The Monday Report – 13 November 2023

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This story features NATIONAL AUSTRALIA BANK LIMITED, and other companies.
For more info SHARE ANALYSIS: NAB
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Misled?

The ASX200 wasted no time in falling back through 7000 on Friday triggering a -50 point fall to late morning, before calm was restored and the market went quiet through the afternoon.

Wall Street’s fall provided the impetus, driven by a jump back in bond yields. Aussie bond yields rose 7-9 points in response. This drove down all the usual suspects, with all sectors closing in the red.

It was nevertheless later revealed the US office of the Industrial & Commercial Bank of China suffered a ransomware attack on Thursday night, thus disrupting the bond market during the 30-year bond auction. It was weak demand for this auction that had Wall Street running scared.

To that end, Wall Street bounced back on Friday night. Big time. The rally was all tech-driven, and US bond yields were flat. Hence, our futures were up only 24 points on Saturday morning, and the index closed on Friday at 6976.

Which means…I think you can figure it out.

Energy (-1.5%) and utilities (-1.7%) were the worst performing sectors on Friday on lower oil prices. Oil prices were higher on Friday night.

The banks (-1.0%) led the losses in market-cap terms, with National Bank ((NAB)) falling another -1.7% as brokers responded to Thursday’s result.

Communication services gave back some of the benefits of the Optus debacle (-0.9%), with falls in all other sectors more modest. Healthcare only just dipped into the red while materials (-0.2%) was a case of gold offsetting gains elsewhere.

Avita Medical ((AVH)) jumped 16.7% on its quarterly update, but is not in the index. APM Human Services ((APM)) issued a profit warning and its shares were punished by -20%.

Following on from the RBA’s rate hike last week, the news did not get much better on Friday with the Statement on Monetary Policy. The RBA has lifted its year-end inflation forecast to 4.5% from a prior 3.9%, not reaching 3% before mid-2025.

GDP is expected to grow 1.6% by year-end, up from 0.9%, and gradually reach 2.4% by end-2025.

These are simply educated guesses and can change with the wind, but they do suggest the “higher for longer” theme is pretty well cemented, and that the RBA may not be done hiking just yet.

All Just A Misunderstanding

On Friday night Wall Street took the ICBC attack and subsequent bond market disruption as reason enough to justify auction demand weakness, and dismiss it. The stock market took off.

The bond market wasn’t quite so sure, and remained flat, but this didn’t bother buyers looking to get back into tech stocks. The Nasdaq closed up 2%, dragging the S&P500 up 1.6%.

The Dow also joined in thanks to moves up in Microsoft and Intel, so it, too, was tech-driven.

Despite Thursday night’s blip, the Dow closed the week up 0.7%, the S&P up 1.3% and the Nasdaq 2.4%, but clearly it took Friday to right the ship.

The S&P500 closed at 4415. Between 4400 and 4415 there is a confluence of technical indicators, the upshot of which is a break up through 4415 would suggest Santa has revved up the sleigh.

That break will depend on tomorrow night’s CPI result.

On that subject, Jerome Powell implied at the last Fed meeting the sharp run-up in bond yields, arguably equating to two more rate hikes, had done enough to tighten financial conditions and thus prevent the need for another Fed hike.

The problem is that then led to yields falling back down again. Does that mean all bets are off? Wall Street could now end up stuck in a vicious cycle of yields up and down and stocks down and up.

The war in Gaza was attributed, outside of higher rates, to another fall in the Michigan Uni consumer sentiment index to 60.4 from 63.8 in the first weeks of November, to mark the weakest reading since May. This does not bode well for “the holidays”, as Americans like to call Thanksgiving (Black Friday) and Christmas.

In an interesting turn of events for Twiggy’s green aspirations and controversial Future Industries investments, a US fuel-cell company called Plug Power reported earnings on Friday night and fell -40%.

The company cited “unprecedented supply challenges in the hydrogen network in North America”. The “severe” hydrogen shortages have affected Plug Power’s direct cost of services as well as the timing for implementation of fleet upgrades for its customers.

Commodities

It seems every time there is a slight rally in metals prices on wishful Chinese stimulus news, it doesn’t last long. Look out for China’s October data-dump this week.

Gold’s slight reprieve has also proven fleeting.

The oils continue to bounce around, but seem pretty well stuck.

The Aussie is down -0.2% at US$0.6358.

The SPI Overnight closed up 24 points or 0.3% on Saturday morning.

The Week Ahead

The US October CPI is out tomorrow night followed by the PPI and retail sales on Wednesday night.

Friday is the deadline for the US budget. The new Speaker has offered up a laddered deal which would have Congress having to meet again in January and February and which has been scoffed at by Democrats.

So here we go again. Mike Johnson is going to make his Republican colleagues very angry if debate has to stretch into Thanksgiving next week.

China reports October retail sales, industrial production and fixed asset investment on Wednesday.

Locally, we’ll see the NAB business and Westpac consumer confidence surveys tomorrow. Critical for the RBA will be Wednesday’s September quarter wage price index, followed by October jobs on Thursday.

The off-cycle earnings season also picks up the pace, with results due from ANZ Bank ((ANZ)), Elders ((ELD)), Incitec Pivot ((IPL)), ALS Ltd ((ALQ)), Aristocrat Leisure ((ALL)), Nufarm ((NUF)) and GrainCorp ((GNC)).

Commonwealth Bank ((CBA)) provides a quarterly update.

And after a quieter week, AGM season hots up again. BHP Group ((BHP)) is the big one, but there’s loads more.

Telstra ((TLS)) and Altium ((ALU)) hold investor days.

ANZ Bank, Elders and Incitec Pivot report today.

Macquarie Group ((MQG)) goes ex its significant dividend.

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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