The Overnight Report: And Again

By Greg Peel

Data-Dependent

In October the RBA shocked the world by hiking by only 25 points when all and sundry were convinced another 50 points would be required to combat inflation. If anything things looked even more grim heading into November, but the RBA stuck to its guns and delivered another 25.

The board was concerned that the swift and extensive policy tightening was hitting households and businesses too hard and too fast, and a slowing of the pace would ease some of the pressure, even if the end-goal was unchanged. The RBA would have liked to have hiked by 50 on both occasions – it was discussed – but settled on 25 anyway.

So why anyone thought the RBA would stop dead this month beggars belief. They have a pretty good opportunity to stop dead in January.

The computers, who are even bigger fools, sent the ASX200 down -40 points in the first ten minutes yesterday, blindly following Wall Street, but the humans had the index back to square by 2.30pm. Then we fell -34 points to the close. Probably computers again.

It’s for the best, as it turns out – Wall Street was down again overnight.

“The Board expects to increase interest rates further over the period ahead, but it is not on a pre-set course.”

“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”

The next decision will be made in two months’ time. A lot can happen in two months.

In the wash up yesterday, it was coal and fertiliser up, gold and lithium down. That netted to a -0.7% fall for materials, which is about all that matters these days. Energy was strangely up 0.2% when oil prices were down overnight. Oil prices were down -4% last night.

Staples, industrials and utilities put up some defensive resistance, while all other sectors closed down.

Technology was the worst performer (-2.0%), following the Nasdaq.

Real estate took another hit (-1.0%), as hopes of a pause were shattered. The banks went back into rate-hike-bad mode (-0.6%), wasting no time in passing on the hike in full. When was the last time we heard a pollie ranting about mortgage rates? Thems were the days.

We’ll get the GDP result today, which doesn’t seem to matter that much. It’s going to be a cracker – up over 6% is the forecast – but totally misleading as we’ll be cycling the delta lockdowns in last year’s September quarter.

The annual growth rate will be more like 2%. Enjoy it while it lasts.

Wall Street has tanked again, this time without a reason. Our futures are down -37 this morning.

Belt-Tightening and Lay-Offs

I noted yesterday the strong US services PMI was more of an excuse than a driver of Wall Street’s fall on Monday night, given the S&P500 rally had already ominously stalled at the downtrend line. I also noted the S&P had closed just below support at 4000.

There was no specific reason for Wall Street to fall again last night, other than the above.

Unless something comes out of the blue before Christmas – Putin’s assassination would be a good one, the end of Chinese zero-covid hasn’t cut it – then it looks like Santa’s not going to bother this year. Reminiscent of 2018.

Oil prices said it all last night, down -4%. The price cap on Russian oil should be bullish for oil prices, but the belief the US is headed for recession overrides. You can read about it in an FNArena feature story today: if you think there could be a recession and respond accordingly, there will be a recession.

The new buzzwords on Wall Street are belt-tightening and lay-offs. Lay-offs began in the beaten-up tech sector but are now spreading across the general economy. Cost-cutting and efficiency drives are being pursued. Even PepsiCo Inc (NASDAQ:PEP), which posted a strong September quarter result and suggested it was yet to see any fall in demand for snacks and fizzy drinks, has announced such measures.

Just in case.

The banks are in on the act as well. Bank of America Corp (NYSE:BAC) followed Morgan Stanley's (NYSE:MS) lead last night and announced it would “slow hiring”. BofA fell -4.3%, leading all the big boys down.

One could argue that if the US falls into recession in 2023, it only has itself to blame. You can’t throw it all at the Fed.

Meta Platforms Inc (NASDAQ:META) has been casting off excess employees for months now. Last night the EU warned it was set to clamp down further on the unauthorised harvesting of personal data by Facebook, Instagram and WhatsApp for the benefit of advertisers. Advertising is Meta’s bread and butter, and Apple's (NASDAQ:AAPL) already knocked the wind out of social media advertising.

The stock fell -6.8%, ensuring another tough day for the Nasdaq. Although being down -70% from its August 2021 high, we can hardly call Meta Big Tech anymore.

Further recession assumption evidence was apparent in the US bond market last night. The US ten-year yield was crunched last week when Jerome Powell confirmed the Fed would now slow the pace, and on the weak manufacturing PMI. On Monday night it shot up on the strong services PMI, but last night fell back yet again – down -9 points to 3.51%.

If there is any solace to be had, the Dow was down over -500 points at the low last night. Otherwise, buckle up.

Commodities

One move stands out.

The Aussie is steady at US$0.6691. At least someone saw 25 coming.

Today

The SPI Overnight closed down -37 points or -0.5%.

Do you remember July? Yeah, too long ago for me as well. Today we’ll see the September quarter GDP result.

China will post trade data.

"The Overnight Report: And Again" was originally published on FNArena.com and was republished with permission.