The Overnight Report: Good And Bad

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            [1] => ((BAP))
            [2] => ((GUD))
            [3] => ((ARB))
            [4] => ((CMW))
            [5] => ((TPG))
            [6] => ((RIO))
            [7] => ((BHP))
            [8] => ((WDS))
            [9] => ((EVN))
            [10] => ((AMP))
            [11] => ((ORG))
            [12] => ((TYR))
            [13] => ((NCM))
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            [2] => GUD
            [3] => ARB
            [4] => CMW
            [5] => TPG
            [6] => RIO
            [7] => BHP
            [8] => WDS
            [9] => EVN
            [10] => AMP
            [11] => ORG
            [12] => TYR
            [13] => NCM
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)

This story features CSL LIMITED, and other companies.
For more info SHARE ANALYSIS: CSL
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Low Tolerance

Relieved that Wall Street did not crash on the war in Gaza – quite the opposite – investors pushed the ASX200 up 74 points yesterday morning where it ran into resistance at 7100. There was never a chance to see whether the index could break through, as the RBA spoiled the party.

“The Board has a low tolerance for a slower return of inflation to target than currently expected”.

In the minutes of the October meeting, the RBA pointed to slow progress in lowering services inflation, higher petrol prices influencing consumers inflation expectations, and rising house prices suggesting policy has not been as restrictive as had been assumed.

The result is economists have swung from believing the RBA will be on hold for a while yet to suggesting the November meeting is “live”, and dependent on the latest data.

“Members observed that, prior to the November meeting, they would receive additional data on economic activity, inflation and the labour market, as well as a set of revised staff forecasts.”

Ahead of Cup Day we’ll see releases for September jobs, September quarter CPI and September retail sales.

The index gave back -45 points in the wake of the minutes. The consumer sectors and utilities saw small losses, while healthcare lost -1.2% as traders again moved on CSL ((CSL)), down -1.5%.

The -0.3% loss for discretionary included an -11.5% crunch for auto-parts company Bapcor ((BAP)) on a weak AGM update, which also impacted on the likes of GUD Holdings ((GUD)) and ARB Corp ((ARB)).

All other sectors trimmed gains but closed in the green. A 9 point rise for the ten-year bond yield, following the US, and 13 point hike for the two-year on the minutes, were ignored. The banks rose 0.8%.

Real estate gained 1.1%. That included a 9.7% pop for Cromwell Property ((CMW)), which I doubt has ever topped the index before. No one seems to know why the jump.

Communication services rose 0.8% with TPG Telecom ((TPG)) up 5.6% on speculation of a possible takeover by Vocus.

Materials rose 0.7% on a well-received production report from Rio Tinto ((RIO)).

Technology (+1.3%) followed the Nasdaq.

US bond yields have shot up again overnight but still our market seems to be intent on rising further, with our futures up 20 points this morning despite Wall Street closing flat.

Shop till you Drop

Wall Street opened higher again last night after Bank of America released a solid earnings report and rose 2.3%. Money-centre bank BofA is seen as a good proxy for the US economy. Not so investment bank Goldman Sachs (Dow) which lost -1.6% on revaluations of assets at higher rates.

Then the US retail sales numbers were released for September.

Sales rose 0.7% when 0.2% was forecast, following on from August’s 0.6% gain, which was also a beat. Higher fuel prices had an impact but strong numbers for car sales (20% of the measurement) and online shopping were evident.

It would appear Americans are happy to keep spending despite higher rates, but there is concern credit card spending is rising steadily. That said, while banks have reported an increase in credit card delinquencies, the numbers have come from an historically low base only to be more “normal”.

Basically, everyone has a job, so paying off the card is not a problem.

Wall Street adopted the “good news is bad” approach in initially selling off on the data, on the implication this increases the risk of another Fed hike. There is still next to no chance of a November hike, according to the futures market, and still less than 50% for December, but now January has risen to an over 50% chance.

The general consensus is that one more rate hike is not going to make a lot of difference, what matters more is for how long rates remain elevated. The US two-year yield rose 12 points to 5.22% last night, which puts it almost in line with the Fed cash rate, and suggests a rate cut is simply not on the horizon.

The futures market did have the first rate cut priced in for May next year, but then that moved out to June, and as of last night, July.

The ten-year yield rose 14 points on the stronger economy theme. Which raises the question: while strong retail sales may be bad from a policy perspective, surely they’re good from an economy perspective? Can’t good news be good?

Suffice to say, Wall Street spent the afternoon erasing earlier losses to close flat.

Commodities

Nothing to see here.

The Aussie is up 0.4% at US$0.6366.

Today

The SPI Overnight closed up 20 points or 0.3%.

Speaking of economies, China’s will be in the frame today with the release of September retail sales, industrial production and fixed asset investment numbers.

The US will see housing starts and the Fed Beige Book.

BHP Group ((BHP)) reports quarterly production today, as does Woodside Energy ((WDS)) and Evolution Mining ((EVN)).

AMP Ltd ((AMP)) provides a quarterly update, Origin Energy ((ORG)) holds what is likely its last public AGM, and Tyro Payments ((TYR)) hosts an investor day.

Newcrest Mining ((NCM)) goes ex a rather substantial pre-takeover dividend.

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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