The Monday Report – 11 December 2023

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            [1] => ((STO))
            [2] => ((ORI))
            [3] => ((ELD))
            [4] => ((WBC))
            [5] => ((NAB))
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            [1] => STO
            [2] => ORI
            [3] => ELD
            [4] => WBC
            [5] => NAB
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This story features WOODSIDE ENERGY GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: WDS
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

From Bottom Left to Top Right

The rally on Wall Street on Thursday night was largely driven by Google’s new AI chatbot hence there was no great reason for our market to follow suit on Friday, but then nor was there any great reason it should fall -30 points from the open.

It seems the computers are non-believers. But after thinking about it for an hour, the ASX200 then began to rally, ultimately repeating a trend that has become more prominent of late – that of rising steadily in a straight line to the close. Buying begetting buying.

Sector moves were nevertheless relatively modest by the close, with only technology showing any real weakness (-0.6%).

Energy was the best performer (+1.0%) which was nothing to do with oil prices but all about the proposed merger between the two gas giants, Woodside Energy ((WDS)) and Santos ((STO)). While Woodside fell -0.5% on the assumption it would need to pay a premium as the larger of the two, Santos rallied 6.2%.

We recall Santos had previously taken out number three in the game, Oil Search, so it will be interesting to see what the ACCC thinks about having just the one Australian energy mega-company, with daylight down to the smaller names.

Materials was next best with 0.6%, as some solace was found in China’s increased exports in November. Lithium stocks enjoyed a bounce on talk maybe lithium prices have finally bottomed, but then these stocks fly up and down every day. Mostly down lately.

Along with Santos, four of the top five index winners on Friday were lithium miners.

Elsewhere, bond yields were down a few points which provided some support, but US yields shot up on Friday night so we’ll see how we fare today.

That said, Wall Street did a very strange thing on Friday night, and out futures closed up 16 points on Saturday morning.

Good News Good

Wall Street had forecast non-farm payroll additions in November of 190,000 but there was hope the number might be a little weaker, given earlier in the week job openings and private sector jobs had come in below forecast. As it was, 199,000 jobs were added, and the unemployment rate fell to 3.7% from 3.9%.

Given forecasts are rarely accurate, we could call the result in line, rather than “hot”, but US bond yields shot back up nevertheless, with the tens up 12 points 4.24%.

At any time in the recent past, such a result would have had the US stock market crumbling on fears the Fed would have to raise rates further. But after a bout of early volatility, the stock indices settled down and also tracked a steady path from bottom left to top right to close on their highs.

Given the pace and extent of the fall in US yields since November, a bounce-back was not at all surprising. And traders are happy with the ten-year hanging in below 4.25%. What the jobs data did achieve is to yet again reinforce the expectation the US economy can come in for a soft landing.

Good news is good. The jobs data is not, in anyone’s opinion, hot enough for the Fed to do anything other than remain on hold when it meets this week.

It could mean that the market’s pricing of four Fed cuts in 2024, starting in March, is a bit ambitious, but avoiding a recession is a welcome scenario. Market-watchers have been concerned 2024 will be the year the US consumer goes into hiding, but as long as most everyone has a job, that does not have to be the case.

And backing that up, the Michigan Uni consumer sentiment gauge for early December bounced up to 69.4 from 61.3 from late November. Not only is that the first increase in five months, it’s a very hefty jump for this series.

According to the survey, Americans think inflation will average a 3.1% rate over the next year, down from 4.5% in the prior month. That’s the lowest level since March 2021.

There’s a lot of Christmas spirit going round.

It could yet all come to a screaming halt tomorrow night when the November CPI numbers are released.

But for now, Friday night saw uniform buying across all three major indices of around 0.4%, and the Russell small cap again outperformed with 0.7%.

The S&P500 closed at a 52-week high.

Commodities

While there looks like a little bit of life might be returning to metals prices, the bounce in oil prices on Friday night was attributed to the strong US jobs data. And the fact prices have fallen steadily of late.

It did not stop oil prices posting their seventh weekly decline – the longest losing streak since 2018.

It is that losing streak which is helping Wall Street to be confident in this week’s US inflation data showing further easing.

The bounce in US yields nevertheless did little to help gold.

The US dollar rose 0.5%, and the Aussie fell -0.6% to US$0.6566.

The SPI Overnight closed up 16 points or 0.2%.

The Week Ahead

The US November CPI numbers are out tomorrow night, followed by the PPI on Wednesday.

The Fed then releases its next policy statement on the Wednesday afternoon. Wall Street will need inflation to be lower to get the right response from the Fed, given the ten-year yield has fallen some -75 basis points since the last meeting when the Fed decided financial conditions were already tight enough.

US November retail sales then follow on Thursday, which take into account Black Friday (week), and industrial production on Friday.

China reports November retail sales, industrial production and fixed asset investment numbers on Friday.

The Bank of England meets on Thursday night.

New Zealand reports September quarter GDP on Thursday.

Locally we’ll see the NAB business and Westpac consumer confidence surveys tomorrow and the November jobs numbers on Thursday.

Friday we’ll see the quarterly rebalance of the ASX200, to become effective from Monday morning.

Orica ((ORI)) and Elders ((ELD)) hold AGMs this week, as do Westpac ((WBC)) and National Bank ((NAB)).

The Australian share market over the past thirty days…

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