The Overnight Report: Not Prepared To Buy

Daily Market Reports | Dec 07 2023

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

World Overnight
SPI Overnight 7175.00 – 34.00 – 0.47%
S&P ASX 200 7178.40 + 116.80 1.65%
S&P500 4549.34 – 17.84 – 0.39%
Nasdaq Comp 14146.71 – 83.20 – 0.58%
DJIA 36054.43 – 70.13 – 0.19%
S&P500 VIX 12.97 + 0.12 0.93%
US 10-year yield 4.12 – 0.05 – 1.20%
USD Index 104.21 + 0.22 0.21%
FTSE100 7515.38 + 25.54 0.34%
DAX30 16656.44 + 123.33 0.75%

By Greg Peel

Bad News!

The local market is on drugs.

While Wall Street has stalled of late, the ASX200 has been up, down, up in wild fashion, largely driven by flip-flopping bond yields, which have seen volatility of a like here and in the US never seen before by most in the market.

The index has seen many a session down -100 points this year, but yesterday’s rally of over 100 points was only one of two. Yet, to put things into perspective, at the close yesterday the index was up a whole 15 points from Monday’s intraday high.

Yesterday, the index opened higher and just kept going, no doubt fuelled by momentum algos and a level of seasonal FOMO. After Tuesday’s fall, the market was primed to buy and the release of the September quarter GDP numbers provided the green light.

The GDP grew by only 0.2% in the quarter when 0.5% was forecast, down from 0.4% growth in the June quarter. The economy is slowing. Yay! High inflation, rapidly rising interest rates and a record federal government income tax take have driven Australian living standards to their lowest level in eight years. The household saving-to-income ratio decreased to 1.1% from 2.8%.

The Aussie ten-year yield fell -13 points to 4.28%, and the twos fell -10 points to 3.97%, to be over -35 points below the RBA cash rate. Yesterday’s rally implied an expectation we will not see any more rate hikes.

We might even see cuts next year. Wall Street is certain there will be Fed cuts next year.

It was a Buy Everything session, with most sectors rising 1-2%. The standouts were most rate-sensitive sectors; real estate went up 3.2%, while energy (+0.8%) and utilities (+0.6%) were clear underperformers on falling oil prices.

Oil prices fell -4% last night.

Among individual stocks, Evolution Mining ((EVN)) rather bucked the trend in closing down -13% as it raises capital to fund its new copper acquisition.

Standing out on the upside were lithium stocks, which joined in the rally despite still-falling lithium prices, because they are the most heavily shorted cohort on the market. Core Lithium ((CXO)), which is (or was) over 10% shorted, led the pack with a 17.4% gain.

You needed at least a 10% jump to get on to the top five index leaders’ board. To get on to the losers’ board you just needed to be a gold miner, but we’re talking falls of only -1-2% ex-Evolution.

After yesterday, the market needed a cup of tea, a Bex, and a good lie down. Wall Street has drifted to a weaker close, and our futures are down -34 points this morning.

Day-Long Drift

The US private sector added 103,000 jobs in November according to ADP when 128,000 was forecast, in another sign the US labour market is cooling.

Wall Street opened higher on the news but then spent the rest of the session drifting downward to a weaker close. It appeared more a case of a lack of buying than determined selling. The market is waiting for Friday’s non-farm payrolls report as a true indicator, with the ADP number rarely a reliable indicator.

One commentator suggested “We had such a good run in November that investors are trying to make sure that the run was worth taking”.

The ten-year bond yield nevertheless fell another -5 points on the news, and at 4.12% is rapidly closing in on the 4% level – the break of which to the upside earlier this year sparked significant bond selling.

The market is now pricing in a 60% chance of a Fed rate cut by March, up from 20% a month ago.

Earlier in the session the Russell 2000 small cap index was again enjoying rotation and rising, but it too succumbed by the death and fell -0.2%. Otherwise, the S&P493 had a weak session, as the Mega Caps mainly found buyers.

We still have another session to get through tonight ahead of Friday’s jobs numbers. The forecast is for 190,000 jobs added in November, following the 150,000 result for October which was one of the triggers of the November rally, along with lower than forecast inflation data and an easing in Fed rhetoric.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 2027.00 + 8.60 0.43%
Silver (oz) 23.93 – 0.18 – 0.75%
Copper (lb) 3.74 – 0.00 – 0.06%
Aluminium (lb) 0.96 – 0.00 – 0.21%
Nickel (lb) 7.30 + 0.03 0.47%
Zinc (lb) 1.10 + 0.00 0.25%
West Texas Crude 69.31 – 3.14 – 4.33%
Brent Crude 74.26 – 3.03 – 3.92%
Iron Ore (t) 132.92 + 2.15 1.64%

Brazilian iron ore giant Vale said this week China cannot control the price of iron ore, despite its attempts to do so, and it appears that played out yesterday.

There was no new news in the oil market to spark -4% falls, other than the ongoing assumption the “voluntary” OPEC-Plus production cuts imply a free-for-all.

The Aussie is steady at US$0.6551.

Today

The SPI Overnight closed down -34 points or -0.5%.

Trade balance numbers are due today from Australia (October) and China (November).

The Australian share market over the past thirty days…

Index 06 Dec 2023 Week To Date Month To Date (Dec) Quarter To Date (Oct-Dec) Year To Date (2023)
S&P ASX 200 (ex-div) 7178.40 1.49% 1.29% 1.84% 1.98%
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
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)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Share on FacebookTweet about this on TwitterShare on LinkedIn

Click to view our Glossary of Financial Terms

CHARTS

CXO EVN

For more info SHARE ANALYSIS: CXO - CORE LITHIUM LIMITED

For more info SHARE ANALYSIS: EVN - EVOLUTION MINING LIMITED