The Overnight Report: And So It Ends

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

By Greg Peel

Hanging In There

So excited was the ASX200 to break up though 7000 on the open yesterday it ran up a full 50 points to lunchtime, despite the futures suggesting only 28. I don’t know what was in the shiraz, but the index gave back most of the rally in the afternoon.

Consolidation required, it appears, but at least the index still managed to close above 7000. The other good news is the S&P500 was down -0.9% last night but our futures are only down -5 points this morning.

Energy was weak yesterday (-0.9%) on lower oil prices and staples saw some selling (-0.2%), likely a switch out of defensives as once again rate-sensitive sectors posted gains.

Technology was the exception, falling -4.8% after Xero ((XRO)) reported earnings and fell -12.4%.

Communication services rose 0.9%, as the fallout for Optus continues, but healthcare won the day with 1.0% as CSL ((CSL)) pushed higher and ResMed ((RMD)) fell back again on another Eli Lilly drug announcement.

The US FDA has approved Eli Lilly’s new weight-loss drug. Pharma analysts believe GLP-1s, of which there are now at least four different brands, will prove the highest ever selling drug.

Most notable was a 0.5% gain for the banks, considering Westpac ((WBC)) went ex-dividend and National Bank ((NAB)) fell -0.8% on its earnings result.

The Aussie two-year yield stood still yesterday but the ten-year fell another -5 points to 4.53%, providing for second day of rallies in relevant sectors, albeit a bit more modest than the day prior.

Materials nevertheless reversed its recent trend with a 0.5% gain on metals prices being a tad stronger for once, offsetting another fall for gold.

China’s CPI fell -0.2% in October which is good news for Beijing as it pours money into its struggling economy, however, Chinese inflation is all about pork prices which can be sweet or sour.

The RBA will release a quarterly Statement on Monetary Policy today which could provide more clues as to whether a December rate hike is really off the table.

Metals prices are mostly higher again overnight and gold has finally bounced. The Aussie is now back in the US63c range so A$ gold should do well today.

Given last night’s fall on Wall Street was about a bounce in bond yields, a call of down -5 for the futures looks courageous, so we’ll see if 7000 can hold.

Anyone? Anyone?

Wall Street was arguably due a pullback following a stellar run of eight days up for the S&P500, but still the market moved up again from the open last night. Had it stayed that way, nine days would have been the best run in eleven years.

At 1pm, the Treasury auctioned US$24bn of 30-year bonds as part of its extensive deficit refunding program, and was met with little interest. The ten-year yield thus shot up 11 points to 4.63%.

To rub salt into that wound, in a speech last night Jerome Powell suggested interest rates might not be high enough yet to bring inflation sustainably down to 2% annual target. It was all too much for the stock market. The 4400 S&P resistance level will remain that way for now.

The twist is, Powell said exactly the same thing in his statement last week. It was the press conference in which he implied policy was now balanced, suggesting the Fed had moved to neutral on rate hikes. That’s what helped fire up last week’s rally.

So what was the difference last night?

Ahead of last week, Wall Street was very bearish and oversold, implying any good news could spark a bounce. Bond traders were short, so a short-covering scramble led to the collapse in yields that fuelled the stock market rally.

Last night, Wall Street was bullish, and perhaps even overbought after its winning streak. Hence, the negative reaction to the same piece of news. 

There was also disappointment last night that having risen the week before, suggesting the long-awaited increase may finally be happening, new jobless claims fell back again last week.

And actors have finally agreed to go back to work, after securing a comfortable deal with the studios. Add in the UAW workers also back to work, and November’s job numbers may not look as encouraging as October’s did last week.

With Hollywood back in business, and Disney having reported earnings after the market on Wednesday night, that stock rose 6.9% last night, but couldn’t save the Dow.

Commodities

The standout here is the gold price, which has finally found some buying even as bond yields bounced back. The gold price had fallen even as yields continued to retreat, and now risen as yields rise, which is completely the wrong way round.

We could put it down to the safe haven trade influence, with the war in Gaza allowing the gold price to rally even as yields were still rising. As there has been no major spread of the war through the Middle East, gold buyers had eased off.

After having a lovely holiday up in the 65s, the Aussie is now back in the familiar 63s once more, falling -0.5% to US$0.6371 as the US dollar rallied on bond yields.

Today

The SPI Overnight closed down -5 points.

The RBA releases a SoMP today.

The US will see consumer sentiment.

REA Group ((REA)), News Corp ((NWS)) and Light & Wonder ((LNW)) report earnings.

Nib Holdings ((NHF)) holds its AGM.

Janus Henderson ((JHG)) 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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