Bad Moon Rising
The ASX200 opened down -50 yesterday ahead of the GDP release, following more weakness on Wall Street. On the release, it fell again to be down -70 points at lunchtime. There followed an afternoon graft, all the way back to down -30, before someone swooped in with what must have been a sizeable market-on-close order, worth -22 points.
Heading off on holiday perhaps? Or getting in before the index breaks back down through 7200. With the futures down -16 points this morning, today could possibly be a test.
Australia’s GDP grew 0.6% in the September quarter, below 0.7% expectation. Year on year the economy grew by 5.9% compared with 6.3% expectation, but we can ignore that figure as the GDP contracted by -1.8% in the delta-locked September quarter last year. The economy slowed from 0.9% growth in the June quarter.
The biggest contributor to growth was consumption (+1.1%). In Australia, the US and elsewhere, 2020-21 was all about “buying stuff” during on-and-off lockdowns but with lockdowns abandoned and the need to buy stuff satisfied, 2022 was all about “doing stuff” – travel, dining, entertainment – due to pent up demand and cabin fever. For how long can doing stuff bounce back before it simply settles down again to normal?
Or worse, if everyone keeps talking recession. And the talk will continue. ANZ Bank economists pointed out yesterday the September quarter household deflator rose 2.0% quarter-on-quarter and non-farm compensation of employees per hour rose 2.6%.
I know. I was shocked too. But to put that in simple terms, inflation rose at the fastest pace since the early 1990s (ex-GST introduction) and the 2.0% increase is up from 1.5% in the June quarter. The other chappy is apparently the RBA’s favoured broad measure of labour strength.
The bottom line is ANZ Bank concludes while these data are old, and don’t fully reflect 300 points of rate hikes, inflation pressures were still building in the quarter and hence an RBA rate hike pause “remains some way off”.
No wonder the market was weak yesterday. And Xi Jinping must be wondering just what more he has to do to help. Yesterday Beijing announced the most severe of covid policies – including forcing people into quarantine camps – will be lifted, just one week after landmark protests.
People with covid can now isolate at home rather than in state facilities if they have mild or no symptoms. They also no longer need to show tests for most venues, and can travel more freely inside the country.
The materials sector rose 0.2% yesterday. Every other sector closed down.
Technology (-3.3%) and energy (+2.0%) were the hardest hit but falls across all sectors were otherwise fairly uniform, suggesting that market-on-close order was index-based.
The banks fell -0.8%, which didn’t help.
If the index closes in on 7200 today we’ll be at a critical point. If the index breaks 7200 then next stop awaits at 6474.
That’s where it stopped after both the June and September wipe-outs, to the last digit.
Uncertain
The Dow was up close to 200 points last night and down close to -100, flipping and flopping all session to close square.
The US ten-year bond yield fell -11 points to 3.41% yet the Nasdaq lost another -0.5%.
The CEOs of both JPMorgan Chase & Co (NYSE:JPM) and Goldman Sachs Group Inc (NYSE:GS) have warned this week The Fed’s monetary tightening alongside stubborn inflation may deliver a marked economic slowdown. Most still favour only a shallow recession, and a running estimate of December quarter GDP remains robustly positive, but 2023 is when the impact of Fed rate hikes will really be felt.
Again, the news out of China failed to inspire.
It mattered not that the Democrats have secured a two-seat majority in the Senate, given the House is now Republican. Republicans are moving swiftly to attack America’s biggest global fund managers on their “liberal, social” ESG-supportive policies.
There is not much more to report. On Friday night we’ll see the November PPI, ahead of next week’s CPI.
Commodities
It is testament to global recession fears that the oils have fallen close to another -3% despite Chinese easing of restrictions, and despite data showing lower than expected weekly US inventories.
Not a lot of excitement in other commodities either.
The Aussie is up 0.5% to US$0.6722 because the US dollar is down -0.4%, and because the GDP was slightly weak but nothing major.
Today
The SPI Overnight closed down -16 points or -0.2%.
We’ll see October trade numbers today. China posted very weak November numbers yesterday, but only as was expected, and now moot given the policy shift.
Fisher & Paykel Healthcare Ltd (ASX:FPH) and Select Harvests Ltd (ASX:SHV) go ex.
"The Overnight Report: No Joy" was originally published on FNArena.com and was republished with permission.