The Overnight Report: Counter-Trend

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            [1] => ((RIO))
            [2] => ((JHX))
            [3] => ((RMD))
            [4] => ((WHC))
            [5] => ((SM1))
            [6] => ((MHJ))
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            [4] => WHC
            [5] => SM1
            [6] => MHJ
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This story features BHP GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: BHP
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Rudi Filapek-Vandyck

Greg Peel will return next week.

The ruling story hasn't changed on Wall Street; US Treasuries have been pushed too hard, resulting in too aggressive positioning for Fed rate cuts.

Yesterday's US labour market update revealed a surprising fall to a 16-month low of 187,000 initial jobless claims compared with 203,000 prior and market forecasts that equally were above 200,000. It's the lowest level since 2022. At face value, this provides yet more evidence that traders will need to pare back their timing for Fed rate cuts.

Housing starts/permits equally beat expectations.

The difference this time was that equities weren't simply going to lay down and undergo yet another day of valuation re-adjustment. This time, traders looked for potential beneficiaries of a stronger-than-feared US economy, and they chose technology stocks to follow-through on the chosen narrative.

Bottom line: US equities had a positive session. SPI futures are indicating this will be well-received locally at 10am.

The irony here is that while US Treasuries have been positioned for too aggressive a timeline regarding Fed rate cuts (let's take that as a given for the time being), with economic data proving stronger-than-expected, in Australia the general sense is the RBA is more hawkish still, but economic data are surprising to the downside.

Yesterday's update on the local labour market is a case in point; underneath the face value number, local dynamics range from weak to weakening and much weaker.

As pointed out by the economics team at National Australia Bank: "Abstracting from the volatility, trend employment growth is growing by around 19k a month, which is a softer than the 31k a month needed to keep the unemployment rate from rising.

"If sustained, that would see the unemployment rate lifting a tenth every three months in 2024, and labour market tightness easing in line with the SoMP forecast of a 4.2% unemployment rate."

Let's continue with NAB commentary: "Oil prices show gains of around 1-2%, with the IEA saying that global oil markets are likely to remain “reasonably well-supplied”.

A supply surplus from next quarter through to the end of the year could develop, with world oil demand growth set to decelerate significantly, while supply increases outside of OPEC increase. Brent crude has a USD79 handle and has remained in a tight trading range so far this year."

In New York, BHP Group ((BHP)) shares lagged as investors responded to what has been labeled a disappointing quarterly production update. Rio Tinto ((RIO)) shares enjoyed the newfound upward momentum, as did the likes of James Hardie ((JHX)) and ResMed ((RMD)).

Gold too had a positive session, as did iron ore. Observation from RBC Capital: "Oil prices remain violently rangebound to start the year. While that sounds like an oxymoron, it accurately describes the push and pull plaguing the market." Ongoing geopolitical tensions are providing a natural floor for oil markets.

Market dynamics for natural gas are different. The recent freezing weather across Texas and Louisiana is disrupting scheduled exports of US LNG. Thus far, market concerns have been tempered by a general sense any impact will likely be short-term, with warmer weather scheduled for next week. High inventories in Asia and Europe are also crimping any gains.

In the base metals space, nickel is struggling, as also indicated by BHP yesterday (Indonesia is to blame).

Meanwhile, in the background of it all, US bond yields continue their path upwards.

On the calendar locally today we have Whitehaven Coal ((WHC)) releasing its December quarter production report, while Synlait Milk ((SM1)) has increased its 2023/2024 season milk price forecast to NZ$7.50 ($6.98) per kilo milk solid (kgMS) from NZ$7.25 as dairy prices improve.

NZ-based jeweler Michael Hill International ((MHJ)) expects a first half profit for FY24 of between $30m and $33m, while flagging lower margins due to challenging market conditions.

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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