The Overnight Report: Gamechanger

This story features CHARTER HALL GROUP, and other companies. For more info SHARE ANALYSIS: CHC

World Overnight
SPI Overnight	7446.00	+ 48.00	0.65%
S&P ASX 200	7377.90	+ 120.10	1.65%
S&P500	4719.55	+ 12.46	0.26%
Nasdaq Comp	14761.56	+ 27.59	0.19%
DJIA	37248.35	+ 158.11	0.43%
S&P500 VIX	12.48	+ 0.29	2.38%
US 10-year yield	3.93	– 0.10	– 2.55%
USD Index	101.93	– 1.08	– 1.05%
FTSE100	7648.98	+ 100.54	1.33%
DAX30	16752.23	– 13.82	– 0.08%

By Greg Peel

Blink and you missed it

The ASX200 closed up 120 points yesterday, but it opened up 100, so not much opportunity there if you weren’t already long. While the market had been quietly rising in the prior sessions, Wednesday night’s Fed pivot provided the step-jump.

In late November the index managed to scrape back above 7000. Today it will likely conquer 7400. The S&P500 closed up 0.3% last night. Our futures are up 0.7% this morning.

Sometimes it pays to sell rocks.

But while the stars did align for the materials sector yesterday (+2.4%), with all of iron ore, gold and even lithium to the good, and ditto for energy (1.4%) on higher oil, it was the rate-sensitive sectors that led the field.

In line with US yields, the Aussie ten-year yesterday fell -15 points to 4.13% and the two-year -17 points to 3.85%, or an implicit two rate cuts below the RBA cash rate.

Comeback kid real estate rose 4.0%. Property fund managers are not the most exciting stocks on the market, but yesterday Charter Hall Group ((CHC)) topped the boards with a whopping 11.8% gain, while Centuria Capital ((CNI)) chimed in with 9.2%.

Technology was next best with 2.9%, followed by communication services on 2.2%.

While a 1.0% gain for financials was at the low end of the league table, the market cap impact is significant. However while lower interest rates are good for the banks in the current environment of stretched households, the opposite is true for insurance companies.

Nib Holdings ((NHF)) was the worst index performer on -3.4%, QBE Insurance ((QBE)) lost -2.6% and Suncorp Group ((SUN)) -1.6%. All three featured among the top-five losers.

All other sectors rose roughly a percent, give or take, except for the most defensive – staples – which lagged with only 0.6%. That was, however, net of Metcash ((MTS)) going ex-dividend and falling -3.1%.

In case you didn’t notice, Australia’s November jobs report was out yesterday.

November saw 61,500 jobs added when economists had forecast 11,500, compared to 42,700 in October. On any other day, that might have caused some angst, and maybe increased bond yields on RBA fears. But not yesterday. Not after the world changed overnight.

Besides, on stronger participation, the unemployment rate rose to 3.9% from 3.8%. Economists don’t see any reason for the RBA to hike again next year.

While the US stock market follow-on was fairly subdued last night, US bond yields kept on falling and it was a big night for commodity prices.

So the futures are saying up another 48 today.

Too Much, Too Soon?

While the Fed has now given the green light to buy stocks and bonds, and portfolio managers are quickly rethinking their 2024 strategies, already there is talk of a pull-forward of excitement that will result in a blow-off some time early next year.

The Santa Rally is still very much alive and well (remembering that strictly, a “Santa Rally” only occurs between Christmas and New Year), and last night traders were still piling into US bonds. The ten-year fell another -10 points to be below 4%.

While a “buy long bonds” strategy has been touted for a while now, the ten-year is now more than -100 basis points below its peak, hence while yields are expected to continue south, the bulk of the spoils have already been booked.

The stock markets were a little more subdued last night, following on with only a modest rally. But once again the expansion of breadth was evident, with the Mega Techs finding little joy but the Russell small cap up another 2.7% on top of Wednesday night’s 3%.

The rush is now on to catch up. No one is suggesting investors should dump Big Tech, but given elevated multiples, upside is limited, while the world is their oyster for the right stocks amongst the S&P493 and small caps.

If the catch-up turns into fully-blown FOMO, it won’t take much of a macro or micro shock next year, on the lagged impact of 525 points of rate hikes, to kill the party.

But for now, Wall Street is realigning for a Happy Holidays.

In other news, both the Bank of England and the ECB held their cash rates steady last night, at 5.25% and 4.00% respectively.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	2033.90	+ 13.90	0.69%
Silver (oz)	24.13	+ 0.44	1.86%
Copper (lb)	3.81	+ 0.09	2.34%
Aluminium (lb)	0.97	+ 0.03	2.77%
Nickel (lb)	7.44	+ 0.16	2.26%
Zinc (lb)	1.12	+ 0.03	3.11%
West Texas Crude	71.66	+ 2.12	3.05%
Brent Crude	76.64	+ 2.30	3.09%
Iron Ore (t)	135.22	+ 0.19	0.14%

The US dollar index fell another -1% last night. That alone provides for higher commodity prices, but lower rates mean lower costs and provide for a potential demand boost.

Suffice to say, the only item in the red on the table above was the dollar.

The Aussie is up 0.5% at US$0.6698.

Today

The SPI Overnight closed up 48 points or 0.6%.

A possible mood-spoiler today could be China’s release of November industrial production, retail sales and fixed asset investment numbers.

The US will also see industrial production tonight.

Flash estimates of December PMIs are due across the globe.

National Australia Bank ((NAB)) holds its AGM today.

It’s Christmas lunch Friday. Enjoy.

The Australian share market over the past thirty days…

Index	14 Dec 2023	Week To Date	Month To Date (Dec)	Quarter To Date (Oct-Dec)	Year To Date (2023)
S&P ASX 200 (ex-div)	7377.90	2.54%	4.10%	4.67%	4.82%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AD8	Audinate Group	Downgrade to Hold from Buy	Shaw and Partners
BSL	BlueScope Steel	Upgrade to Outperform from Neutral	Macquarie
CGC	Costa Group	Downgrade to Neutral from Outperform	Macquarie
ERD	Eroad	Downgrade to Hold from Buy	Bell Potter
LPD	Lepidico	Downgrade to Hold from Buy	Shaw and Partners
MGR	Mirvac Group	Downgrade to Equal-weight from Overweight	Morgan Stanley
SGM	Sims	Upgrade to Outperform from Neutral	Macquarie
SIQ	Smartgroup Corp	Downgrade to Hold from Add	Morgans
VUK	Virgin Money UK	Upgrade to Outperform from Neutral	Macquarie
WES	Wesfarmers	Downgrade to Neutral from Buy	UBS

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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