likely be weak), durable goods orders and PCE inflation. A fall in core PCE would be welcomed, but that’s not out until Friday.

As to whether economic weakness at this point is “good” or “bad” is a bit murky.

For the Fed to change its mind about higher-for-longer it would require clear weakness in the economy. A rate cut would require an economy in need of saving.

Commodities

Metals prices appear to be showing some faith in China, which will report September PMIs at the end of the week.

On Friday night JPMorgan put out a note calling oil at US$150/bbl (Brent), by 2026.

The Aussie is up 0.4% at US$0.6443.

The SPI Overnight closed down -18 points or -0.3%.

The Week Ahead

The US will this week see consumer confidence, new home sales, durable goods orders and August PCE inflation, along with another revision of June quarter GDP.

On Friday China will report September PMIs. China’s recent August data-dump showed what we might call “green shoots”.

Locally we’ll get the August CPI on Wednesday. The RBA may be on hold for now, but the Fed isn’t doing it any favours.

We’ll also see retail sales on Thursday and private sector credit on Friday.

The interim result season goes up a gear this week and the first signs of the upcoming AGM season are upon us.

Results are due from Core Lithium ((CXO)), Bellevue Gold ((BGL)), Brickworks ((BKW)), Soul Pattinson ((SOL)), Premier Investments ((PMV)), Chalice Mining ((CHN)) and Liontown Resources ((LTR)).

AGMs will be held by Suncorp Group ((SUN)) and Imugene ((IMU)).

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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