The Monday Report – 09 October 2023

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            [1] => ((MFG))
            [2] => ((PXA))
            [3] => ((CBA))
            [4] => ((CSL))
            [5] => ((IAG))
            [6] => ((AZJ))
            [7] => ((BXB))
            [8] => ((BOQ))
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            [3] => CBA
            [4] => CSL
            [5] => IAG
            [6] => AZJ
            [7] => BXB
            [8] => BOQ
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This story features QBE INSURANCE GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: QBE
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Bank Bounce

Friday’s 28 point gain for the ASX200 was driven almost entirely by the banks, with a bit of help from materials, but little else.

The banks had been hammered all week on surging bond yields, increasing the risk of loan defaults regardless of margin benefit, but yields slipped back -3-4 points on Friday and the buyers moved in.

Insurers also helped the financials index to a 1.2% gain, led by QBE Insurance ((QBE)) in rising 2.7%.

Helping bank sentiment was the RBA Financial Stability Report, which found the vast majority of Australian borrowers have continued to service their debts in the face of higher inflation and interest rates.

The business sector remains resilient thanks to strong balance sheets, there are few signs of stress amongst Australia owners of commercial real estate, and households have continued to service their debts.

Materials managed 0.7% on Friday, largely due to bargain-hunting in gold miners, which have also had a torrid time of late on the plunging gold price. Three of the top five index winners on the day were gold miners.

The only other two sectors to close in the green did not make a lot of difference, with staples up 0.2% and healthcare gaining less than 0.1%.

Energy was the worst performer (-0.7%) on weaker oil and coal prices, with all other sectors modestly lower.

At the individual stock level, if you’re planning to withdraw funds from Magellan Financial Group ((MFG)) I wouldn’t muck about, as the rush is on. Having seen signs of stability in funds under management recently, Magellan copped a major exit in September as the stock market retreated.

Magellan shares fell -18.5%.

On Thursday, online property exchange Pexa Group ((PXA)) announced it was acquiring a loss-making UK business. Its shares fell -7.4% on Friday.

By rights Aussie bond yields could rise today given US yields were up again on Friday night, but they were well off their initial highs. Stock indices also spun around to solid gains and our futures closed up 58 points on Saturday morning.

Happy days.

Good Plus Good Equals Good

It was generally agreed, heading into Friday night’s US jobs report, that a “hot” number would send Wall Street crumbling, the S&P500 breaking down through its 200-day moving average at 4200, and the correction accelerating. An ever-tight labour market would imply wage inflation and more work to do by the Fed.

The US added 336,000 jobs in September when 170,000 was forecast.

The Dow dropped close to -300 points, the S&P headed straight for 4200, and the US ten-year yield shot up 17 points to 4.88%.

But…

Wage growth in September was only 0.2%, taking the annual growth rate down to 4.2% from 4.3% in August.

It was the best of both worlds. Strong job creation underscores the soft landing argument but weak wage growth implies little inflation pressure and underscores the belief the Fed is done hiking.

The bond market turned and Wall Street turned. The US ten-year fell back to be up only 7 points at 4.78% (a big move in isolation, but better than 17 points), the Dow bounced back to be positive for the year once more, the Nasdaq posted its best gain since August, and both the Nasdaq and S&P500 closed higher for the week for the first week in five.

The bounce suggests calls that both the stock and bond markets had reached oversold levels in the latest sell-off were accurate. The 200MA for the S&P is rock solid. The bounce was, once again, led by the Mega Techs, but all sectors other than staples closed in the green.

The US bond market is closed tonight, leading commentators to suggest it’s open slather for the rebound to kick on.

Wall Street will then look to the end of the week, which will bring CPI and PPI numbers and the first of the Big Bank earnings reports, signalling the start of earnings season.

Inflation aside, it will be earnings which determine whether the bottom is in or if this is just another relief rally in an ongoing correction.

Commodities

Nothing to see here. China is back on board today.

The Israel-Hamas war should not impact on oil prices, and did not during the last go-round in 2006. The risk would be if Iran wants to get directly involved.

The Aussie is off -0.1% at US$0.6361.

The SPI Overnight closed up 58 points or 0.8%.

The Week Ahead

The minutes of the last Fed meeting are out next week but that seems an eternity ago, and the interim surge in bond yields largely renders them somewhat irrelevant, even before we take the jobs data into account.

The US September CPI is due on Thursday and PPI on Friday.

Monday is Columbus Day in the US which is a bank holiday. The bond market will be closed but stock market open.

China is back from holiday this week and will report inflation and trade data at week’s end.

Japan is closed on Monday.

In Australia we’ll see the NAB business and Westpac consumer confidence surveys, and September jobs on Thursday.

This week sees the beginning of a trickle that will become a flood of corporate AGMs. Facing the music from Wednesday are Commonwealth Bank ((CBA)), CSL ((CSL)), Insurance Australia Group ((IAG)), Aurizon Holdings ((AZJ)) and Brambles ((BXB)).

Bank of Queensland ((BOQ)) reports earnings on Wednesday.

The Australian share market over the past thirty days…

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