The Monday Report – 02 October 2023

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            [6] => ((DEG))
            [7] => ((LKE))
            [8] => ((SYA))
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This story features CORE LITHIUM LIMITED, and other companies.
For more info SHARE ANALYSIS: CXO
The company is included in ALL-ORDS

By Greg Peel

Choppy Finish

Thursday night saw a rebound on Wall Street within a weak month, driven by a glimmer of hope a US shutdown may yet be averted. Our futures closed up 45 points on Friday morning.

It was a stumbling start on Friday, with the ASX200 failing to find early traction but the index did manage to gain 40 points by early afternoon, only to meet a late sell-off.

It was the end-of-quarter, sector moves were mixed, and nothing much can be read into it.

By Friday night Wall Street – also dealing with end-of-quarter – saw that glimmer of hope extinguished, and it appeared a shutdown was inevitable. Thus at the close of Wall Street on Friday night, and the close of the SPI Overnight on Saturday morning, of down -15 points, what was to happen over the weekend was unknown.

Speaker McCarthy gave up on his party and appealed to the Democrats, and there followed a bipartisan bill to keep the government funded for 45 days which sailed through both the House and Senate. McCarthy will likely face a leadership challenge this week.

Thus Wall Street should enter October with at least some relief. The -15 point close in our futures can be disregarded.

Fundamentally, materials was the only story in town on Friday (+1.2%), with lithium and other battery mineral stocks fired up. Aside from analysts lining up to suggest a lithium price rebound ahead, Core Lithium ((CXO)) reported earnings and jumped 19.1%.

This lit a fire under other miners, many of which represent the largest cohort of the most shorted stocks on the ASX. Lithium stablemate Sayona Mining ((SYA)) rose 6.9%, and graphite miner Syrah Resources ((SYR)) jumped 14.6%.

Also supporting materials was China’s manufacturing PMI for September which, after four months of increases, snuck over the expansion line to 50.2. The services PMI rose to 51.7 from 51.0.

Otherwise, energy was the worst performer (-0.6%) on coal price weakness. Whitehaven Coal ((WHC)) topped the index losers with -3.2%, with Coronado Resources ((CRN)) on -2.5%.

The snap-back rally for ResMed ((RMD)) ended with a -2.1% dip, taking healthcare down -0.4%, while real estate (-0.5%) and utilities (-0.4%) were the other defensive losers despite little action in bond yields, for once.

Next best performer after materials was discretionary (+0.5%), while the banks were mildly positive, but as suggested, nothing much to be read into the action.

The ASX200 lost just over -2% for the September quarter, but lost -3.5% in the month of September.

Melbourne’s back today from taking Friday off, while NSW is off today and it’s another week of school holidays. So thin markets.

Goodbye September

The US personal consumption & expenditure measure of inflation jumped 0.4% in August at the headline – the biggest increase in seven months. It was all about energy prices. The annual headline rate ticked up to 3.5% from 3.4% in July.

The core PCE, excluding food & energy prices, nevertheless rose only 0.1% when 0.2% was forecast, taking the annual core down to 3.9% from 4.3%. The core PCE is the Fed’s preferred measure of inflation.

So that’s good news, albeit there’s no denying the impact of higher fuel prices on consumers. While the core rate omits energy prices, there is ultimately a flow-through to the core on higher transport costs.

So Wall Street was dealing with mixed messaging on inflation on Friday night, and an assumption the government would shut down on Sunday. And it was end-of-quarter, so again, not too much can be read into the action.

The S&P500 fell -4.9% in September, to mark the worst month in 2023 and keep the historic seasonal story alive and well. Historically, October should bring relief, other than the odd occasion (1929,1987, 2008), ahead of a rally to year-end.

But it will all come down to earnings, and still many a commentator believes forecasts are too ambitious. If not for the September quarter, then for the December quarter and beyond, so when companies begin to report shortly, guidance will be critical.

Note that the 45-day extension to US government funding only means another round of the never-ending charade in November. The bill expires on November 17. Thanksgiving is November 23.

Commodities

Sharp moves in base metal prices were dismissed as simply end-of-quarter squaring.

China is shut all this week, so we’re likely in for a quiet period for commodities.

The technical sell-off in gold remains unabated, despite US bond yields dipping slightly on the inflation data.

The Aussie is a tad higher at US$0.6435.

The SPI Overnight closed down -15 points but as noted, pre-shutdown aversion.

The Week Ahead

This week will see US job openings, private sector jobs and non-farm payrolls reports – all critical for the Fed.

China will be closed all week for Golden Week.

In Australia, we’ll see data for house prices (today), building approvals, job ads and trade this week.

The RBA meets tomorrow and will stay on hold, it is assumed.

The RBNZ meets on Wednesday.

De Grey Mining ((DEG)), Lake Resources ((LKE)) and Sayona Mining ((SYA)) report earnings today.

Today is a public holiday only in NSW, the ACT and South Australia. The ASX is open.

Summer time began on Sunday. As of tomorrow the NYSE will close at 7am Sydney time, as will the SPI Overnight.

The Australian share market over the past thirty days…

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