The Overnight Report: In Its Stride

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

By Greg Peel

Not Yet

The ASX200 managed yesterday to string together two consecutive sessions in the same direction, falling -83 points in the first hour to recover to be down -44. Don’t think the volatility is now passed. The futures are up 55 points this morning.

What was most notable yesterday was a complete lack of any market response to the RBA decision, press conference and Statement on Monetary Policy. The cash rate was left at 4.35% as universally expected.

Those looking for a hint that rate cuts are on the way would have been disappointed, with the board sticking to its (slightly) hawkish guns. Only the subtlest of changes was noted in the statement. The December statement declared:

“Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.”

Yesterday’s statement:

“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out.”

So we’ve gone from “whether another hike is needed” to “another hike cannot be ruled out”. I suspect Michele Bullock wants to make sure the market doesn’t get ahead of itself in anticipating cuts in the short term, echoing Jerome Powell. Economists agree the first cut is most likely towards the end of the year.

As for the press conference, most notable was the lack of anything concrete.

The Aussie ten-year yield rose 3 points.

While technology was the worst performing sector yesterday (-1.8%), it was again materials that led the market down (-1.1%). Energy, however, was the only sector to close in the green (+0.4%).

Real estate (-0.9%), utilities (-0.9%) and industrials (-0.6%) all looked like they were hoping for a rate cut tip-off, but they were all down before the RBA piped up.

The banks again somewhat outperformed in falling only -0.4%, while healthcare’s -0.4% fall was a good effort considering Cochlear ((COH)) dropped -6.9% following a downgrade to Sell from UBS. Five brokers monitored daily by FNArena now have Sell or equivalent ratings.

The consumer sectors fell only slightly, perhaps buoyed by the December quarter sales volumes data. Volumes rose 0.3%, having fallen -0.1% in September and -1.1% in June. T’was nonetheless the season to be shopping, and sales are down -1.0% year on year, and much more on a per capita basis.

Not all retailers are doing it tough however. Nick Scali ((NCK)) reported earnings yesterday and its shares jumped 16.6%.

More Cold Water

Following on from Jerome Powell’s declaration of a March rate cut being “unlikely”, last night the Cleveland Fed president said "it would be a mistake to move rates down too soon or too quickly without sufficient evidence that inflation was on a sustainable and timely path back to 2%”.

But if the economy improves as expected, the Fed "will gain that confidence later this year, and then we can begin moving rates down."

The Minneapolis Fed President said recent inflation data have been surprisingly positive but that the Federal Reserve is "not all the way there yet" when it comes to tackling higher prices.

Wall Street shrugged. The ten-year yield fell -7 points and the major indices closed modestly higher. The market has come to terms with rate cuts not coming as quickly as hoped, but is happy in the knowledge they will come, eventually.

The only concern at present is that market leadership has once again narrowed to the Mega Techs (such as Meta’s 20% pop), and that the pleasing increase in breadth seen late last year has now eased again. There is confidence breadth will pick up, eventually.

Notably there has been no signs of panic as the latest regional bank crisis unfolds. New York Community Bancorp fell -22% last night, having similarly been crunched on Monday after revealing issues with its commercial real estate exposure. Wall Street has been concerned about a possible crash in the CRE space ever since the Fed started hiking rates.

It hasn’t happened yet, in any big way. Treasurer Janet Yellen said last night she was focusing on the matter.

Wall Street is confident that within the CRE space, it’s really only the office segment that is in difficulty, given high vacancy rates. Elsewhere, real estate remains strong, particularly in residential apartment blocks and data centres.

The more general concern is that the stock market has run too far, too fast, and some consolidation will be needed.

Ford has reported earnings after the bell this morning, and is up 6%.

Commodities

A little bit of stability has set in.

Bullock’s hawkishness has saved the Aussie. It’s up 0.6% at US$0.6523.

Today

The SPI Overnight closed up 55 points or 0.7%. Go figure.

There is a trickle of small cap earnings results due today. FNArena's Corporate Results Monitor: https://fnarena.com/index.php/reporting_season/ (with calendar).

ResMed ((RMD)) goes ex.

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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