The Overnight Report: Waiting For Jobs

Daily Market Reports | Dec 06 2023

This story features EVOLUTION MINING LIMITED, and other companies. For more info SHARE ANALYSIS: EVN

World Overnight
SPI Overnight 7104.00 + 27.00 0.38%
S&P ASX 200 7061.60 – 63.10 – 0.89%
S&P500 4567.18 – 2.60 – 0.06%
Nasdaq Comp 14229.91 + 44.42 0.31%
DJIA 36124.56 – 79.88 – 0.22%
S&P500 VIX 12.85 – 0.23 – 1.76%
US 10-year yield 4.17 – 0.12 – 2.73%
USD Index 103.99 + 0.30 0.29%
FTSE100 7489.84 – 23.12 – 0.31%
DAX30 16533.11 + 128.35 0.78%

By Greg Peel

No Joy

The RBA left its cash rate on hold yesterday as was widely expected. Given that expectation, the ASX200 saw only a mild bounce in the day’s proceedings at 2.30pm that was not sustained to the close.

Otherwise the market pretty much reversed Monday’s action.

The bond market did not much respond to the RBA – again given the expectations and the fact rates had already priced in no hike. The tens and twos both fell -3 points, putting the twos at 4.07% which implies one rate cut.

The RBA did not nevertheless indicate it had cutting in mind – quite the opposite.

“Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.

“In making its decisions, the Board will continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market.

“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.” [My emphasis]

So stuff your mortgage. As for the global economy, China would be the swing factor there.

To that end, the Chinese stock market fell -1.7% yesterday to its lowest level in more than 12 months, after Moody’s downgraded its outlook on China’s debt and highlighted the difficulties facing the world’s second-biggest economy.

Yesterday’s biggest sector losers were Monday’s biggest winners. Despite no rate hike, real estate fell -1.4%, discretionary -1.2% and technology -0.7%.

Materials starred on Monday on iron ore and gold and fell -1.8% yesterday on iron ore and gold. Evolution Mining ((EVN)) bucked the trend, actually proving the top index performer on the day with a 2.5% gain, after announcing the acquisition of an 80% stake in a copper mine.

Not reversing from Monday were the lithium miners, which again made up four of the top five index losers yesterday. Sayona Mining ((SYA)) – to pick just one – is now down -80% from its January high. That takes the share price to 5.3c, hence the lithium names are having less and less impact on the materials sector cap weight.

Also not reversing was energy, which picked up the pace yesterday in falling a further -2.1% on falling oil prices.

Utilities rose 0.6% after Origin Energy ((ORG)) came out of its halt and bounced back 2.2%. Healthcare and staples, which didn’t shoot up as much as the riskier sectors on Monday, were flat.

For all the whiplash, the index is up modestly over five days, but just seems to be unable to reach escape velocity over 7100.

Still, with the S&P500 flat overnight the futures are up 27 points this morning.

Back to Business

After a slight bounce-back on Monday night, business as usual was restored in the US bond market last night with the ten-years falling -12 points to 4.17% and the twos -8 points to 4.58%, further widening the gap to the Fed funds rate.

This nevertheless did not spark much excitement in the stock market. Wall Street is now waiting for the November jobs data, which are not due until Friday night, just as it had paused ahead of the October PCE data at the end of November.

There was a bit of a reversal nonetheless on Wall Street as well, with the Mega Techs seeing buying once more and the Russell small cap giving back -1%.

Tech stocks like lower rates but so do small caps, which typically have more tenuous balance sheets. Regional banks are also a major part, and the further rates fall the less risk of another SVB. The Russell index had jumped more than 5% in a month.

There was, however, some concern over last night’s data release. US job openings fell to 8.7 million in October to mark a 28-month low, adding further evidence the labour market is cooling off in response to higher interest rates. While this supports Fed cuts next year, it also indicates a slowing economy.

How slow can it go?

Tonight we’ll see the ADP private sector jobs report for November.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 2018.40 – 9.30 – 0.46%
Silver (oz) 24.11 – 0.37 – 1.51%
Copper (lb) 3.75 – 0.03 – 0.84%
Aluminium (lb) 0.96 – 0.01 – 1.11%
Nickel (lb) 7.27 – 0.17 – 2.23%
Zinc (lb) 1.10 + 0.00 0.05%
West Texas Crude 72.45 – 0.82 – 1.12%
Brent Crude 77.29 – 0.92 – 1.18%
Iron Ore (t) 130.77 + 0.31 0.24%

The Moody’s downgrade didn’t do base metal prices any favours.

One would have expected gold to rebound on the fall in US yields but the US dollar played contrarian in rising 0.3%, which may explain why gold is down again, other than it being a crowded trade.

No RBA hike might have been the expectation, but the Aussie is down -0.9% at US$0.6557.

Today

The SPI Overnight closed up 27 points or 0.4%.

Australia’s September quarter GDP result is out today.

Private sector jobs in the US.

Rio Tinto ((RIO)) and Endeavour Group ((EDV)) host investor days.

The Australian share market over the past thirty days…

Index 05 Dec 2023 Week To Date Month To Date (Dec) Quarter To Date (Oct-Dec) Year To Date (2023)
S&P ASX 200 (ex-div) 7061.60 -0.16% -0.36% 0.18% 0.33%
BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
BPT Beach Energy Upgrade to Equal-weight from Underweight Morgan Stanley
COL Coles Group Upgrade to Equal-weight from Underweight Morgan Stanley
EDV Endeavour Group Upgrade to Buy from Neutral UBS
IAG Insurance Australia Group Upgrade to Neutral from Sell UBS
IRE Iress Upgrade to Outperform from Neutral Macquarie
STO Santos Downgrade to Equal-weight from Overweight Morgan Stanley
UNI Universal Store Upgrade to Buy from Neutral Citi

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)

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CHARTS

EDV EVN ORG RIO SYA

For more info SHARE ANALYSIS: EDV - ENDEAVOUR GROUP LIMITED

For more info SHARE ANALYSIS: EVN - EVOLUTION MINING LIMITED

For more info SHARE ANALYSIS: ORG - ORIGIN ENERGY LIMITED

For more info SHARE ANALYSIS: RIO - RIO TINTO LIMITED

For more info SHARE ANALYSIS: SYA - SAYONA MINING LIMITED