The Overnight Report: Hard Grind – Smat News

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World Overnight
SPI Overnight 6416.00 – 8.00 – 0.12%
S&P ASX 200 6528.40 + 19.90 0.31%
S&P500 3795.73 + 35.84 0.95%
Nasdaq Comp 11232.19 + 179.11 1.62%
DJIA 30677.36 + 194.23 0.64%
S&P500 VIX 29.05 + 0.10 0.35%
US 10-year yield 3.07 – 0.09 – 2.79%
USD Index 104.40 + 0.20 0.19%
FTSE100 7020.45 – 68.77 – 0.97%
DAX30 12912.59 – 231.69 – 1.76%

By Greg Peel

Resources Rout

The futures had it close to right yesterday when the ASX200 jumped up 43 points in the first hour, before the index stumbled to be in the red early afternoon. There was some recovery to the close.

Every sector closed in the green yesterday bar two, but those two made the difference.

Energy fell -2.1% and materials -1.5% as commodity prices continue to pull back on global recession fears and Chinese lockdowns. And not just oil, metals and minerals, but food as well. That pullback was ongoing last night.

Four of the top five ASX200 losers yesterday were miners, while miners and oil companies dominated the top twenty ASX300 losers.

It’s bad news and good news – bad for those invested in resources, although they can at least take heart that the big oil stocks and big miners will still be paying substantial dividends, but good for the rest of the economy as the impact is disinflationary, and lower oil prices will be cheered on by all.

It’s not such good news for an Australian economy dependent on commodity exports. The Aussie is down another -0.5% to US$6897 this morning.

Amongst the sea of green, real estate was again the outperformer as investors continue to reassess the value of REITs in a rising rate environment, considering them to have been oversold. Sector favourite Goodman Group ((GMG)) rose 4.9%.

Defensives were back in fashion other than utilities, which closed flat on the oil price impact. Healthcare rose 2.0%, staples 1.6% and industrials 1.2%, while among the cyclicals, technology rose 1.5% on the Nasdaq, and discretionary just 0.1%, while the banks did their bit with a 0.7% gain.

Discretionary’s small gain was assisted by Blackmores ((BKL)), which after falling -8.9% on Wednesday on an analyst warning, bounced back 5.4% yesterday to top the index.

Apparently fish prices are not receding like other soft commodities. Tassal Group ((TGR)) rose 6.5% yesterday.

Interesting moves in BNPL: Block ((SQ2)) which follows around its US counterpart, and is now one of the most shorted stocks on the ASX, rose 4.7% yesterday, while local rival Zip Co ((ZIP)) fell another -5.4%.

Last one…lights…you know the drill.

Yet, despite some renewed positivity among everything but resources yesterday, the S&P500 was up 1% last night while our futures are down -8 points this morning.

More commodity pain.

Fighting Back

After the uncertainty of Wednesday night’s session, Wall Street opened on a hopeful note last night and the Dow jumped 200 points from the bell. But then Jerome Powell was at it again.

Obviously, Congress is obsessed over the recession question and last night Powell told a House committee that he doesn’t think a recession is inevitable, but that he also has an “unconditional” commitment to fight inflation.

Wall Street took “unconditional” to imply the Fed doesn’t care if asset prices fall, meaning, as has been assumed all year, the Fed no longer has the market’s back.

The Dow was down close to -200 mid-session.

But this just steeled those who believe at the very least that a recession is already largely priced in, and there may not be one anyway, and the Dow closed up almost 200 points.

Thanks for playing.

As to who was buying, one portfolio manager summed it up when he told Dow Jones “Dip buyers, bottom pickers, quarter-end rebalancing, rotation out of commodities into stocks. Pick your favourite.”

It is apparently standard for end-of-quarter rebalancing to begin on the 23rd of the month, implying a week to do so.

Also spurring on equity buyers was another sharp drop in bond yields, with the ten-year down -9 points to 3.07%. It’s hard to believe that only a week ago the yield was at 3.50% and when June began, 2.85%.

The panic selling that took the ten-year to its height was driven by the May CPI print and subsequent 75 points Fed rate hike, until the Fed’s aggression sparked recession fears, hence the buyers all piled back in.

To that end, estimates of US PMIs for June released last night showed manufacturing crashing to 52.4 from 57.0 in May, or to mild expansion from solid expansion, and services falling to 51.6 from 53.4 despite the supposed consumer shift towards services and away from “stuff”.

Yet, one company viewed as a reasonable bellwether for economic activity is FedEx, and having reported an earnings beat after the bell last night, the stock is up close to 5% in the aftermarket.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1822.30 – 15.70 – 0.85%
Silver (oz) 20.95 – 0.47 – 2.19%
Copper (lb) 3.83 – 0.09 – 2.27%
Aluminium (lb) 1.22 – 0.00 – 0.17%
Lead (lb) 0.89 – 0.02 – 2.69%
Nickel (lb) 10.97 – 0.37 – 3.24%
Zinc (lb) 1.65 – 0.01 – 0.76%
West Texas Crude 104.27 – 1.92 – 1.81%
Brent Crude 109.75 – 0.32 – 0.29%
Iron Ore (t) 129.32 + 2.30 1.81%

Well at least iron ore rose a bit.

The Aussie, as noted, is down to US$0.6897.

Today

The SPI Overnight closed down -8 points.

New Zealand is closed today.

Japan reports May inflation.

Wall Street will anxiously watch tonight’s consumer sentiment survey from Michigan Uni.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AX1 Accent Group Downgrade to Neutral from Buy UBS
BPT Beach Energy Upgrade to Neutral from Underperform Macquarie
BWP BWP Trust Upgrade to Neutral from Sell UBS
CCX City Chic Collective Downgrade to Neutral from Buy UBS
CHC Charter Hall Upgrade to Buy from Neutral UBS
CIP Centuria Industrial REIT Upgrade to Buy from Neutral UBS
COF Centuria Office REIT Upgrade to Neutral from Sell UBS
HVN Harvey Norman Downgrade to Sell from Buy UBS
LNK Link Administration Upgrade to Overweight from Equal-weight Morgan Stanley
RMC Resimac Group Downgrade to Neutral from Outperform Macquarie
RRL Regis Resources Downgrade to Underweight from Equal-weight Morgan Stanley
SBM St. Barbara Downgrade to Neutral from Outperform Macquarie
SCP Shopping Centres Australasia Property Downgrade to Neutral from Buy UBS
TRJ Trajan Group Upgrade to Buy from Accumulate Ord Minnett

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.)

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