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The Overnight Report: Reprieve

By Greg PeelMarket OverviewDec 09, 2022 10:52
au.investing.com/analysis/the-overnight-report-reprieve-200539230
The Overnight Report: Reprieve
By Greg Peel   |  Dec 09, 2022 10:52
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Bit of a Downer

Slight weakness on Wall Street led the ASX200 lower in the first hour yesterday, and when the index reached 7200 it was all over. There was no support to be found. An hour later the index was down -60 points.

While all the action was (again) in commodities, the banks (-1.0%) were the weakest link. Recessions and banks don’t go well together, even if Australia avoids an actual recession.

That will all come down to rocks and gas. Energy was the standout worst performer yesterday (-2.7%) as oil prices continue to tank on global recession fears, while the materials sector fought an internal battle between gold and lithium.

All of the top five ASX200 winners yesterday were gold miners, led out by Chalice Gold Mines Ltd (ASX:CHN), which rose 13.1% on positive drill results.

Goldman Sachs (NYSE:GS) put out a report yesterday suggesting the lithium market will remain tight in the first half 2023 before declining in the second, suggesting Core Lithium Ltd (ASX:CXO) is overbought (until it fell -9.9% subsequently). Liontown Resources Ltd (ASX:LTR) and battery technology company Novonix Ltd (ASX:NVX) joined in.

The consumer sectors remained remarkably steady yesterday and real estate managed a 0.5% gain. Utilities (+0.8%) are still playing on the Origin Energy Ltd (ASX:ORG) takeover theme.

Industrials fell -0.7%. Engineering company Downer Edi Ltd (ASX:DOW) admitted to a bit of a whoopsie, overstating its profit by possibly $40m on an accounting error. A new CEO is about to join. Welcome.

Downer fell -20.4%.

The good news is having crashed through 7200, the index did quickly find a plateau yesterday to the close, and Wall Street has finally found some strength after a five-day losing streak.

Our futures are up 33 this morning. 7200 now becomes resistance, again.

There’s been some fun and games on the LME last night which likely isn’t all that indicative of actual demand (more on that below), while oil prices are down again.

Tonight we’ll see the US November PMI. Would another lower number spark Wall Street up again? It’s not a given anymore as the Fed has made its trajectory from here pretty clear.

A bounce in PPI would nevertheless not be popular.

Just a Game

The good (bad) news on the US economic front last night was an increase in weekly new jobless claims to their highest level since February, suggesting the tight labour market is beginning to loosen, which is just what the Fed wants to see.

The US bond market is nevertheless all over the shop. The ten-year yield jumped 8 points last night to 3.49%. Up until recently an 8 point move was a rare event. This week has seen similar moves almost every day – back and forth around the 3.50% level. The June sell-off was exacerbated when 3.50% was first crossed on the way up.

Yet the Nasdaq rose 1.1% last night. So volatile has the bond market become that its influence on equity valuation has lost all meaning, until yields can actually stabilise.

Maybe the Fed will help next Wednesday night when it makes its rate decision and Powell holds another press conference – the last before February.

The November CPI is out on the Tuesday night.

The main topic of conversation on Wall Street last night was a move by the FTC (equivalent to the ACCC) to block Microsoft's (NASDAQ:MSFT) takeover bid for video game creator Activision Blizzard Inc (NASDAQ:ATVI) on antitrust (competition) concerns. Since it is America, there is a political bias, as the FTC is part of the Biden Administration.

Under Biden, a lot more takeovers have been blocked than previously. And because it is America, it all goes to court.

I mean, I enjoy a good game of Space Invaders as much as the next bloke but this whole gaming thing has gotten out of hand. I’m sure there is many a parent out there who would agree gaming is nothing but evil.

Otherwise, Wall Street was due a bit of a reprieve, and momentum built to the upside into the final hour.

Commodities

China's stainless steel producers, the world's biggest purchasers of nickel, have asked producers to switch to Shanghai Futures Exchange contracts to price their supplies next year from London Metals Exchange prices.

Global trade in metals is typically priced on the basis of LME contracts, but unprecedented volatility in LME nickel trading in March forced the exchange to halt trade for a period, and to cancel trades, denting market confidence and reducing liquidity to the lowest level in a decade.

The decline in liquidity, together with low stocks, has led to persistently high prices in London this year, which have not reflected market fundamentals, Chinese market participants say (Nasdaq reports).

Were the Chinese to depart the LME, liquidity would fall to even lower levels, hence short positions are being hastily reversed. And would the Chinese stop at nickel?

Meanwhile, major zinc producer Nyrstar NV (EBR:NYR) has completed scheduled maintenance on its smelter in France but decided not to recommence production, citing too-high electricity costs. Nyrstar is listed in Belgium (Euronext), has operations in the Netherlands but its official headquarters are in Zurich, Switzerland.

Australian investors might have faint memories about a company named Zinifex, which is where Nyrstar originates from, back in 2007.

Zinc is needed for the production of galvanised steel.

At this rate oil prices will soon be below the Russian cap.

The Aussie is up 0.8% at US$0.6776.

Today

The SPI Overnight closed up 33 points or 0.8%.

China reports November inflation data today.

The US sees the PPI and consumer sentiment.

Soul Pattinson (ASX:SOL) holds its AGM.

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

The Overnight Report: Reprieve
 

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The Overnight Report: Reprieve

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