The Monday Report – 29 January 2024

Array
(
    [0] => Array
        (
            [0] => ((FMG))
            [1] => ((RMD))
            [2] => ((DMP))
            [3] => ((CIA))
            [4] => ((CCP))
            [5] => ((IGO))
            [6] => ((PNI))
        )

    [1] => Array
        (
            [0] => FMG
            [1] => RMD
            [2] => DMP
            [3] => CIA
            [4] => CCP
            [5] => IGO
            [6] => PNI
        )

)

This story features FORTESCUE LIMITED, and other companies.
For more info SHARE ANALYSIS: FMG
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Thursday

The ASX200 shot out of the blocks from the open on Thursday, but found no love. The index then drifted back to around square again by lunchtime as the market eyed the long weekend.

That might have been the way it ended if not for the PBoC, which surprised by signalling its intention to cut the reserve requirement ratio (RRR) for Chinese banks by -0.5% – a move which effectively releases around US$140bn into the market — and that more stimulus measures are being considered.

The announcement lifted the Chinese and Hong Kong stock markets, as is the plan, and the ASX200 ultimately closed where it had reached in the first half hour.

Unsurprisingly, the materials sectors again led the way with a 1.4% gain, and energy suddenly woke up as well after a somnolent week, rising 0.9%.

A positive quarterly result from Fortescue Metals ((FMG)) helped materials along, while a well-received earnings result from ResMed ((RMD)) pushed that stock up 6.4%, and healthcare 0.8%.

ResMed still has some way to make up to return to levels seen mid last year before weight-loss drugs upended the ship.

The banks managed a 0.2% gain but the rest of the sectors largely sat out the session. Technology fell -0.4%, attributed to a weak result in the US from Tesla, sending all Australian EV manufacturers tumbling.

(The reality is Tesla down equals Nasdaq down, perhaps, and our tech sector tends to blindly follow the Nasdaq.)

The bond market was indeed in holiday mode, with little change on the day.

Consumer discretionary did well to close flat, given a supreme -31% thumping of Domino’s Pizza ((DMP)). The covid darling announced it was withdrawing FY24 guidance due to a drop in sales in Asia in the first half.

Domino shares peaked over $160 in September 2021, and closed on Thursday under $40, about where it was in early 2019.

Following another solid session on Wall Street on Thursday night, in which the Nasdaq posted a modest gain, our futures closed up 15 points on Friday morning.

Thursday Night

Tesla ultimately closed down -12%, warning of slower sales ahead amidst waning EV demand and increased competition from China’s BYD.

By contrast, IBM jumped 9% on an earnings beat.

Results played little part on Thursday night as the economy took centre stage.

The US December quarter GDP showed 3.3% annualised growth, which was somewhat of a surprise. It was somewhat of a surprise because economists had forecast 1.7%. What’s more, in a year which began with near-universal expectations of a recession, the US economy grew 2.5% in 2023, having grown 1.9% in 2022 – the year when a recession was first anticipated due to rapid Fed rate hikes.

The result suggests that maybe, just maybe, the Fed has pulled off a soft landing.

The US ten-year yield fell -5 points to 4.13%, which seems rather contradictory on a much stronger than expected growth result. The fall was due to inflation numbers contained with the GDP breakdown.

The personal consumption expenditures price index posted a quarterly gain of a mere 1.7% at the headline, and 2.0% at the core. Core PCE is the Fed’s preferred inflation measure, and the target is 2%.

All eyes were then peeled for Friday night’s December PCE data.

The double-whammy of strong growth and falling inflation, along with still-low unemployment, implies the US is sitting pretty.

As reflected in another record close for the S&P500. This time, without the Nasdaq being the major contributor through tech stock gains.

Nonetheless, Microsoft rose 0.6% on Thursday night after announcing staff layoffs. In so doing, it closed with a market cap in excess of US$3trn, thus joining Apple.

The S&P closed up 0.5% and the Nasdaq 0.2%, while the Dow, which had lagged all week, gained 0.6%.

Friday Night

US headline PCE inflation for December came in at 2.6%, unchanged from November and in line with expectation. The core PCE fell to 2.9% from 3.2%, below 3.0% expectation.

The US ten-year yield nonetheless rose 3 points to 4.16%, possibly because the PCE component within the December quarter GDP numbers suggested the month of December number might be lower.

Either way, anticipation around this week’s Fed rate decision is not quite as hyped as usual. Wall Street will be looking for clues around first rate cut timing, but most expect Powell to push back against cutting as early as March.

The stock market was not overly excited by the PCE data, giving up earlier gains to close slightly lower for the S&P500. One influence on the session was the earnings result and guidance from Intel, which had that stock down -12%.

The result led to weakness in other chipmaker names, to varying extents. Otherwise, with the bulk of the Mag7 reporting this week, and the solid run-up in the market to date, it’s no surprise traders would square up. Tech stocks led the weakness, as can be seen in the Nasdaq.

The S&P500 marked its first down-day in six, but nonetheless posted its twelfth positive week in thirteen.

The Dow was boosted by a positive result for American Express, which rose 7%.

Commodities

Note that the price moves on the table above take in two sessions offshore.

The standout is oil prices, which remain subject to Middle East tensions that only escalated over the weekend.

The Aussie is barely changed at US$0.6579.

The SPI Overnight closed up 14 points on Saturday morning, on top of 15 on Friday morning, for a net 29.

The Week Ahead

The big event for the local market this week will be the release of the December quarter CPI on Wednesday.

Ahead of the CPI we’ll see December retail sales tomorrow – not as critical as they used to be because Christmas shopping is now a November deal (Black Friday). We’ll also see the PPI this week, along with monthly numbers for private sector credit and building approvals.

The US will see consumer confidence, along with job openings, private sector jobs and the non-farm payrolls report on Friday night.

The Bank of England holds a policy meeting.

China will report January PMIs on Wednesday, and everyone else will follow suit in February.

On the local market there will be a last minute rush to provide quarterly reports ahead of the February result season. There are a handful to get through, which will overlap with early result reporters.

Results are due next week for Champion Iron ((CIA)), Credit Corp ((CCP)), IGO Ltd ((IGO)) and Pinnacle Investments ((PNI)).

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.

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

Click to view our Glossary of Financial Terms