The Overnight Report: More Relief

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            [1] => ((CHC))
            [2] => ((KAR))
            [3] => ((GNC))
            [4] => ((BHP))
            [5] => ((ANZ))
            [6] => ((ORI))
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            [3] => GNC
            [4] => BHP
            [5] => ANZ
            [6] => ORI
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This story features CENTURIA CAPITAL GROUP, and other companies.
For more info SHARE ANALYSIS: CNI
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

Stranded on 99

The futures said up 98 yesterday and the ASX200 closed up 99. The index did come off a peak of up 119 but while falls in excess of -100 points in a day are not uncommon, rallies in excess of 100 are rare. Moreover, the index felt more comfortable falling back close to the 7100 mark.

If there was any profit-taking, it wasn’t from day-traders. The index opened up about where it closed.

The local market followed the theme on Wall Street on Tuesday night. The US CPI came in lower than expected, US bond yields collapsed, and US stocks took off. Yesterday, the Aussie ten-year fell -13 points and the two-year -11.

The markets, stock and bond, were unfazed by the September wage price index rising a record 1.3%. This was as expected, given the one-offs in the quarter of a 5.75% minimum wage increase (which translates through all award wages) and a 15% increase for aged care workers.

There is nothing here to scare the RBA, and a December pause is still considered most likely.

Hence yesterday saw a green light for rate-sensitive stocks to finally have their time in the sun. Real estate jumped 4.6%. The top two index performers were property fund managers Centuria Capital ((CNI)), up 11.5%, and Charter Hall ((CHC)), up 10.3%. Two REITs also made the top five.

Take a photo. You won’t see that again.

Technology predictably rallied 3.4%, discretionary was a little more tame on 1.3%, as was utilities (+1.2%), because you never know what’s going to happen next at the big end of that sector.

Healthcare applauded the huge move up in the Aussie dollar in rising 2.3%.

Defensives staples and communication services spent the game on the bench and the banks were timid (+0.5%), forever stuck in that grey zone between lower rates being good on the bad debt front but not so good for margins.

Materials was a major index driver in rising 2.4%, with gold having shot up overnight and iron ore ticking up almost every day.

Energy was the only sector to close in the red (-0.7%), but that followed a 2.5% jump on Tuesday, and included an index-topping -10.4% fall for Karoon Energy ((KAR)) before going into a trading halt, pending a “potential transaction”, which the market assumed meant an acquisition requiring a capital raise.

US bond yields have bounced back overnight, having been subject to a short-covering scramble on Tuesday night, but the US PPI also came in lower than expected. Hence, Wall Street still added to Tuesday night’s gains.

Our futures are down -4 this morning, suggesting a quieter session and some work around the 7100 level (7000 is soooo last week), and there is also a long list of AGMs to consider today.

Slaying the Dragon

The US headline PPI fell (not a typo) -0.5% month on month in October when economists had forecast a 0.1% increase. The annual rate dropped to 1.3% from 2.2% in September.

The core PPI rose by 0.1% as expected, to be down to 2.9% annual from 3.0%.

With regard the headline number, the cost of goods fell -1.4% in October after rising 0.8% in September, and the cost of energy fell -6.5% after rising 3.1%.

US retail sales fell -0.1% in October to mark the first fall in seven months. Good from a Fed perspective but not so good from an economy perspective. However, October is typically a weak month, given consumers keep their powder dry for November Black Friday and Christmas shopping, and economists had forecast a -0.2% fall.

US bond yields bounced back 10-11 points last night, which had nothing to do with PPI and sales numbers, but all to do with Tuesday night’s plunges, which would have been exacerbated by short-covering of bond positions.

Wall Street thus rallied once more, although not as enthusiastically given Tuesday night’s rally and bounce-back in bonds. Either way, the market has not changed its view the Fed is done and the next move will be a cut, possibly as early as March.

A cut by May is priced in now at a 47% chance.

It won’t be a cut because the economy has fallen into recession, rather because keeping rates too high for too long could cause a recession. That’s the view anyway, even if JPMorgan’s Jamie Dimon disagrees.

The Fed does rather have a track record of holding on for too long, and would not want to make the same mistake twice.

October retail sales might have been a bit weak but September quarter sales for Target (US) were clearly not. Target jumped 17.8% on its earnings result last night.

Commodities

The highlight here is another fall in oil prices, based on the usual US crude inventory predictions for last week.

The Aussie is out of breath, dipping slightly to US$0.6507.

Today

The SPI Overnight closed down -4 points.

Australia’s October jobs numbers are out today.

The US will see industrial production.

GrainCorp ((GNC)) reports earnings.

It’s another Super Thursday for the AGM season, before meetings eventually dry up ahead of December. BHP Group ((BHP)) is one today, but it’s a long, long list.

ANZ Bank ((ANZ)) goes ex today, as does Orica ((ORI)).

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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