The Overnight Report: Fingers Crossed

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

By Greg Peel

Tacit Relief

The ASX200 did not exactly roar out of the blocks yesterday and for the first hour it appeared hope of a rebound might be dashed. But bond yields began falling and by late afternoon the index found its feet and rallied to the close.

The Aussie twos and tens both fell -9 points, largely wiping out Wednesday's spike, with investors likely eyeing off get-em-while-you-can yields amidst talk the Fed (and thus RBA) might be done hiking, given the US bond market has done the work.

The fall in yields sparked a rush into the beaten-down rate-sensitive sectors in the stock market, with real estate jumping 2.1%, technology 1.7%, communication services 1.4% and staples 1.2%. Most importantly for the index, the banks rose 0.8% after being crunched on Wednesday.

All sectors closed in the green bar three. Energy fell -0.9%, which is a pretty good result on the -5% plunge in oil prices overnight. Materials lost -0.2%, with lithium stocks again under pressure.

Discretionary should have been a rate winner, but fell -0.3%. That was nevertheless net of ARB Corp ((ARB)) going ex but sector heavyweight Aristocrat Leisure ((ALL)) fell -3.6% on the day.

In economic news, Australia's trade surplus rebounded to $9.6bn in August from $7.3bn in July, moving back towards June's $9.9bn. July was weak on lower commodity prices but August is a bit of a furphy, as it included a 97% jump in gold exports that won't happen every month.

Weaker commodity prices, reflecting a weak China, mean the surplus remains below the $12.6bn average of the twelve months to March. Exports rose 4.0% in August but only 0.3% ex-gold, while imports fell -0.4%.

Gold miner Northern Star Resources ((NST)) topped the index with a 4.7% gain.

Finally some relief for Weebit Nano ((WBT)), which after falling precipitously for days, also rose 4.7% yesterday.

Core Lithium ((CXO)) has been coming back to earth following its pop post-result. It fell -6.3% to top the losers' board.

The index has clawed its way back over 6900 but still sits below the March low. There is likely to be little action today ahead of tonight's US jobs report. Wall Street closed relatively flat and out futures are up all of 2 points this morning.

Poised

Wall Street fell early last night and again it looked like the 200-day moving average on the S&P500 might be in play, until investors steadied the ship into the afternoon, ahead of tonight's jobs report.

It's one of the more critical reports of recent times, given the Fed is at or at least near a peak in its hiking cycle. The risk is considered binary, as a weak number would strengthen the case for the Fed being done but a strong number would likely spark a renewed sell-off.

San Francisco Fed president Mary Daly said last night policymakers can hold interest rates steady if the labour market and inflation continue to cool or financial conditions remain tight.

That last point is significant, all else being equal, given the spike up in bond yields seen since the last Fed meeting is as good as a rate hike or two, hence the bond market has done the Fed's work for it. The FOMC would have to think long and hard about piling more pressure on business and household credit costs if it's trying to engineer a soft landing.

It must be noted the Fed's QT program is part of the yield spike problem and is doing what it says on the label tightening conditions without needing to hike.

The futures market is pricing in only a small chance of another rate hike but the question remains as to how long the Fed holds at the peak before something breaks or a harder landing is evident.

"In my view, the most important question at this point is not whether an additional rate increase is needed this year or not, but rather how long we will need to hold rates at a sufficiently restrictive level to achieve our goals," said Fed vice chair for Supervision Michael Barr earlier this week. "I expect it will take some time."

Economists are forecasting 170,000 jobs to have been added in September and for the unemployment rate to move up to 3.7% from 3.5%. They were wrong on the private sector number, which came in much weaker, so Wall Street is hoping they'll be wrong on non-farm payrolls as well, to the upside.

Last night's data nevertheless showed weekly new jobless claims are just not budging. At 207,000 they remain near pandemic lows.

The good news for Wall Street last night was that bond yields and oil prices slipped further. In closing slightly lower, the market is poised.

Commodities

Both zinc and oil prices went on with it last night; zinc on perceived oversupply and the oils following on from Wednesday night's turnaround, which was as much about overbought conditions as anything else.

The US dollar fell back -0.4% and, likely with some help from our trade numbers, the Aussie is up 0.7% at US$0.6370.

Today

The SPI Overnight closed up 2 points. Steak and a claret I think.

US jobs tonight.

The Australian share market over the past thirty days

For more detail go to FNArena's Australian Broker CallReport, which is updated each morning, Mon-Fri.

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