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The Overnight Report: Resignation

By Greg PeelMarket OverviewNov 04, 2022 11:00
au.investing.com/analysis/the-overnight-report-resignation-200533777
The Overnight Report: Resignation
By Greg Peel   |  Nov 04, 2022 11:00
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And Down Again

Having come within a whisker of 7000, down goes the ASX200 once more. The typically volatile month of October may have ended, but we’re not out of the woods yet. Although yesterday took us back to where we were around the end of October, which is about where we were at the beginning of October.

It was always going to be a weak session after Fed chair Jerome Powell followed a dovish Fed statement with a hawkish press conference. The subsequent rise in US yields lifted our bond rates again yesterday, by 11 points in the ten-year to 3.92% and by 10 points in the two-year to 3.37%.

The hardest hit sector yesterday was materials (-3.0%), with the usual bond rate victim technology falling only -1.2%, while the Nasdaq was down -3.4%.

There was no respite for resources from yesterday’s September trade numbers, which showed a surplus increase to $12.4bn from $8.7bn in August. LNG exports rose 19.5% and metals 8.7%, for a net 7.0% export increase over August.

Tourism exports (inbound) rose 12.0% while imports (outbound) rose only 3.4%. See: Aussie dollar. Net imports rose only 0.4%.

The second worst sector yesterday was discretionary (-2.6%), which is unsurprising, but staples provided nowhere to hide either (-2.1%).

The banks made a big dent in falling -1.5%.

Communication services somehow managed to buck the trend in rising 0.1%. Telstra (ASX:TLSDA) rose 1.3%, presumably due to Optus’ ongoing woes.

Industrials only fell -0.6%, while remaining falls ranged from -1.2% for energy to -2.3% for utilities.

Telstra’s small gain managed to place it fourth on the index winners’ table. I suggested yesterday that Perpetual (ASX:PPT) was likely not in for a good session, but then the fund manager revealed yesterday it had knocked back a takeover offer. It topped the index with a 7.1% gain.

New Hope Corporation Ltd (ASX:NHC) announced it had run out of space to store its cash, so would implement a $300m buyback. It rose 5.9%. The US FDA has approved a2 Milk ((A2M)) baby formula imports. It rose 4.2%.

Domino's Pizza (ASX:DMP) continued to be soggy, down another -11.7%, while Perpetual’s own target, Pendal Group Ltd (ASX:PDL), fell -10.7% ahead of this morning’s earnings release. Within the ASX300, Bravura Solutions Ltd (ASX:BVS) had a tough day following a profit warning and suspension of dividend. It fell -52%.

The good news in Tech Land today is that Block Inc (ASX:SQ2) has reported this morning in the US and is up 11% in the aftermarket.

Otherwise, US yield have jumped once again and while Wall Street attempted to rally back last night from an early fall, it failed at the death.

Five is Alive

The Dow dropped -420 points early in last night’s session as investors gave up any hope of a pending Fed pause. From there it grafted back all session to be slightly positive, before dropping again in the final minutes.

So there is some resilience.

The market is now pricing in a Fed funds rate of 5% by June next year. That’s either 100 points of further hikes, to get to 4.75-5.00%, or 125 to get to 5.00-5.25%. If we get 50 in December it’s another two or three 25s next year.

The chance of 5.25-5.50% was 16.6% before the Fed statement, and is now 33%.

Last night the US two-year yield jumped another 13 points to 4.70% — its highest level since 2007- pre-GFC. The ten-year rose 6 points to 4.12%, The two-ten inversion grows ever wider, suggesting the risk of recession is also growing.

The Bank of England hiked its cash rate by 75 points last night, to 3.0%.

There are a lot of data releases to come before the December Fed meeting. Last night saw the US services PMI falling to 54.4 in October from 56.7%. That’s good bad news.

Tonight it’s October jobs – we recall the September jobs report sent Wall Street into a tailspin.

Next Tuesday it’s the midterms and then on Friday, October CPI. The November jobs and CPI numbers will be out before the December meeting, as well as October PCE.

The stock in focus last night was veteran chip maker Qualcomm Incorporated (NASDAQ:QCOM), which reported earnings and fell -7.7%. The company guided to weak December quarter (ie Christmas quarter) demand for smart phones.

Apple Inc (NASDAQ:AAPL) fell -4.2%.

It would have been worse for the Dow but for a 6.3% jump for Boeing Co (NYSE:BA), after increasing its production and sales numbers.

It would have been worse for the S&P500 had the energy sector not risen more than 2%, thanks to a solid result and 5.8% gain for ConocoPhillips (NYSE:COP), in the face of lower oil prices on the day.

But energy is only about 5% of market cap. Tech, in its different forms, swamps all.

Commodities

The US dollar was up another 0.8% last night, impacting on commodity prices.

Presumably the LME will make a decision on Russian bans some time next week.

The Biden Administration is weighing up an oil company super-profits tax (sound familiar?) unless those companies either cut their margins at the pump for the sake of all Americans or invest more in production.

The Aussie is down -1.0% at US$0.6294.

Today

The SPI Overnight closed down -24 points or -0.4%.

The RBA will issue a quarterly Statement on Monetary Policy today.

US jobs tonight.

There’s another handful of AGMs today, including those of James Hardie Industries PLC (ASX:JHX) and Qantas Airways Ltd (ASX:QAN).

CSR Ltd (ASX:CSR), Pendal Group Ltd (ASX:PDL), News Corp (ASX:NWS), React Group PLC (LON:REAT) and Block Inc (ASX:SQ2) all report or have reported earnings.

Note that the US comes off summer time this weekend, thus from Tuesday morning the NYSE will close at 8am Sydney time, as will the SPI Overnight.

"The Overnight Report: Resignation" was originally published on Savings.com.au and was republished with permission.

The Overnight Report: Resignation
 

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The Overnight Report: Resignation

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