The Overnight Report: Fingers Crossed

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This story features WEEBIT NANO LIMITED, and other companies.
For more info SHARE ANALYSIS: WBT
The company is included in ASX300, ALL-ORDS and ALL-TECH

By Greg Peel

Little Trouble in Big China

The futures had said up 29 yesterday morning, which seemed a little cautious given a solid bounce on Wall Street overnight, and indeed the ASX200 opened up 44 points. It struggled to hang on to that level, before Chinese data scuppered the rally.

The rally in the index that is. Eight of eleven sectors closed higher on the day.

China’s manufacturing sector surprisingly slipped back into contraction in October, indicating again that Beijing is simply not doing enough to stimulate the economy, or simply doesn’t have the capacity.

The manufacturing PMI fell back to 49.5 from 50.2 in September. September had offered a glimmer of hope as the sector snuck into expansion. Economists had forecast a steady 50.2 for October.

The services sector PMI fell to 50.6 from 51.7 to mark the lowest level since Beijing lifted the lockdowns early this year. Forecasts were for 51.8.

The materials sector fell -1.1%.

Elsewhere, it appeared bargain hunting had emerged in the most knocked-down sectors, as real estate gained 1.1%, staples 0.8% and the banks 0.7%, with gains also seen in discretionary, communication services and industrials.

This despite Aussie bond yields rising another 3- 5points.

Technology (-0.7%) and utilities (-0.4%) didn’t get the memo, with Weebit Nano ((WBT)) the worst index performer on the day with an -8.3% loss, while Block ((SQ2)) fell -4.1% to take the bronze. The largest shareholder in Origin Energy ((ORG)), AusSuper, said it would vote against the Brookfield takeover.

Adding up the sector moves, against a mere 7 point gain for the index, simply underscores the fact the local index is mainly led by rocks, and little else.

Harking back to staples, Inghams Group ((ING)) provided a trading update and shot up 7.9% to be the best index performer.

There may have been some last-day-of-month influence yesterday in holding the market back, materials notwithstanding, as the S&P500 managed to add another 0.7% last night following 1.4% on Monday night, and our futures are up 35 points this morning when futures were only up 29 yesterday morning.

The market will nevertheless need to position ahead of tonight’s Fed decision.

BHP Group ((BHP)) holds its AGM today.

Are We There Yet?

If the Fed leaves its funds rate on hold tonight no one will be surprised. What Wall Street will want to hear is acknowledgement the 50 point rally in the ten-year bond yield since the September meeting, at which the rate was left on hold, equates effectively to two hikes, and hence “financial conditions” have tightened sufficiently not to require another hike.

What Wall Street would really love to hear “so we’re done”, but they won’t declare it, even if that proves to be the case.

Last night, Wall Street opened lower following Monday night’s solid rebound. We could put that down to caution ahead of the Fed, but in recent times the market has risen on the day ahead, so not necessarily so.

We might point to the last day of the month, but either way Wall Street turned from early falls and rallied once more to the close. Not quite the strength of Monday night, but back-to-back gains were nonetheless welcomed.

Despite the gains, all three major indices closed down for the third straight month. The last time this happened for the Dow and S&P500 was from March 2020. During the month the US ten-year bond yield hit 5% for the first time since 2007.

In economic news, the Conference Board’s consumer confidence index fell to 102.6 from 104.3 in September.

“Consumer fears of an impending recession remain elevated,” the Board said, “consistent with the short and shallow economic contraction we anticipate for the first half of 2024”. 

In earnings news, Caterpillar (Dow) fell -6.7% on result, citing weak demand from China.

The Fed will deliver its statement tonight, and just as influential will be the announced level of distribution of US Treasury issuance across the yield curve.

Commodities

Blame China.

The Aussie is down -0.6% at US$0.6337, matching a rise in the US dollar.

Forex traders will be feeling very giddy, but the Aussie remains stuck in the 63s.

Today

The SPI Overnight closed up 35 points or 0.5%.

Today brings numbers locally for building approvals and house prices.

The US will hear from the Fed and the Treasury, and see private sector jobs numbers and monthly job openings.

October manufacturing PMIs will be released across the globe.

Along with BHP, among other companies holding AGMs today are Domino’s Pizza ((DMP)), Megaport ((MP1)), Sims ((SGM)) and Vicinity Centres ((VCX)).

Amcor ((AMC)) and Janus Henderson ((JHG)) report quarterly earnings.

US earnings season calendar: https://www.ii.co.uk/investing-with-ii/international-investing/us-earnings-season

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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