The Overnight Report: Follow-Through

Array
(
    [0] => Array
        (
            [0] => ((NCM))
            [1] => ((RMD))
            [2] => ((BKW))
            [3] => ((SOL))
            [4] => ((PMV))
            [5] => ((CHN))
            [6] => ((LTR))
        )

    [1] => Array
        (
            [0] => NCM
            [1] => RMD
            [2] => BKW
            [3] => SOL
            [4] => PMV
            [5] => CHN
            [6] => LTR
        )

)

This story features RESMED INC, and other companies.
For more info SHARE ANALYSIS: RMD
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Energized

In another session on the ASX in which it appeared nothing happened, this time it was not about the banks holding the fort, but resources, and specifically energy. I did note yesterday morning Wednesday’s fall for the energy sector would “flip” yesterday on stronger oil prices. I didn’t quite assume 3.0%.

Materials was the only other sector to close in the green (+0.3%), with a jump in the iron ore price enough to counter falls for gold miners. The big iron ore miners were up, while Newcrest Mining ((NCM)) fell -5.0%.

Gold is down again overnight against the odds.

It was a sea of red for all other sectors, driven by another jump in bond yields, up 8 points for the tens.

The jump was all about following the US and ignoring the day’s soft local retail sales data.

Retail sales rose 0.2% in August when 0.3% was forecast, and monthly sales have grown less than 3% this year. With the last inflation print at 5.2%, clearly sales are going backwards in volumes terms, with only price inflation providing positive dollar values.

Consumer discretionary was the worst performing sector yesterday, falling -1.2%. Weak sales spill over into retail REITs, and real estate fell -0.7%. Staples also fell -0.7%.

Other sectors were impacted by rising rates, including the banks (-0.3%). Healthcare managed to hang in there however, thanks again to ResMed ((RMD)). The stock’s comeback has brought in momentum traders, it would seem. ResMed rose another 4.8% to top the index winners, and is up 13% this week.

Topping the losers’ board was Brickworks ((BKW)), down -6.4%, while stable mate Soul Pattinson ((SOL)) took the silver with -6.0%. Both reported earnings. For the diverse property and equity investment company Brickworks, it was all about missing forecasts in, well, bricks. Soul Pattinson is simply tethered through a cross-shareholding.

Premier Investments ((PMV)) also reported earnings, on a bad day for a retailer to report, and fell -0.5% on an in-line result and a warning of softer sales in FY24 which surprised no one.

The good news is that despite sector ups and downs, the ASX200 has stoically held above the 7000 level all week. The better news is Wall Street saw strength last night, metal prices had a solid session overnight (ex-gold), and the futures are up 45 points this morning.

US bond yields also gave a bit back last night, so perhaps we’ll see the same today.

Just Do It

You wouldn’t think there was a problem with retail sales when Nike reports earnings this morning in the US aftermarket and jumps 8%. The stock has nevertheless been one of the worst Dow performers this year, falling -30%.

The issue for Nike is a slow China, where consumer spending cannot gain any traction. China represents some 20% of the company’s profits.

Earlier in the Wall Street session, investors were rattled by a Treasury seven-year bond auction that settled at the highest yield in history (first issue 2009). Weak demand for bonds is what has the bears particularly worried, and has led to a recession being assumed more than possible next year.

Japan is the biggest buyer of US bonds. But now experiencing inflation for the first time in decades, and the BoJ allowing Japanese yields more room to rise, Japanese demand for US bonds is weaker. China is next biggest, and there a slow economy is holding back demand.

Meanwhile, the US Treasury continues to issue hundreds of billions of dollars-worth of short-end bills in order to catch up with funding the ballooning US budget deficit. The catch-22 is the more bills issued, the higher go yields, implying a higher debt servicing cost, requiring more issuance.

At the same time, while the Fed may not be currently outright buying bonds, it is not replacing maturing bonds, as part of QT, which has the same effect.

Higher interest rates are the enemy of equities, as they lead to greater discounts of future earnings. Growth stocks are most affected.

But what the hell. Despite the initial scare, US bond yields eventually came off last night, are are surely due some respite as investors ponder a risk-free two-year return of over 5%. This allowed the pent-up buying demand that had been evident on Wednesday night’s solid comeback on Wall Street to be unleashed.

A -0.5% drop in the US dollar, which is also due a pullback, was the cherry.

The S&P500 held its 200-day moving average on Wednesday night, which makes this rebound mostly technically driven. It’s also end-of-quarter tonight, and anything can happen when funds managers approach close-of-books, without fundamental reason.

So as to whether this rebound has any legs, we’ll need to get into next week when September is but a memory. Before then, tonight brings the August PCE.

If the core PCE comes in lower as expected (the headline will likely rise on oil prices), the short-end “real” rate will be ever more restrictive with a Fed funds rate of 5.5%, and that restriction is driving recession calls.

Commodities

Yesterday’s bounce in iron ore is attributed to the highest level in three years of Chinese “hot metal output”, which is what comes out of the iron ore/coal furnace and goes into actual steel-making. The news also pushed up coking coal prices.

It appears sentiment was contagious across base metals as well.

China is nevertheless about to shut up shop for Golden Week next week. So again, we shouldn’t read too much into it.

With US bond yields and the US dollar falling back, gold should have been due a reprieve. But with gold having broken US$1900/oz, the technicals are holding sway.

Many an analyst is calling for a blow-off top and pullback for oil prices.

Forget weak retail sales, the Aussie has shot up 1.2% to US$0.6430, on a combination of commodity prices and a -0.5% fall in the US dollar.

Today

The SPI Overnight closed up 45 points or 0.6%. It’s end-of-quarter.

Locally we’ll see private sector credit numbers today.

China reports September PMIs.

The US sees PCE inflation and consumer sentiment tonight.

Chalice Mining ((CHN)) and Liontown Resources ((LTR)) report earnings.

Note this weekend is a long weekend in NSW, but not nationally, so the ASX (and FNArena) is open on Monday.

Summer time begins on the weekend, so as of Tuesday the NYSE will close at 7am Sydney time.

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