The Overnight Report: September Came Late?

This story features APA GROUP, and other companies. For more info SHARE ANALYSIS: APA

Another day another weak performance looks to be in store for the Australian bourse today. Remember when September weakness was anticipated, but it never arrived?

The sellers might have their calendar timing wrong this year. Bond yields are on the rise. The US election remains anybody’s call. Corporate market updates locally seem to have a negative skew.

SPI futures are suggesting another weak opening for Thursday morning, albeit not in a dramatic fashion.

By Chris Weston, Head of Research, Pepperstone

Good morning.

As we look across the screen, we see a sea of red out there in the market, with a solid pairing back of extended positioning in risk, although we did see a lift in US equity in the last hour of trade.

No clear smoking gun behind the unwind, and price action speaks to a market that was overly rich and well-owned, and as the cracks started to emerge the signal was there for others to follow, with the ensuing selling cascading as mechanical and hedging flows exacerbated the moves.

Some will point to the ongoing sell-off in the US 10yr Treasury, with yields printing yet another higher high, taking the move from 3.59% (17 Sept) to 4.24%.

Certainly, there is ongoing concern about constrained dealer balance sheets, which can typically lead to deleveraging of US Treasuries and higher yields.

A higher discount rate negatively impacts the present value of an investment and while supply and rising term premiums have been a factor driving higher long-end rates, the bulk of the move in yield has been driven by extended longs reversing their position amid a repricing of Fed cut expectations driven by better growth a dynamic that is hardly a headwind for equity appreciation.

In the absence of any one catalyst, I’m not sure cherry-picking a reason for the move, when it’s not immediately obvious, does little to aid one’s trading performance, and an assessment of price action, sentiment and flow is a far better consideration.

Across markets, the technical set-up in the NAS100 and S&P500 futures suggests both markets could well have hit a distribution phase.

With the recent consolidation breaking down, it lifts the prospects of a further drawdown into month-end and ahead of the upcoming US nonfarm payrolls print, ISM manufacturing & services reports, the US election and November FOMC meeting.

Tech has driven the move lower, and while we’ve seen news that has weighed on QUALCOMM and ARM, we’re seeing broad-based selling across the AI, semis, and tech space.

Perhaps there was some angst to buy equity risk ahead of the post-market earnings numbers from IBM and Tesla, but that seems a far stretch.

Tesla has certainly caught the attention of traders with its numbers clearly resonating, compelling shorts to reluctantly cover and we see the stock up an impressive 9% after-hours.

Beats have been seen across many of the reporting metrics, with better-than-feared gross margins, cash flow, and operating income, with its guidance backing the goodwill, with expectations of slight growth in deliveries in 2024.

IBM has gone the other way, with shares -3.4% after hours, missing the mark on Q3 sales, although we did see beats in free Cash flow, gross margins, and EPS, with it’s GenAI book up US$1bn q/q to sit at more than US$3bn.

Gold and silver have also caught up in the position adjustment with price falling from US$2758 to session lows of US$2708 before stabilising and drifting higher into rollover.

The selling wasn’t confined to precious metals, where we see copper, crude, and Dalian iron ore futures lower on the session.

Turning to Asia we see our opening calls for the Asia indices pointing to selling on open, although the late session rally in the S&P500 has seen these negative calls lift.

By way of event risk, it’s PMI day, with manufacturing and services PMIs seen in Australia, Japan, Europe, the UK, and the US.

I wouldn’t expect the market to show any consideration to PMIs in Australia or Japan, but we could see a reaction in the UK and EU rates market to the outcome and by extension the data could impact the GBP and EUR.

We see a raft of US corporates due to report.

On the calendar today:

-US Sept New home sale

-Global Oct PMIs

-APA Group ((APA)) AGM

-Brambles ((BXB)) AGM

-Challenger ((CGF)) AGM

-Chorus ((CNU)) AGM

-Dicker Data ((DDR)) AGM

-Fortescue ((FMG)) Qtrly update

-Insurance Australia Group ((IAG)) AGM

-Insignia Financial ((IFL)) Qtrly update

-Karoon Energy ((KAR)) Qtrly update

-Maas Group ((MGH)) AGM

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

Corporate news in Australia:

-Ventia Services ((VNT)) extended its $125m cleaning contract with NSW Public Works through 2025

-Crypto hedge fund managers JellyC and Trovio Asset Management have merged as part of an effort to attract allocations from institutional investors such as pension funds

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