The Overnight Report: Let The Sunshine In

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

By Greg Peel

Step-Jump

If you were looking to get on yesterday following Wall Street strength on a less hawkish Fed, there was little chance. The ASX200 opened up 75 points in the first fifteen minutes before peaking mid-session up 90. Only then did sellers provide an opportunity, with the index closing up 61.

Wall Street has ripped again last night. Our futures are up 85 points this morning.

Aside from Powell’s press conference inspiring the US stock market on Wednesday night, US bond yields fell. Our ten-year fell -16 points yesterday to 4.79% and the two-year -10 points to 4.36%. Talk about a red rag to a bull.

Technology up 3.2%, real estate up 2.4%, communication services up 2.0%, and, most importantly, the banks up 1.4%. Healthcare also rose 1.4%, despite a solid move up in the Aussie dollar.

Discretionary was a little more sanguine (+0.9%), noting that a two-year yield of 4.36% still implies a rate hike next week to 4.35%, but perhaps not another one in December.

Industrials (+0.8%) and staples (+0.2%) also played defensive on a day for risk-on.

The resource sectors are a different story, not much impacted by rates. The iron ore price continues to climb nonetheless, helping materials up 0.5%, but the “Stop, you’re going the wrong way” signs were up for energy (-2.0%) and utilities (-3.8%), although there were extenuating circumstances.

A court has blocked Santos’ ((STO)) Barossa gas project. That stock fell -3.0%.

Brookfield has upped its bid for Origin Energy ((ORG)) but major shareholder AusSuper has again rejected it. Origin shares fell -6.6% to be the worst index performer.

Amcor ((AMC)), in materials, also swam against the tide in falling -2.9% on its quarterly earnings report.

After peaking yesterday, the index slipped back to feel more safe right on 6900, which takes us back to October 20. If we do add another 85 points today we’ll be back at October 19. It’s been a harrowing ride but sentiment has clearly shifted into the positive, and the momentum traders have reversed course.

The US saw another big fall on bond yields last night. Hence, Wall Street soared, to (so far) post its best week in all of 2023.

One company that won’t upset the cart today is Apple. It has reported this morning and is down all of -0.8% currently, having risen 2% during the day-session and 6% week to date.

Local traders might like to know that Block ((SQ2)) rose 7% during the day-session, ahead of its aftermarket earnings report, and on that release is currently up 18%.

Follow On

Those who typically stay out of the market in the brief late afternoon period post-Fed, which is usually highly volatile, were forced to jump quickly into both US stocks and bonds last night, driving the S&P500 to its best daily gain since April.

The US ten-year yield fell -12 to 4.67%, while the two-year stayed put at 4.98%.

This implies Wall Street has taken Powell’s comments on Wednesday night to imply the Fed is most likely done hiking rates. It’s not about to cut, hence the twos remain steady, but at near 5% they remain below the 5.25-5.50% Fed funds rate.

The fall in the tens ignited a fire under all interest rate-sensitive stocks, including tech and other “growth” names that may have not yet made any money, but also the Mega Techs for the most part, and just about anything else besides.

The most notable aspect of the change in sentiment is the change in attitude towards earnings beats. Up to now, the 60%-odd of S&P500 stocks reporting have seen little reward for a beat, and have been punished heavily on a miss. The main issue has been lowered December quarter guidance, leading to a reduced S&P net earnings forecast.

But suddenly, the beats are back. Stocks reporting positively last night simply soared. If you weren’t seeing double-digit percentage moves, you just weren’t trying. (Block is a case in point).

Even Starbucks, which is hardly an exciting tech proposition, jumped close to 10% on result.

There was also “good” news on the economic front, with weekly new jobless claims rising by 5,000 to a seven-week high 217,000, which raises hopes tonight’s jobs report won’t scuttle the ship.

September quarter productivity rose by 4.7% when 4.3% was forecast, and most importantly, unit labour cost fell by -0.8% when forecasts were for a 0.7% gain. Productivity is measured as GDP per man-hour. If workers are more productive, you don’t need to hire more and pay more.

Having regained its pivotal level of 4200, the S&P is now back over 4300 and does not yet look like stopping. The jobs number could still prove to be a Grinch nonetheless.

The VIX volatility index is now down to 15, having not much exceeded the 20 level during the sell-off, which is considered the threshold for fear. Wall Street has plenty of protection in place, and indeed the last couple of sessions smell of a short-squeeze.

Commodities

The iron ore price continues to confound.

Oil prices are going up and down by around 2% almost each day, without any real cause. The war in Gaza has been dismissed as not an issue unless Iran gets involved. Last night’s gain is ascribed to a weaker US dollar (-0.5%).

I had suggested gold would probably need to do some work before it can break through US$2000/oz, if that is to be the case, and the small gain on last night’s drop in yields is testament.

The Aussie is up 0.6% at US$0.6429, finally breaking out of the 63s (for now at least).

Today

The SPI Overnight closed up 85 points or 1.2%.

US jobs tonight.

Japan is closed today.

Global services PMIs are due for October.

Macquarie Group ((MQG)) has reported earnings today, and it looks like a "miss" on consensus forecasts with a share buyback to soften the blow for shareholders.

Coles Group ((COL)) and Qantas Airways ((QAN)) are among a handful of companies holding AGMs.

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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