The Overnight Report: Support Tested

By Greg Peel

Not a Good Start

Yesterday the ASX200 dipped below 7500 on the open and there found technical support. But after safely rallying back out of harm’s way by midday, the index dropped in the afternoon and failed to hold support the second time around.

Yesterday was impacted by Wall Street weakness, local earnings reports and another jump in Aussie bond yields.

While it is early days in the local reporting season, and more companies report in the last week of February than the first three combined, it hasn’t been a great start. Leading the weakness yesterday was AGL Energy Ltd (ASX:AGL), which reported a -55% decline in profit, wrote off a coal-fired plant and halved its dividend.

Utilities do not halve their dividend. AGL shares fell -10.3% to be the index standout loser.

Megaport Ltd (ASX:MP1) doesn't pay a dividend, as the promising tech services provider is yet to turn a profit. Global hesitation is slowing down the pace of growth. Its shares fell -4.8%. Mirvac Group (ASX:MGR) posted slight growth in operating profit but net profit dropped -62% on property revaluations. That stock fell -4.6%.

The Aussie ten-year bond yield added another 5 points yesterday to 3.66%, and the two-year 7 points to 3.31%, as traders continue to price in further RBA hikes.

The major banks have now all passed on the full hike into loan rates and, amidst societal pressure and competitive necessity, the full hike into deposit rates. Commonwealth Bank Of Australia (ASX:CBA) – the biggest deposit holder — has nevertheless thrown down the gauntlet and raised at least one savings product rate by 75 points, and others by 50.

The financial sector fell -0.3% yesterday after topping the charts on Wednesday, but having jumped on Suncorp Group Ltd (ASX:SUN) earnings result on Wednesday, all the big insurers fell back again yesterday.

Every sector closed in the red.

Utilities was the standout worst performer in falling -2.7% thanks to AGL, while rival Origin Energy Ltd (ASX:ORG) fell -2.6%.

Real estate (-1.6%) and staples (-0.8%) were the next worst on rate pressures.

Thereafter, every other sector fell mildly, smacking of a bit of caution after the index broke support. Smart move – Wall Street is off again overnight and our futures are down -26 points this morning.

The next most significant support level is 7200. We’d better start seeing some better earnings reports.

Momentum Lost?

The S&P500 opened up 1% last night, reversing Wednesday night, on what was likely also technical buying off support. But it didn’t last long. The indices then proceeded to track a steady straight line south, and the S&P closed at 4081, under 4100 support.

Not helping was a morning auction of US 30-year bonds, which proved a complete fizzer. This sent yields higher across the curve, including 3 points for the twos and tens.

Momentum is clearly now waning. Walt Disney Company (NYSE:DIS) reported a beat on earnings and announced cost-cutting measures that include -7000 in layoffs. The stock was up 6% to begin with before closing slightly down.

Data from JP Morgan showed 23% of January’s volume on Wall Street represented retail traders. That’s up from 22% two Januarys ago when meme madness took hold. This goes a long way to explaining January’s momentum, and why a reverse might be on the cards. Retail traders get out as fast as they get in.

The retail benchmark – bitcoin – fell -4% last night.

Reported corporate profits to date shrunk in the December quarter, but companies have still managed to outperform Wall Street’s dour expectations. In aggregate, S&P500 firms have beaten Wall Street’s expectations by 1.6% to date, according to Refinitiv data, below the long-term average of 4.1%.

More unnerving have been reductions in March quarter and beyond earnings guidance. Perhaps conservatism has set in, amidst constant talk of recession, but lowered forecasts do not make for higher stock prices.

Next week the focus will swing back to the macro when the US January CPI is released.

Commodities

Not much to see here other than to note gold is again losing its lustre.

The Aussie is slightly higher at US$0.6930.

Today

The SPI Overnight closed down -26 points or -0.4%.

Earnings reports won’t be saving the day today. We only have the incestuous Rea Group Ltd (ASX:REA) and News Corp (ASX:NWS).

The RBA will issue a quarterly Statement on Monetary Policy.

China reports January inflation numbers.

The UK reports December quarter GDP, or lack thereof.

The US will see consumer sentiment.

United Malt Group Ltd (ASX:UMG) holds its AGM today.

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