Even Keel
You’d be forgiven for thinking the RBA decision dropped at 11.00am yesterday and not 2.30pm, for after a nothing first hour the ASX200 started to move up swiftly and steadily from that point. When the decision was released, it just maintained the same path.
Clearly the market had decided 25 points was the best bet on the day, not the 50 points that was the popular choice last week following the CPI release. For why would the RBA decide to back off to 25 in October for fear of over-shocking the economy, only to turn around and go back to 50 this month?
The board is focused on “keeping the economy on an even keel” as it looks “to return inflation to the 2-3 per cent range over time,” and is mindful “that monetary policy operates with a lag”. Unless it all goes horribly wrong, we’ll only see 25s from here. But the implication is we may yet see a lot of them.
The RBA also increased its year-end inflation target by 25 points, to 8%. This, it appears, was not a reaction to the CPI data but to the board’s own decision to only go 25. Inflation will go higher and linger longer. “The Bank’s central forecast is for CPI inflation to be around 4¾ per cent over 2023 and a little above 3 per cent over 2024”.
“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”
So, despite 25 being the favourite, it was champagne all round yesterday in another Buy Everything session. Bond yields barely moved, and nor did the Aussie.
Energy, materials, real estate and utilities all rose over 2%. Discretionary, staples, financials, healthcare, industrials and technology all rose over 1%. Only communication services (+0.5%) didn’t get the memo.
We recall that EML Payments Ltd (ASX:EML) fell -36% on Monday on UK regulatory issues. Yesterday it rose 31%. No one knows why. Maybe someone just decided to buy beaten-down stocks. City Chic Collective Ltd (ASX:CCX) rose 13.4%, again for no apparent reason.
A 21% jump for Readytech Holdings Ltd (ASX:RDY) was clear enough, given a private equity offer.
So we’re almost back to 7000 on a seven-week high, and there’s been some big moves up in commodity prices overnight (although the futures are only up 5). It could all come a cropper tomorrow morning, however, when the Fed decision is forthcoming.
Jolted
The Dow opened up 200 points last night as it continued its rally, which was been driven primarily by a belief the Fed will soon ease the pace, and by net better than feared earnings results (except for Big Tech).
The September JOLTS report came out, and the Dow was soon down -200 points. The job openings and labour turnover survey showed job openings increased to 10.7m in the month from 10.3m in August. Turn around, you’re going the wrong way.
There remains 1.9 jobs open for every registered unemployed in the US. Why then are businesses moaning that they’re offering higher wages and still can’t find staff? There can only be a mismatch between skills required and skills possessed – it’s not just about tech nerds, because tech companies have mostly stopped hiring, or are laying off.
The JOLTS report is anathema to Fed policy. While there’s no disagreement the Fed will go 75 this week, it’s what happens thereafter which is the point of debate.
In other data, the US manufacturing PMI fell to 50.2 from 50.9 in October, to the lowest level since May 2020. This, at least, was good bad news, except that economists had forecast 50.0.
The employment index within the number rose 1.3 points to 50.0. Not good. The price index nevertheless fell -5.1 points to 46.6, to the lowest level since the pandemic. That’s got to be good news, and indeed Wall Street did trim initial losses by the close.
The switch to value from growth continues, as does the exodus from Big Tech. Amazon.com Inc (NASDAQ:AMZN) fell -5.5% last night, Alphabet (NASDAQ:GOOGL) Inc (NASDAQ:GOOG) -4.3%, and Microsoft Corporation (NASDAQ:MSFT) and Apple Inc (NASDAQ:AAPL) -1.7%. Only Meta Platforms Inc (NASDAQ:META) bucked the trend (+2.2%), on renewed talk of TikTok being banned.
In other earnings news, disruptor Uber Technologies Inc (NYSE:UBER) reported and rose 12%. Disruptor Airbnb Inc (NASDAQ:ABNB) has reported in the aftermarket and is down -7%.
Commodities
Note, the iron price data received this morning appears wildly incorrect, hence I have left it at unchanged for now.
The LME has set a deadline of Friday for responses to whether Russian metal should be banned from the exchange, and major mining names have taken their positions public. Aurubis, Europe’s biggest copper producer, and Norwegian aluminium company Norsk Hydro joined the chorus this week. Alcoa (NYSE:AA) is lobbying both the LME and US government for a ban.
Judging by metals price moves last night, the market assumes the LME will cave.
But an unverified note trending in social media suggests a “Reopening Committee” has been formed by a Chinese Politburo Member and is reviewing overseas covid data to assess various reopening scenarios, aiming to relax covid rules in March, 2023. Hong Kong and China stocks jumped on the rumours, and this would go further to explaining big commodity price jumps, including for the oils.
With the US dollar flat, the Aussie is flat at US$0.6394.
Today
The SPI Overnight closed up 5 points.
We’ll see building approvals and housing finance numbers today.
New Zealand will see September quarter unemployment (they can’t figure it out monthly, poor things).
The US private sector jobs numbers for October are out tonight.
The Fed will release its statement.
"The Overnight Report: Nerves" was originally published on FNArena.com and was republished with permission.