The Overnight Report: Race To The Bottom – Smat News

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World Overnight
SPI Overnight 6388.00 + 47.00 0.74%
S&P ASX 200 6433.40 – 41.40 – 0.64%
S&P500 3674.84 + 8.07 0.22%
Nasdaq Comp 10798.35 + 152.25 1.43%
DJIA 29888.78 – 38.29 – 0.13%
S&P500 VIX 31.03 – 1.92 – 5.83%
US 10-year yield 3.24 – 0.07 – 2.06%
USD Index 104.48 – 0.22 – 0.21%
FTSE100 7121.81 + 105.56 1.50%
DAX30 13265.60 + 139.34 1.06%

By Greg Peel

Under-Resourced

A drop of only -41 points for the ASX200 yesterday seems like a quiet session in the current context, but there was an awful lot going on behind the scenes, as big moves down in the resource sectors were countered by big moves up elsewhere.

The race is now on among the economists of financial institutions to downgrade expectations for global growth, and specifically US growth, and warn of an impending recession. National Bank joined the chorus yesterday, suggesting the Fed’s move to restrictive monetary policy, alongside other global economic challenges, will drag the US into a recession next year.

NAB lowered its GDP forecasts, and now expects growth of 2.3% in 2022, and 1.1% in 2023.

Japanese bank Nomura lowered its US GDP forecast to 1.8% from 2.5% for 2022, and to a -1.0% decline in 2023 from a prior forecast of 1.3% growth.

Meanwhile, the Chinese economy remains under threat from Xi’z stubborn zero-covid policy. On the weekend one solitary case was detected in the technology hub of Shenzhen, triggering mass testing and neighbourhood lockdowns.

Macao began its second day of mass testing on Monday while shutting non-essential services such as banks, schools, government services and other businesses but leaving essential services (casinos) open.

Chinese cases are now at the lowest level since February, but further lockdowns still threaten at every turn. Some European companies are said to be reconsidering their presence in China.

The situation in China, and the threat of global recession amidst widespread central bank rate hikes, has commodity prices in a downdraught. The prices of oil and iron ore were particularly hard hit over Friday night and yesterday.

In yesterday’s local market, the energy sector plunged -5.2%, led by a -4.9% fall for Woodside Energy ((WDS)) and -6.0% for Santos ((STO)).

The materials sector dropped -4.6%, led by the big iron ore miners but supported by big drops across miners in general. BHP Group ((BHP)) fell -5.3%, Rio Tinto ((RIO)) -5.1% and Fortescue Metals -8.6%, while Paladin Energy ((PDN)) plunged -13.7%, New Hope Corp ((NHC)) -12.5% and Bellevue Gold ((BGL)) -11.4%, just to name a few across different metals/minerals.

Seventeen of the top twenty worst performers in the ASX300 yesterday were miners.

So where do investors redirect their money? Healthcare jumped 2.4% yesterday, led by CSL’s ((CSL)) 2.8% gain. Beaten-down REITs are suddenly back in fashion as a flight to the safety of bonds has government yields tumbling back from giddy heights. The real estate sector rose 3.5%, led by Goodman Group’s ((GMG)) 3.4% gain.

Consumer discretionary was an unusual standout yesterday, in the current context, rising 2.8%. Another company has taken a swing at PointsBet Holdings ((PBH)), sending that stock up 18.6%. Heavily shorted retailers Temple & Webster ((TPW)) and Kogan ((KGN)) rose 10.0% and 6.8%.

When money shifts out of resources it typically ends up with the banks, and banks were thumped all last week. But on a 0.6% gain, financials was actually the quietest sector yesterday. Technology was also quiet with a 1.2% increase. Appen ((APX)) is supposedly also in the takeover cross-hairs. It rose 9.7%.

A wild old session indeed, but what makes the situation even more bizarre is the futures are up 47 points this morning, suggesting all of yesterday’s losses can be wiped out, despite no lead from Wall Street.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1838.70 – 1.10 – 0.06%
Silver (oz) 21.56 – 0.08 – 0.37%
Copper (lb) 4.05 – 0.03 – 0.65%
Aluminium (lb) 1.23 + 0.00 0.37%
Lead (lb) 0.92 – 0.01 – 1.41%
Nickel (lb) 11.65 + 0.11 0.92%
Zinc (lb) 1.62 + 0.00 0.11%
West Texas Crude 110.27 + 0.68 0.62%
Brent Crude 114.13 + 1.01 0.89%
Iron Ore (t) 128.00 – 3.38 – 2.57%

Some slight reprieve for base metals and oil, but nothing to write home about.

The Aussie is up 0.3% at US$0.6957 on a dip in the US dollar.

Today

The SPI Overnight closed up 47 points or 0.7%.

The minutes of the June RBA meeting are out today.

Premier Investments ((PMV)) goes ex.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
BGA Bega Cheese Downgrade to Neutral from Buy UBS
CVN Carnarvon Energy Upgrade to Outperform from Neutral Macquarie
CWY Cleanaway Waste Management Upgrade to Buy from Accumulate Ord Minnett
EVN Evolution Mining Upgrade to Buy from Neutral UBS
GMA Genworth Mortgage Insurance Australia Downgrade to Underperform from Outperform Macquarie
GUD G.U.D. Holdings Downgrade to Neutral from Buy Citi
ING Inghams Group Downgrade to Neutral from Outperform Credit Suisse
KGN Kogan.com Downgrade to Sell from Neutral UBS
LFS Latitude Group Downgrade to Neutral from Outperform Macquarie
LNK Link Administration Upgrade to Add from Hold Morgans
PSI PSC Insurance Upgrade to Outperform from Neutral Macquarie
RMD ResMed Upgrade to Buy from Accumulate Ord Minnett
SIQ Smartgroup Corp Downgrade to Neutral from Outperform Credit Suisse
TPW Temple & Webster Downgrade to Neutral from Buy UBS

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author’s and not by association FNArena’s – see disclaimer on the website)

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