Daily Market Reports | 8:41 AM
This story features BHP GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: BHP
| World Overnight | |||
| SPI Overnight | 7952.00 | + 11.00 | 0.14% |
| S&P ASX 200 | 7971.10 | + 39.40 | 0.50% |
| S&P500 | 5555.74 | – 8.67 | – 0.16% |
| Nasdaq Comp | 17997.35 | – 10.22 | – 0.06% |
| DJIA | 40358.09 | – 57.35 | – 0.14% |
| S&P500 VIX | 14.72 | – 0.19 | – 1.27% |
| US 10-year yield | 4.24 | – 0.02 | – 0.49% |
| USD Index | 104.44 | + 0.16 | 0.15% |
| FTSE100 | 8167.37 | – 31.41 | – 0.38% |
| DAX30 | 18557.70 | + 150.63 | 0.82% |
By Chris Weston, Head of Research, Pepperstone
Good morning.
-US earnings in play the reaction in after-hours trade
-US small caps outperform flat leads from the S&P500 & NAS100
-Asia equity opening calls
-JPY shorts get crushed as carry unwinds
-Event risk for the session ahead
Much of the focus for equity traders fell in the US after-hours session, where we’ve seen earnings drop from Visa, Texas Instruments, Alphabet, and trader favourite Tesla.
Tesla has caught the attention of traders, with shares -6.4% in after-hours trade. A punchy move, although, guided by options pricing which implied a -/+7.8% move on the day of reporting, some had been expecting an even more pronounced move and perhaps that eventuates when US cash equity opens in the session ahead.
A big miss to Q2 EPS and free cash flow was a factor, but guidance on production and volume growth fell short, and gross margins (ex-regulatory) fell to 14.6% (from 16.4% in Q1). Technically, the price has been consolidating in a US$265 to US$235 range, and given the moves after hours, the lower levels of this range are in play, and we question if the share price finds the same support we saw on 12 July.
Alphabet initially rallied some 2% on earnings, with Q2 earnings coming in above expectations, and search and operating margins nicely above expectations. Shareholders saw a business in good shape, but as the analyst call got underway, sellers have pushed the stock lower, and we now sit -1.6% in the after-hours, which makes for an interesting cash trade ahead.
S&P500 and NAS100 futures are largely unchanged after the earnings numbers, with very little change (in after-hours trade) in the mega market cap companies that hold the big weighting on the respective indices. While we saw a strong performance in the Russell 2k, the flat close in the S&P500 and NAS100 results in our opening calls for Asia indices looking a little soggy, with flat unwinds expected in the ASX200, NKY225 and HK50.
Looking at the sectors, by way of leads for Asia, we see S&P500 materials and financials outperforming, so it makes some sense that the ASX200 will outperform the region on open, and why we see small gains coming in the ASX200, which has the big index weights in these two sectors. BHP Group ((BHP)) shares, by way of a loose guide, should open 0.2% higher (given the ADR pricing).
Looking at the tape in the ASX200 yesterday, we peaked at 7993 after two hours of trade, and subsequently saw a slow grind lower, with energy and materials names out of favour. Today, while energy faces headwinds, we should see a better bid in materials names.
However, sentiment towards China is hardly inspiring, either in the flows we’re seeing in China/HK equity or copper and iron ore futures, which can’t find a friend and where elevated inventory levels suggest rallies will likely be sold here. Crude also looks weak, and we see US crude -1% lower from where the ASX200 energy equity names closed yesterday, and that needs to be priced in on open.
I would be watching to see if the USD rally gets legs from here, and we see EURUSD push towards 1.0800, with AUDUSD eyeing the former range lows of 0.6600.
On the US earnings side, notable names that fall on client’s radars are IBM, and Newmont Corp ((NEM)) who report after markets.
On the calendar today:
-Newmont Corp ((NEM)) Quarterly earnings
-Pilbara Minerals ((PLS)) Quarterly report
-PMIs the world around
-US Existing home sales
-Bank of Canada rate decision
Note: The BoC is widely expected to cut rates to 4.50% from 4.75%. At 88%, markets are well priced for this outcome and it would be the second consecutive rate cut in this cycle.
Corporate news in Australia:
-SunRice ((SGLLV)) is buying SavourLife, a pet food company that donates half its profits to rescue dogs, for $20.3m
-Arena REIT ((ARF)) is raising $120m to acquire 10 new early learning centre assets
-Not to forget: newspaper journalists at Nine Entertainment ((NEC)) are on strike as management and staff cannot agree on wage increases
-Yesterday, PolyNovo’s trading update was well received
About Q2 earnings in the US:
Overnight. mixed responses to earnings news contributed to the mixed sentiment in the market.
UPS (UPS 127.68, -17.50, -12.1%) was among the losing standouts, having missed earnings forecasts. NXP Semiconductors (NXPI 262.30, -21.51, -7.6%), and Nucor (NUE161.55, -1.79, -1.1%) were also among the notable losers following quarterly results.
Spotify (SPOT 330.79, +35.34, +12.0%), Lockheed Martin (LMT 501.29, +26.70, +5.6%), and Sherwin-Williams (SWH 344.50, +22.15, +6.9%) were winning standouts.
Only three of the S&P500 sectors registered gains — materials (+0.4%), financials (+0.1%), and consumer discretionary (+0.02%) — while the energy (-1.6%), utilities (-0.7%), and consumer staples (-0.3%) registered the largest declines.
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 2410.70 | + 12.30 | 0.51% |
| Silver (oz) | 29.41 | + 0.11 | 0.38% |
| Copper (lb) | 4.17 | – 0.03 | – 0.65% |
| Aluminium (lb) | 1.04 | – 0.01 | – 0.69% |
| Nickel (lb) | 7.24 | – 0.06 | – 0.80% |
| Zinc (lb) | 1.22 | – 0.02 | – 1.31% |
| West Texas Crude | 77.47 | – 0.81 | – 1.03% |
| Brent Crude | 81.56 | – 0.72 | – 0.88% |
| Iron Ore (t) | 107.79 | – 0.37 | – 0.34% |
Samer Hasn, Market Analyst at XS.com:
Gold is heading to stop its streak of losses extending for four consecutive days today and rise by 0.5%, reaching the level of US$2,408 per ounce for spot prices.
Gold’s recovery comes amid further escalation in the Middle East, with the absence of real signs of calm, in addition to more concerns about the possibility of a recovery in the Chinese economy, in addition to continued high hopes about the Fed cutting interest rates.
While these gains come despite the resumption of the dollar’s recovery.
This also comes amid preoccupation with developments in the presidential race in the United States, which witnesses sharp turns from time to time.
In Gaza, there is nothing new except the ongoing escalation, with new evacuation orders for residents in Khan Yunis and a narrowing of the humanitarian zone, according to The New York Times.
At the same time, Prime Minister Benjamin Netanyahu is preparing to meet with the highest-ranking US administration officials and to deliver a speech to Congress this week. This is in order to mobilize more support in light of the international isolation and voices denouncing the military operations.
While this visit may not receive attention at this time and uncertainty, according to what The Times also reported.
This comes amidst the preoccupation with developments in the presidential elections in the US after the withdrawal of Joe Biden and the focus of the spotlight on Camilla Harris as a potential alternative candidate for the Democratic Party.
On the other hand, Netanyahu said that an agreement that would return the prisoners is close, and this statement comes before the resumption of negotiations today.
However, Hamas believes that Netanyahu aims to procrastinate in negotiations, which he uses as a means to calm the Israeli interior, according to Reuters.
This procrastination has been mentioned by many reports previously, as Netanyahu is counting on Donald Trump’s return to the White House to free Israel’s hand in the region.
This would prolong the war and keep fears as high as ever of the major escalation in the South Lebanon front, according to The Times as well.
Therefore, I believe that the coming days may be among the fateful days in the course of the Middle East war.
If Harris is unable to obtain sufficient support from the American voter, this will push Netanyahu to adhere to his bet on Trump’s return and thus further procrastination and stumbling in the negotiations.
I believe that this geopolitical narrative of continuous escalation will preserve gold’s lustre as a safe haven in times of crises.
Gold is also gaining more lustre with the return of fears again about the future of the Chinese economy, with pessimism about the future steps that the government may take to support growth. These fears were also reflected in a sharp decline in Chinese stocks, as the CSI 300 index recorded its worst daily performance this year, with a decline of more than -2%.
This pessimism comes after the document issued after the ruling Communist Party’s meeting on Sunday, which did not meet the high expectations that were hoped that the major crises facing the economy would be tackled, according to The Wall Street Journal.
This also comes despite the unexpected interest rate cut by the People’s Bank of China, which it said was to support the real economy.
This weak sentiment about the ability of the Chinese economy to recover may keep the appetite for possession of gold coins high among individuals there, especially with the continued weak appetite for real estate investment, which is witnessing a continuous contraction in prices.
Farther away, back in the US, continued high optimism bordering on certainty about the possibility of a rate cut in September and another cut that could follow in November or December provides gold with more support to keep its gains.
The probability of a -25-basis point cut in September is 90% and more than 40% for another cut of the same amount for both November and December, according to the CME FedWatch Tool.
The Australian share market over the past thirty days
| Index | 23 Jul 2024 | Week To Date | Month To Date (Jul) | Quarter To Date (Jul-Sep) | Year To Date (2024) |
|---|---|---|---|---|---|
| S&P ASX 200 (ex-div) | 7971.10 | -0.01% | 2.62% | 2.62% | 5.01% |
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| ABG | Abacus Group | Downgrade to Neutral from Outperform | Macquarie |
| ACF | Acrow | Upgrade to Buy from Accumulate | Ord Minnett |
| AFG | Australian Finance Group | Upgrade to Neutral from Sell | Citi |
| ALQ | ALS Ltd | Upgrade to Buy from Neutral | UBS |
| ARF | Arena REIT | Downgrade to Neutral from Outperform | Macquarie |
| CIP | Centuria Industrial REIT | Downgrade to Neutral from Outperform | Macquarie |
| DRO | DroneShield | Downgrade to Hold from Buy | Bell Potter |
| Downgrade to Hold from Buy | Shaw and Partners | ||
| FLT | Flight Centre Travel | Upgrade to Buy from Neutral | UBS |
| GMD | Genesis Minerals | Downgrade to Neutral from Buy | UBS |
| GMG | Goodman Group | Downgrade to Neutral from Outperform | Macquarie |
| GOZ | Growthpoint Properties Australia | Downgrade to Neutral from Outperform | Macquarie |
| IFL | Insignia Financial | Upgrade to Neutral from Sell | Citi |
| MIN | Mineral Resources | Upgrade to Add from Hold | Morgans |
| MYS | Mystate | Downgrade to Accumulate from Buy | Ord Minnett |
| RGN | Region Group | Upgrade to Outperform from Neutral | Macquarie |
| S32 | South32 | Upgrade to Buy from Neutral | Citi |
| UNI | Universal Store | Upgrade to Buy from Accumulate | Ord Minnett |
| WHC | Whitehaven Coal | Upgrade to Buy from Hold | Bell Potter |
| Downgrade to Neutral from Buy | Citi | ||
| Downgrade to Neutral from Outperform | Macquarie | ||
For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.
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CHARTS
For more info SHARE ANALYSIS: ARF - ARENA REIT
For more info SHARE ANALYSIS: BHP - BHP GROUP LIMITED
For more info SHARE ANALYSIS: NEC - NINE ENTERTAINMENT CO. HOLDINGS LIMITED
For more info SHARE ANALYSIS: NEM - NEWMONT CORPORATION REGISTERED
For more info SHARE ANALYSIS: PLS - PILBARA MINERALS LIMITED