Energized
On the back of increasing Chinese covid cases and lockdowns, base metal prices were all down -2-3% on Monday night, iron ore was down -1.5%, and gold was also lower. Yesterday the materials sector rose 1.2%.
Go figure.
Meanwhile, oil prices had closed slightly lower on Monday night but energy rose 2.6%. Having spent last week tumbling on lower coal prices, yesterday coal miners shot up again as coal prices recovered. Whitehaven Coal Ltd (ASX:WHC) gained 7.8% and New Hope Corporation Ltd (ASX:NHC) 7.3%.
When coal miners move they don’t muck around.
Oil & gas companies were also in demand yesterday, with Woodside Energy Ltd (ASX:WDS) rising 2.9%. All because the Saudi oil minister said rumours of OPEC increasing production were untrue. Oil prices had fallen -6% on the rumour and were back to square on the denial before the market opened yesterday.
Throw in a 0.3% gain for the banks yesterday and the ASX200 is once again knocking on the door of 7200 – last seen in June before global markets tanked.
Virgin Money PLC (ASX:VUK) saw a somewhat delayed response yesterday to its earnings report on Monday, and accompanying buyback announcement, and jumped 10.6% to top the index.
Technology One Ltd (ASX:TNE) reported earnings yesterday and rose 5.1%. The technology sector gained 1.0%.
Threats of regulation of BNPL companies kept Block Inc (ASX:SQ2) weak again yesterday, down -3.2% to top the losers’ board. Block also dabbles in crypto, and that space is an ever growing graveyard right now.
RBA governor Philip Lowe used his speech last night to warn workers that if they keep pushing for higher wages as compensation for the higher cost of living, they will only fuel inflation, which will drive the cost of living higher still.
That’s what happened in the seventies – the classic wage-price spiral – as half the country’s workforce was on strike for higher wages at any given time. It took a decade, and a recession, to resolve.
The silver lining, Dr Lowe promised, is that if we can "ride through this period" with wages barely rising and the problem of rising prices getting "resolved", then inflation will come down. "It can be painless," he said.
"Relatively."
If you need confirmation, just look across The Dutch. After a series of 50 point rate hikes, to take its cash rate to 3.50%, the RBNZ is widely expected to hike by an unprecedented 75 points this morning.
The reason is inflation is at 7.2%, and wage inflation is at a record level.
The other reason is the RBNZ now takes a three-month Chrustmus break. Nice work if you can get it.
What Inventory Problem?
US retailers Best Buy Co Inc (NYSE:BBY), American Eagle Outfitters Inc (NYSE:AEO) and Abercrombie & Fitch Company (NYSE:ANF) all reported quarterly earnings last night and rose 12.8%, 18.2% and 21.4% respectively.
The assumption was this week’s Thanksgiving sales would bring a bonanza of bargains in discounted inventory retailers are all stuck with, due to over-ordering to get ahead of supply-chain blockages. Target Corporation (NYSE:TGT) had been the poster child for this predicament.
But it looks increasingly like Target, and others, were simply the victims of poor execution. Not all retailers are tarred with the same brush.
The results provided a bit of a fillip for Wall Street last night, helping to overcome the drag of Chinese lockdowns. Or at least a fillip for the handful of people in attendance. Volumes are now holiday-thin, and there’ll be tumbleweeds rolling through the NYSE by tomorrow afternoon in New York.
It is not unusual for Wall Street to get a little bit carried away heading into Thanksgiving. The next Fed meeting is over three weeks away but the market is increasingly more confident in only a 50 point hike, and in inflation having peaked.
The October PCE inflation numbers are due next week and the November CPI is out the day before the Fed decision.
History also suggests Wall Street typically rallies into the new year, and investors are hoping 2022 is no different. It doesn’t always, of course, and when it doesn’t it can be quite spectacularly bad.
Whatever happens tonight, it will be on very low volume.
Commodities
Having risen the night before, last night the US ten-year bond yield fell -7 points to 3.76% and the US dollar index fell -0.6% to provide some relief for metal prices, despite there being no change to the situation in China.
There were 27,307 new cases recorded for Monday, just shy of the previous record 28,973 reached in April.
Oil prices also gained some ground after the Saudis shot down any notion of production increases.
The Aussie is once again back from the brink, up 0.7% at US$0.6647.
Today
The SPI Overnight closed up 62 points or 0.9%. That implies the ASX200 should break through 7200 today.
The index first conquered 7200 in May 2021, on the way up, before dropping back through in June this year, on the way down. The peak was 7624, in August 2021.
We await the RBNZ decision.
The minutes of the November Fed meeting are out tonight, along with US new home sales and consumer sentiment.
The world will flash estimates of November PMIs today/night.
Shopping Centres Australasia Group (ASX:SCP), Qube Holdings Ltd (ASX:QUB) and Wisetech Global Ltd (ASX:WTC) are among the companies holding AGMs today.
"The Overnight Report: Winding Down, And Up" was originally published on FNArena.com and was republished with permission.