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The Overnight Report: Not With A Bang

Published 01/03/2023, 10:57 am
Updated 09/07/2023, 08:32 pm
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By Greg Peel

Hardly Normal

Two conflicting pieces of news that hit the {{171}ASX}} yesterday were that Harvey Norman Holdings Ltd (ASX:HVN) reported a miss on result and fell -7.5%, and retail sales rebounded by 1.9% in January following December’s surprise -4.0% fall.

That fall wasn’t as much of a surprise if we consider the insidious Black Friday trend now sucks Christmas shopping into November, impacting on the longstanding seasonal adjustment, and that travel spending is not counted. Last Christmas Australia switched from spending on stuff to spending on travel.

As for January, ie summer holidays, I’d say eat, drink and be merry, for tomorrow we may be in recession. ANZ Bank economists note data suggest sales have slowed in February.

Sales for the beginning of the year to date are down -10% for Harvey Norman. The retailer reported a miss on earnings thanks to the same margin squeeze almost everyone is experiencing, due to inflation. The dividend was cut by -35%, reflecting lower earnings but likely a batten down the hatches response.

The consumer discretionary sector managed only a -0.5% fall yesterday. Another weak reporter was Pointsbet Holdings Ltd (ASX:PBH), which fell -10.3% but is not in the ASX200. Also not in the 200 is Kogan.com Ltd (ASX:KGN), but it bounced 9.1% yesterday after brokers decided all was not lost.

Having fallen sharply on Monday, materials rebounded 1.5%, although Adbri Ltd (ASX:ABC) offset with a -7.1% fall on result. Four of the top five index winners were miners, led by De Grey Mining Ltd (ASX:DEG), up 7.7%.

Real estate also rebounded from Monday (+1.3%) and energy gained 1.5% as more investors poured into Woodside Energy Ltd (ASX:WDS) post its result (+2.2%).

The other economic data release of note on the day was the December quarter current account, which showed the surplus widened to $14.1bn and that the September quarter fall of -$2.3bn was revised to a gain of $0.8bn. The current account has been in surplus for 15 consecutive quarters – the longest run since the series began in the late 1950s.

The trade numbers were boosted by a 1.1% rise in exports (stuff we pull out of the ground) meeting a -4.3% fall in imports (stuff we buy as consumers).

The current account will support today’s GDP result but if there was any added concern vis a vis RBA policy it wasn’t evident. Bond yields ticked down a bit after Monday’s jump and the ASX200 opened up 50 points, before settling back to a more reasonable 33 point gain.

The rebound from Monday can be put down to Wall Street recovering slightly on Monday night and the index bouncing off technical support at 7200, and there has probably been some end-of-month mucking around in the last couple of days as well.

To that end, the futures are down -21 points this morning.

Goldman Sacked

End-of-month selling was more notable on Wall Street last night. Heading into the last hour, the S&P500 was flat and the Dow down only around -70 points.

The consumer is very much front and centre on Wall Street as well.

Last night’s Dow underperformance lent itself to an extent to a -3.6% fall for Goldman Sachs (NYSE:GS). At its first investor day in three years, the investment bank announced it was considering “strategic initiatives” for its consumer unit, which was beefed up just last year and has since lost billions.

The CEO did not suggest what those initiatives might be.

Meanwhile, the Conference Board’s measure of consumer confidence showed a fall to a three-month low 102.9 from 106.0 a month ago when economists had forecast a rise to 108.5. Numbers within showed fewer consumers are planning to purchase homes or autos and they also appear to be scaling back plans to buy major appliances. Vacation intentions also declined in February.

The US consumer is the backbone of the US economy and those insisting the consumer remains alive and well in 2023 have based their argument on low unemployment, solid wage growth and remnant covid-era savings. All reasonable, if only people wouldn’t keep talking about a recession.

Not helping confidence is a six-month decline in US house prices, which fell another -0.5% in December on the Case-Shiller 20-city index.

While low unemployment and solid wage growth might be positives, they’re not in the eyes of the Fed. The Fed needs to see consumers crawl back into their caves this year or rates will just have to continue to rise.

It was revealed last night the Minneapolis Fed president had joined colleagues from St Louis and Cleveland in pushing for a 50 point rate hike last month. Seven districts voted for 25 and two for no hike. But not all presidents are FOMC members, who have the last say. The minutes of the meeting suggested the ultimate vote for 25 points was unanimous.

But what of the March meeting? We’ve since had quite the run of hot US data.

Commodities

Modest strength across the spectrum.

The Aussie is down slightly at US$0.6730 despite the solid current account data.

Today

The SPI Overnight closed down -21 points or -0.3%.

The December quarter GDP result is due this morning. Consensus has a 0.7% quarterly gain for 2.7% annual growth.

Apparently China will report its February PMIs today when it has always reported on the last day of the month. Everyone else will report manufacturing PMIs.

With the results season now mercifully behind us, today brings the longest list of stocks going ex-dividend to date. Most of them are smaller companies, but Telstra Group Ltd (ASX:TLS) isn’t.

"The Overnight Report: Not With A Bang" was originally published on FNArena.com and was republished with permission.

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