The Overnight Report: Another Day…

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This story features JAMES HARDIE INDUSTRIES PLC, and other companies.
For more info SHARE ANALYSIS: JHX
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

And Now The Whether

The ASX200 opened weaker yesterday before falling into wait-and-see mode ahead of the RBA decision, but in between was the release of Chinese trade data.

The market looked poorly upon the October numbers, with exports falling -6.4% year on year following a -6.2% drop in September, and worse than the -3.3% drop forecast. This suggests the Chinese economy is still failing to gain any traction.

Except that imports rose 3.0% when forecasts were for a -4.8% fall after falling -6.2% in September. It was the first increase in imports in eleven months.

So, mixed messages. Restocking may account for the imports, but either way the ASX200 fell further on the news before again stalling before the RBA release.

There were clearly some algos who rather jumped the gun, first picking up on:

“Since its August meeting, the Board has received updated information on inflation, the labour market, economic activity and the revised set of forecasts. The weight of this information suggests that the risk of inflation remaining higher for longer has increased.”

Oh dear. Looks like they’ll go again in December. Or will they?

Back last month, the statement had suggested:

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will continue to depend upon the data.”

Yesterday’s statement varied somewhat:

“Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data.” [my emphasis]

Subtle, but such is the central bank game. The market immediately took this as suggesting a December hike is not locked in at all. 

Suffice to say the index shot back up, managing to at least recover what it lost on the Chinese data.

To corroborate an easing of fears, Aussie bond yields fell -3 points despite the 25 point hike (the two-year had priced in a hike since Bullock last spoke) and the Aussie dollar is down -0.9% when the US dollar is up only 0.3%.

Sector-wise, yesterday was a mixed bag of mostly modest moves, leaving a -1.0% fall for the banks to drive net weakness. More pain for borrowers, leading to default risk, countering the benefit of a hike for margins.

Technology rose 1.4% but doesn’t have much clout, while other rate-sensitive sectors went either way.

The S&P500 was up another 0.3% last night, but it doesn’t look like we’ll be having another go at 7000 today. Oil prices have fallen heavily, our big miners have been sold off in the US on the Chinese data, and our futures are down one point this morning.

Magnificent

On Monday night the US ten-year yield had bounced back 10 points after falling close to -50 points from its high on last week’s Fedspeak and data. Clearly, this was just a bout of profit-taking rather than any change in view, as last night the ten-year fell -9 points to 4.57%

It was enough to fire up the Nasdaq once more. The 0.9% gain marked an eight-day winning streak for the first time since November 2021, when it managed eleven.

The spillover to the S&P500 had that index marking a seven-day streak, again for the first time since November 2021, when it managed eight.

As a smaller move up in the Dow attests, there was not a lot of breadth in last night’s index gains. It was the Magnificent Seven that once more led the charge, with all names posting 1-2% gains.

Apple and Microsoft are in the Dow.

While the Mag7 may have suffered an annus horribilis in 2022 on the surge in bond yields thanks to the Fed’s rapid tightening, they are seen as high-quality, cash-generating defensives, and basically must-haves in any portfolio. Particularly now AI is the buzzword.

They do not carry any net debt – quite the opposite – so while higher rates may impact the value of future earnings, they are not at any immediate risk compared to growth companies which if they haven’t already done so, will soon need to rollover fixed-rate loans at much higher rates.

Last night’s lack of breadth compared to last week, when everyone was in on the act, has led to warnings this rally must soon fizzle out. But then, others are convinced Santa Clause is coming to town.

Dragging on the Dow and S&P was a -2.2% fall for the energy sector as oil prices fell -4.5%. With no sign yet of Iran getting more involved in the war, supply-side fears are giving way to demand-side fears. Chinese imports may have risen 3.3% last month, but imports form the US were down -3.7%.

Commodities

Ignoring nickel, there was not a lot of response in metal prices, although it was the first down-session for iron ore in several days.

On hope the RBA might be done for 2023, the Aussie is down -0.9% at US$0.6432.

Today

The SPI Overnight closed down -1 point.

James Hardie ((JHX)) and Xero ((XRO)) report earnings today.

Allkem ((AKE)), Breville Group ((BRG)), Domain Group ((DHG)) and Magellan Financial ((MFG)) hold their AGMs.

ResMed ((RMD)) goes ex.

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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