The Overnight Report: Day Three

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

By Greg Peel

Yield Relief

Investors were tentative on Monday despite Friday night’s rally on Wall Street, given developments over the weekend, but were let loose yesterday when Wall Street rallied again on Monday night. And more importantly, US bond futures showed signs of an easing in rates.

The ASX200 shot up from the open, straight through 7000, and climbed steadily to lunchtime before fading slightly to the close. Leading the charge were the beaten-down interest rate-sensitive sectors.

The Aussie ten-year yield fell -6 points and the two-year -3 points, and US rates have made good on the promise last night.

While yesterday saw all sectors close in the green, technology rose 3.0%, communication services 2.2%, real estate 1.8%, discretionary 1.5% and staples 1.2%. The winner on the day was utilities (+4.2%), but that included a 5.5% for Origin Energy ((ORG)) after the ACCC approved its takeover.

Another one bites the dust.

All other sectors rose between 0.6-0.8%. The banks were solid if unspectacular on 0.6%, playing the usual two-way bet on rates.

Outside of Origin, mining stocks, particularly lithium names, dominated individual gains, while the big miners watched from the sideline. Lithium miners dominate the most shorted stocks on the ASX.

NAB’s business confidence survey for September, released yesterday, showed conditions slipping -3 points to a still solid +11, while confidence remained steady at just +1. The numbers within were more encouraging.

Labour cost growth decelerated from 3.2% quarter on quarter in August to 2.0% in September, its lowest rate since November 2021, ANZ Bank economists point out. Purchase cost growth fell to 1.8% qoq in September, while final product prices decelerated to 1.0%, both representing their weakest results since July 2021.

Retail price growth increased slightly from 1.78% qoq to 1.83% but was still within the six weakest monthly results since the end of 2021.

In other words, inflation pressures are easing. ANZ Bank suggests while the November RBA meeting is still “live”, a further extension of the pause is more likely.

Still, Westpac’s consumer confidence survey for October produced what Westpac called “another sombre read,” implying a frugal Christmas ahead.

Wall Street has strung together its third straight rally since bottoming on Friday morning, noting 2022 also saw the low posted in October, and our futures are up 30 points this morning.

More Yield Relief

If US investors had been waiting for a peak in bond yields to take advantage of the lowest prices in a couple of decades, they’re not waiting now. The futures market anticipated lower yields on Monday night and last night the ten-year fell -14 points and the two-year fell -11 points to under 5%.

Wall Street is more and more convinced the Fed is done hiking rates. Last night the Atlanta Fed president said he doesn’t think any more interest rate increases are needed, adding to a growing chorus of Fed officials.

The futures market is now pricing in the chance of a November Fed hike at less than 15%, and the chance of a December hike at less than 30%.

Oil prices also came off -0.5% which is not major, but the point is they didn’t kick on from Monday night’s conflict-driven rally and thus also provided relief.

The Fed remains, as always, data-dependent. Attention now turns to this week’s inflation numbers.

This month is unusual as the PPI will be released tonight, ahead of the CPI on Thursday, when typically it follows the CPI.

Friday will see earnings results from JPMorgan (Dow) and Citigroup. US banks have had a tough year to date, beginning with the SVB collapse in March and extended by the relentless rally in yields. As is the case in Australia, rising rates may be good for bank margins, but they’re not good for potential loan defaults.

Loan defaults have indeed risen in the US, from corporate loans to consumer credit cards, but from previously low levels set during the long run of near-zero rates. Hence, analysts are not too concerned as yet, seeing defaults as simply “normalising” rather than running amok.

Investors will be keen to learn how the big banks fared in the September quarter with regard both net interest and margins and bad debt provisions.

As is the case in Australia, you can’t have an enduring bull market without the banks being involved, whatever, in the US case, Big Tech does.

Commodities

Looks like a bit of a tale of woe but from an inflation perspective, we’ll take it.

Commodity prices continue to drift lower even as Beijing talks of more stimulus. Traders have been bitten before in expecting big things from the Chinese government, and will remain shy until concrete moves are taken.

The US dollar is down on bond yields so the Aussie’s up 0.3% at US$0.6432.

Today

The SPI Overnight closed up 30 points or 0.4%.

Along with the PPI, the minutes of the last Fed meeting are out tonight in the US, but will have been gathering dust.

Bank of Queensland ((BOQ)) has reported earnings today. 

Commonwealth Bank ((CBA)), CSL ((CSL)) and Insurance Australia Group ((IAG)) all hold their AGMs today.

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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