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The Overnight Report: That Was The Month That Was

By Greg PeelMarket OverviewNov 01, 2022 10:32
au.investing.com/analysis/the-overnight-report-that-was-the-month-that-was-200532942
The Overnight Report: That Was The Month That Was
By Greg Peel   |  Nov 01, 2022 10:32
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Strong Finish

The ASX200 opened the last day of October up 72 points and closed up 77. There was nevertheless a little trip to up only 38 at lunchtime.

The open was driven by a strong session on Wall Street, which mostly came down to a near 8% gain for Apple (NASDAQ:AAPL), but also to possible signs US inflation may at least be plateauing. It looked like it was going to be a Buy Everything session, but in the end it was a Buy Everything Else session.

The mood was tempered from late morning when China released its October PMIs. Manufacturing fell to 49.2 from 50.1 and services to 48.7 from 50.6 – both into contraction, as total covid cases in the country were reported as 2675, compared to 802 the day before.

Not only are there lockdowns everywhere, but also lock-ins. Shanghai reported 10 cases so the government locked in Shanghai Disneyland, trapping all inside. To leave you had to test negative. Fortunately for those inside, Mickey said he’d keep the rides operating for the duration.

It was never going to be a great day for the resource sectors, with commodity prices lower across the board. But China didn’t help either. The energy sector was the only sector to close in the red yesterday, down -0.4%, while materials managed only a 0.1% gain.

Next worst was staples, up 1.1%. That included a 7.9% jump for Graincorp (ASX:GNC), after Russia pulled out of the deal to allow Ukrainian grain exports. Russia has since relented, and allowed at least 12 ships to sail, but that’s just a drop in the bucket.

Consumer discretionary won the day with a 2.7% jump. Some economists seem convinced the RBA will have to go 50 today but there is speculation (which I support) that it will only be 25 following last month’s 25.

Technology rose 2.6% for which you can thank Apple while all other sectors posted healthy gains, including the banks (+1.3%). Bond yields were only slightly higher on the day.

In economic news, retail sales rose 0.6% in September, in line with August and ahead of 0.5% expectations. Fashion and restaurants saw the biggest gains. While ahead of expectation, there’s not yet any sign of the usual ramp-up into Christmas. But it’s early days.

In corporate news, embattled EML Payments Ltd (ASX:EML) plunged -35.7% after regulatory concerns forced its British subsidiary to suspend taking on new customers, agents and distributors, in order to allow EML to address concerns similar to those raised by the Irish regulator.

On the flipside, Nitro Software (ASX:NTO) jumped 20.2% after a US software company gazumped an offer on the table from private equity.

We now await the RBA decision, and then I think there’s something else on after that.

The ASX200 closed up 6% for the month.

Weak Finish

The S&P500 closed up 8%, and the Nasdaq 4%. The Dow closed up 14% to confirm its best October ever and best month in general since 1976.

No great surprise, therefore, that Wall Street should see some profit-taking at month-end.

There are a risky couple of weeks ahead, featuring the Fed decision on Wednesday night, October jobs on Friday night, the midterms next Tuesday and the October CPI next Friday.

And earnings season rolls on. Data to date suggest average S&P500 year on year earnings growth of 2.2%, which is the lowest rate since the -5.7% of the March 2020 quarter, but still better than feared. So far 71% of companies delivered a beat on earnings and 68% on revenue.

That 2.2% nevertheless included a heavy contribution from the energy sector. Exxon (NYSE:XOM) and Chevron (NYSE:CVX) posted super-sized profits last week and the energy sector is up 63% year to date compared to an -19% fall for the S&P500. This has raised the ire of the Biden Administration, the average consumer, and indeed anyone other than energy company shareholders.

Can Biden do anything before next week’s midterms? Can the Australian government do anything about gas prices?

That 2.2% is however net of shockers from the Big Tech companies, which in market cap terms are Goliath to energy’s David, although a lot of the selling was due to guidance more so than actual earnings.

The October rally lends a lot to the growing belief the Fed will soon be ready to pause the pace of rate hikes, even with 75bp being baked in for Wednesday night. Last time Wall Street made this assumption, in July, it didn’t end well.

The US bond market is not so sure. The two-year yield hit 4.50% again last night before slipping back to 4.48%, up 6 points, while the ten-year rose 7 points to 4.08%. The US dollar index jumped 0.8%.

Commodities

So more bad news for gold, but for industrial metals last night’s focus was on the Chinese manufacturing sector’s fall into contraction.

We recall that last week data showed Chinese steel exports down -20% in September. That’s weighed on iron ore but last night it was zinc – used for galvanising steel — to take the hit.

China is also behind most recent oil weakness.

Despite the big jump in the greenback, the Aussie is as good as flat at US$0.6397 ahead of the RBA.

Today

The SPI Overnight closed up 10 points.

The rest of the world will release October manufacturing PMIs today.

Bring on the RBA.

Victoria is closed today.

The Overnight Report: That Was The Month That Was
 

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The Overnight Report: That Was The Month That Was

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