The Overnight Report: Risk Off

This story features BEACH ENERGY LIMITED, and other companies. For more info SHARE ANALYSIS: BPT

World Overnight
SPI Overnight	7930.00	– 87.00	– 1.09%
S&P ASX 200	8036.50	– 21.40	– 0.27%
S&P500	5544.59	– 43.68	– 0.78%
Nasdaq Comp	17871.22	– 125.70	– 0.70%
DJIA	40665.02	– 533.06	– 1.29%
S&P500 VIX	15.93	+ 1.45	10.01%
US 10-year yield	4.19	+ 0.04	1.04%
USD Index	104.19	+ 0.46	0.44%
FTSE100	8204.89	+ 17.43	0.21%
DAX30	18354.76	– 82.54	– 0.45%

SPI futures are indicating a dour day for the Australian market on Friday.

Good morning.

And on the second day there was no quick recovery from the damage done the day before, but neither did anyone pay much attention to the much speculated about Big Rotation.

Events that shaped the overnight price action:

-US equities slipped as tech stocks fell; USD strengthened against other majors

-US initial claims point to ongoing cooling in the labour market

-ECB left rates on hold, did not pre-commit to September, and remains data dependent

-US yields lifted overnight, with the curve steepening a touch

-The lack lack of any major policy shift in China weighed on sentiment for commodities

As reported by National Australia Bank this morning:

The S&P 500 closed -0.78% lower, extending its decline into a second consecutive day. Energy (0.3%) was the only sector closing in the green while the remaining ten major sectors closed with negative returns, led by Healthcare, down -2.3% and financials down -1.3%.

 Megacaps had a mixed day with Nvidia up over 2% and Apple down just over -2%. The NASDAQ also closed lower at -0.7% while the small caps Russel 2000 fell -2%, after recently hitting its most-overbought level since 2017.

Earlier in Europe, the Eurostoxx 600 index closed -0.16% weaker, extending its recent decline into a fourth consecutive day.

In summary: it was risk off across the board and SPI futures this morning are indicating screens full of red are to colour the final trading day of the week locally.

In the political arena, pressure keeps building on President Joe Biden to step aside and news reports are indicating Biden is willing to reconsider his political legacy.

ANZ Bank reports: “Crude oil was under pressure amid a broader risk-off tone across markets.

“Nevertheless, concerns over supply in the short term kept the losses minimal. In Canada, wildfires once again are threatening 400kb/d of oil production.

“Over the past 24 hours, 47 new fires have emerged in the oil sands rich area. Arid conditions are expected to exacerbate the situation in coming days.

“Several major Russian commodity exporters say that trade with China is becoming increasingly difficult. Direct payments made in CNY are being frozen or delayed. China has become Russia’s biggest customer for oil following US and European sanctions.

“This comes ahead of a meeting of OPEC’s monitoring committee, who will review the progress of the supply agreement between it and OPEC allies made earlier this year. Last month it announced it would restore roughly 2.2mb/d of halted output in the fourth quarter, but the ensuing selloff prompted it to stress it could change its mind should market conditions warrant it.

“Russia is also yet to outline its plan to reduce output to make up for overproducing under the current agreement.”

On the calendar today:

-Beach Energy ((BPT)) Quarterly update

-Newmont Corp ((NEM)) earnings report 2Q

-Whitehaven Coal ((WHC)) Quarterly update

Elsewhere:

-Japan June CPI

-UK June retail sales

Corporate news in Australia:

-AFR reports Ethical Partners is shutting down and returning nearly $2bn to investors, impacting Australian Clinical Labs ((ACL)) and Noble Oak Life ((NOL)) ownership

-Yesterday, Domino’s Pizza ((DMP)) issued yet another profit warning, closing down low-volume stores in France and Japan

-Also yesterday, Telix Pharmaceuticals ((TLX)) upgraded guidance for FY24

Spot Metals,Minerals & Energy Futures
Gold (oz)	2447.90	– 15.10	– 0.61%
Silver (oz)	30.02	– 0.50	– 1.64%
Copper (lb)	4.27	– 0.15	– 3.39%
Aluminium (lb)	1.08	– 0.01	– 0.87%
Nickel (lb)	7.41	– 0.02	– 0.30%
Zinc (lb)	1.27	– 0.02	– 1.23%
West Texas Crude	80.83	– 0.80	– 0.98%
Brent Crude	84.74	– 0.43	– 0.50%
Iron Ore (t)	108.73	– 0.21	– 0.19%

Nigel Green, CEO and Founder of deVere Group:

The ECB’s rate decision on Thursday to keep rates steady after the first cut in June underscores that the global economy is now entering a new era, meaning investors must adapt to the evolving economic landscape.

This is the analysis of Nigel Green, CEO and Founder of deVere Group, one of the world’s largest independent financial advisory and asset management organizations, as the European Central Bank kept interest rates unchanged at 4.25% while indicating that its next move is still set to be a cut, but the forward guidance was vague and caveat-laden.

He says: “Our base case scenario remains that the ECB will implement its next rate cut in September. 

“We expect that this will likely be followed by a series of gradual 25 basis point reductions each quarter, specifically in December, March, and June. This strategic pacing aims to support economic growth while managing inflationary pressures.

“The major factor contributing to the ECB’s cautious stance is sticky services prices. Services prices, in particular, are not falling in line with other sectors, thereby sustaining overall inflation levels. 

“This persistence is, we believe, due to long-term contracts, wage agreements, and the slower transmission of economic policies to the service sector compared to goods.”

Nigel Green continues: “The ECB’s rate decision on Thursday underscores that the global economy is now entering a new era.

“Central banks are making the complex transition from the most intense interest-rate tightening cycle in recent decades to a strategic and very gradual unwinding. 

“This shift marks a pivotal moment for global markets and investors, who must adapt to the evolving economic landscape and its implications for investment strategies.”

We are currently experiencing divergent paths of major economies. The US Federal Reserve has yet to commence its rate cuts, maintaining a wait-and-see approach as it closely monitors economic indicators.

Meanwhile, The Bank of Canada has already begun its process of easing, highlighting the varying timelines and strategies across different economies.

This divergence underscores the unique economic conditions and challenges faced by each central bank, signaling a move away from the synchronized policy responses that characterized the peak of the tightening cycle.

“The unwinding of monetary policies heralds significant implications for global markets and investors. As central banks begin to lower rates, bond yields are expected to decrease, impacting fixed-income investments,” notes the deVere Group CEO. 

“Equities will benefit from lower borrowing costs, potentially driving up stock prices. However, the pace and scale of these impacts will vary based on the specific trajectories of individual central banks and individual sectors.

Nigel Green concludes: “Diversification and adaptive strategies will be crucial in mitigating risk in the shifting landscape. 

“Understanding the interplay between monetary policy and economic conditions will be vital for making informed investment decisions and seizing the inevitable opportunities from the new era.”

The Australian share market over the past thirty days

Index	18 Jul 2024	Week To Date	Month To Date (Jul)	Quarter To Date (Jul-Sep)	Year To Date (2024)
S&P ASX 200 (ex-div)	8036.50	0.97%	3.46%	3.46%	5.87%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
BSL	BlueScope Steel	Upgrade to Buy from Neutral	Citi
CAR	CAR Group	Upgrade to Buy from Neutral	Citi
CTD	Corporate Travel Management	Downgrade to Hold from Accumulate	Ord Minnett
IRE	Iress	Upgrade to Add from Hold	Morgans
KLS	Kelsian Group	Upgrade to Buy from Hold	Ord Minnett
NIC	Nickel Industries	Upgrade to Buy from Neutral	Citi
PPS	Praemium	Downgrade to Hold from Buy	Ord Minnett
RIO	Rio Tinto	Upgrade to Add from Hold	Morgans
SEK	Seek	Downgrade to Neutral from Outperform	Macquarie

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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