The Monday Report – 06 November 2023

Array
(
    [0] => Array
        (
            [0] => ((SQ2))
            [1] => ((TWE))
            [2] => ((ORG))
            [3] => ((IDX))
            [4] => ((WBC))
            [5] => ((NAB))
            [6] => ((ANZ))
            [7] => ((CBA))
            [8] => ((JHX))
            [9] => ((NWS))
            [10] => ((XRO))
            [11] => ((ORI))
            [12] => ((GMG))
        )

    [1] => Array
        (
            [0] => SQ2
            [1] => TWE
            [2] => ORG
            [3] => IDX
            [4] => WBC
            [5] => NAB
            [6] => ANZ
            [7] => CBA
            [8] => JHX
            [9] => NWS
            [10] => XRO
            [11] => ORI
            [12] => GMG
        )

)

This story features TREASURY WINE ESTATES LIMITED, and other companies.
For more info SHARE ANALYSIS: TWE
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Risk-On

The ASX closed out a week in which it rode high on the tails of lower US bond yields and subsequent Wall Street strength with another step-jump open on Friday and a close at the same level.

The ASX200 fell back -10 points from its mid-session high of 6988, suggesting the 7000 level is going to provide near-term resistance. Backing that up is another 0.9% gain for the S&P500 which has resulted in only a 14 point rise in our futures on Saturday morning, implying simply a test of 7000 today.

The index rose 3.5% for the week.

The Aussie ten-year yield fell another -7 points on Friday to 4.72% but the two-year is still pricing in another rate hike. This didn’t stop industrials (+2.1%) and real estate (+2.0%) leading the charge, while another solid performance from the banks (+1.4%) underpinned the index.

Healthcare is also on a run (+1.9%), defying a soaring Aussie which has surged through the US64c range as if it wasn’t there.

Resource sectors continue to sit out the general euphoria, although still-strong iron ore prices and gold prices gradually creeping back towards US$2000/oz had materials up 0.6%, while energy fell -0.1% on lower oil prices to be the only sector to close in the red.

Technology was relatively quiet under the circumstances (+1.0%), despite Block ((SQ2)) surging 25% on its quarterly result, and discretionary was a little hesitant (+1.2%) compared to other sectors.

The more defensive sectors underperformed, with communication services up 0.7% and staples and utilities up only 0.2%. The latter two sectors had individual corporate issues to absorb.

Treasury Wine Estates ((TWE)) came back on the boards and fell -9.7%, following a capital placement to fund its Californian wine acquisition.

Brookfield has made its “best and final” offer for Origin Energy ((ORG)), which is not just rhetoric but binding. AusSuper, which owns 13.68%, continued to say not good enough. Origin shares fell -1.1%. According to media reports, AusSuper has now joined the bidding consortium.

Medical imaging company Integral Diagnostics ((IDX)) did not have the best day, falling -27.2% on a trading update bemoaning staff shortages, labour costs and other inflation.

That timid 14 point gain for the futures likely reflects some caution ahead of tomorrow’s big event, whereas having ticked all the boxes in an event-packed last week, Wall Street now goes quiet in terms of releases ahead of CPI next week.

Could the fall in US yields stay the RBA’s hand?

Just the Job

The US added 150,000 jobs in October when 170,00 was forecast. The unemployment rate ticked up to 3.9% from 3.8% and annual wage growth slipped to 4.1% from 4.3%.

It doesn’t get much better from Wall Street’s perspective, especially considering there were 297,000 jobs added in September.

The US ten-year yield fell -11 points to 4.56% and the two-year -13 points to 4.85%. Having peaked out at just over 5% in mid-October, the ten-year has fallen almost -50 points.

In wake of last week’s rhetoric from the Fed chair and Friday night’s jobs report, the futures market is now pricing in only a negligible chance of another rate hike in the cycle. The chance of a rate cut next year is now over 50% for May, increasing in successive months.

Effectively, Wall Street is cheering on a recession.

There is continuing talk that hedge funds were caught short stocks and short bonds heading into last week, and have been forced to scramble to cover. The Dow gained 5.1% for the week, the S&P500 5.9% and the Nasdaq 6.6%.

Hence, there is some expectation of a bit of consolidation from here once shorts have been covered, particularly in this quieter week data-wise, while earnings season rolls on. It was the best week for Wall Street in 2023.

That CPI number, Tuesday week, will be critical.

The good news is oil prices have stopped rising. They’re bouncing around but haven’t gone anywhere lately unlike prior months.

Commentators also noted, looking at Apple’s -0.5% fall on Friday night post-result and general underperformance during the week, that contrary to popular belief, Wall Street can actually rally without the country’s biggest company.

Commodities

Gold continues to claw its way back towards US$2000/oz, but given the steep fall in US yields, it's making slow progress.

It’s become a bit pointless to talk about the oils.

What happened to 64? On another sharp fall in the US dollar, the Aussie is up 1.3% at US$0.6511,

The SPI Overnight closed up 14 points or 0.2%.

The Week Ahead

Victoria is closed tomorrow.

More importantly, it’s RBA day, and the odds are in favour of another hike. The Fed’s pause may be acknowledged, but the Fed’s cash rate is 5.25-5.50% and the RBA’s is 4.10%.

Another hike would mean 4.35%. The cash rate proxy of the two-year yield as of Friday was 4.30%.

The RBA will also issue a Statement on Monetary Policy on Friday.

China reports trade and inflation numbers this week.

The US sees trade and consumer sentiment data next week, and the earnings season rolls on. We’re now over halfway in number of reporting companies, but the season has a long tail.

Westpac ((WBC)) reports earnings today and National Bank ((NAB)) on Thursday. Next week brings a result from ANZ Bank ((ANZ)) and a quarterly update from Commonwealth Bank ((CBA)).

Also reporting this week are James Hardie ((JHX)), News Corp ((NWS)), Xero ((XRO)) and Orica ((ORI)).

Goodman Group ((GMG)) provides a quarterly update today.

The AGM season continues, but the daily numbers are on the low side this week before another burst the following week.

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.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms