The Monday Report – 05 February 2024

Array
(
    [0] => Array
        (
            [0] => ((GMG))
            [1] => ((AGL))
        )

    [1] => Array
        (
            [0] => GMG
            [1] => AGL
        )

)

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

By Greg Peel

Let’s Get High

The ASX200 opened up 58 points on Friday morning and just kept going, closing a pip under 7700 to mark a new all time high. Mind you, 93 points of the 111 point gain were required just to return to Wednesday’s close.

To say the market is a bit volatile at present would be an understatement. Despite the S&P500 jumping another 1% on Friday night, our futures were down -54 points on Saturday morning.

Strength on Wall Street overnight, featuring an ongoing fall in bond yields was behind the move, but so too was a big aftermarket move up from Meta, which was sure to fire up the Nasdaq on Friday night.

Our technology sector rose 3.1% on Friday.

But it wasn’t the best performer. Real estate rose 3.3% not because of local bond yields, which only fell a couple of points, but because Goodman Group ((GMG)) jumped 6.2% after Citi espoused the virtues of a new data centre campus in Tokyo Goodman is building. Growth in data centres also featured in Big Tech market updates in the US.

Thereafter, every sector rose by more than 1% in relatively uniform, market-wide fashion. Except for utilities.

Utilities fell -0.4% because AGL Energy ((AGL)) lost -4.3% to be the worst index performer on the day. Macquarie downgraded the stock to Neutral, citing an anticipated surge in summer electricity demand that has failed to happen.

Adding to the euphoria was the December producer price index, which fell -0.9% quarter on quarter to an annual rate of 1.8%. Good to see a lower quarterly, but annually, prices are still rising.

Euphoria does seemed to be the case on Friday. Traders were right to punt on the Meta impact, as that stock rose 20% on Friday night. But just what do Meta and the Australian stock market have in common?

Whether or not the weekend’s retaliatory strikes in the Middle East by the US of Friday night had futures traders worried, a fall of -54 or points or -0.7% when Wall Street was up strongly on Friday night suggests a belief Friday locally was a bit overdone.

We shall see.

Parallel Universe

The US added 353,000 jobs in January when 176,500 were forecast. The US ten-year yield jumped 17 points to 4.03%. The S&P500 rose 1.1% to another new all-time high.

Toto, I don’t think we’re in Kansas anymore.

Commentators put the big jump in yields down to short-covering in what had become an overbought bond market, driven by the excitement of anticipated Fed rate cuts. The jobs number suggests the Fed will now be even less inclined than it has already indicated to deliver the first cut in March.

As we entered January, the futures market was putting the chance of a March rate cut at around 70%. As of Friday night, that’s down to 20%. But is Wall Street bovvered?

Admittedly, while all eyes were on Meta’s stunning leap, Amazon had also reported earnings after the bell on Thursday night and it rose 7.9% on Friday night. That move alone would be enough to shift the Nasdaq dial.

The third Mag7 reporter on Thursday night was Apple, but it fell on Friday night. Only by -0.5% though.

So jobs aside, it’s easy to explain why the Nasdaq rose 1.7%, and that drags up the S&P500. But the Dow also rose to another record high, if only modestly. The bump up in yields did not derail the market in general.

Which begs the question: what will?

Earnings results have been a net beat to date, as the halfway mark for S&P500 companies is set to be passed this week – the second very big week in terms of number of reporting companies.

Escalating tensions in the Middle East have not seemed to faze anyone, yet, and now the stock market is responding favourably to higher yields. For years – basically since the GFC – good news has been seen as bad news on the Fed policy front.

Good news is now good. The US economy appears to be achieving a much-feted “soft landing”. Or is that “no landing”? Recent data suggest rumours of an economic slowdown (never mind a recession) have been greatly exaggerated.

Commodities

It would seem the Evergrande situation is outweighing Beijing’s stimulus measures with regard the impact on metals prices. There may nevertheless be some squaring up before China shuts down for a week from Friday.

The bounce in bond yields hit gold.

The oils are not responding as one might have expected, or how they have responded to conflict in the past. China relies heavily on oil exports from Iran, as well as Russia, and sends its cargoes through the Red Sea, so there may be some hope Beijing will get involved and try and calm things down.

The US dollar jumped 0.8% along with yields, and the Aussie is down -0.9% at US$0.6517.

The SPI Overnight closed down -54 points or -0.7%.

The Week Ahead

Tomorrow brings the first RBA meeting for 2024, with the meeting calendar now cut down to eight from eleven per year. This ends the longstanding first-Tuesday-of-the-month run, other than tomorrow. Might make Cup Day more relaxed.

There is no chance the RBA will hike. Will they hint at cuts? The RBA will also issue a Statement on Monetary Policy, which was previously always on a Friday.

Local data this week include job ads, trade and December quarter retail volumes.

Global services PMIs are due today.

Friday is the start of China’s week-long New Year holiday.

A quiet economic week in the US brings trade numbers. Earnings season will continue a-pace nonetheless.

The local earnings season will ramp up – quietly at first, before the trickle becomes a flood in subsequent weeks.

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