The Overnight Report: Hold Your Breath

This story features NATIONAL AUSTRALIA BANK LIMITED, and other companies. For more info SHARE ANALYSIS: NAB

World Overnight
SPI Overnight	6892.00	– 39.00	– 0.56%
S&P ASX 200	7029.80	+ 9.20	0.13%
S&P500	4122.47	– 17.59	– 0.42%
Nasdaq Comp	12493.93	– 150.53	– 1.19%
DJIA	32774.41	– 58.13	– 0.18%
S&P500 VIX	21.77	+ 0.48	2.25%
US 10-year yield	2.80	+ 0.03	1.16%
USD Index	106.30	– 0.09	– 0.08%
FTSE100	7488.15	+ 5.78	0.08%
DAX30	13534.97	– 152.72	– 1.12%

By Greg Peel

One More Sleep

A choppy session in a tight range for the ASX200 yesterday ended with the third session in a row of little net movement, ahead of tonight’s US CPI. Not that there weren’t some definitive sector moves.

The banks fell -0.8% after a quarterly update from National Bank ((NAB)) disappointed. NAB blamed the erosion of higher rate benefits in the period due to competition, and higher expenses required to address regulatory concerns about suspected breaches of anti-money-laundering and counterterrorism financing laws undermining earnings. NAB shares fell -2.9%.

Had it not been for NAB it would have been a more positive session. Aside from a small fall in staples (-0.2%) and some give-back in utilities (-0.8%), every other sector closed in the green.

This time it was not about resources, given energy and materials each rose only 0.1%.

The standout was communication services (+1.8%) and it had little to do with Telstra, rather a 6.7% jump for REA Group ((REA)) on its earnings result, 5.9% for major REA stakeholder News Corp ((NWS)) , 9.0% for rival Domain Group ((DHG)) and 2.6% for Domain stakeholder Nine Entertainment ((NEC)).

But let us not get carried away. REA’s growth reflected the boom in housing over the period ahead of the beginning of the downturn as the RBA released the rate hike dogs. REA does not expect a repeat performance this half.

Communication services was also increased by a 10.0% pop for Megaport ((MP1)) on result.

Consumer discretionary surprisingly rose 1.4% despite the Westpac consumer confidence index falling to 81.2 this month from 83.8 in July (100-neutral). Confidence is now down -23% since November.

(Apologies that this release was slotted in for today on our calendar. The Westpac survey is ALWAYS on the Wednesday following the NAB business survey on the Tuesday, but for some reason wasn’t this month.)

Conditions have improved for Australian business, with the NAB survey for July showing a 6 point increase from June in conditions to +20 (zero-neutral) along with a 5 point increase in confidence to +7. The drivers have been identified as strong demand and a very tight labor market.

Strength in REA’s numbers appeared to flow over to the real estate sector (+1.2%), while technology ignored the Nasdaq and rose 1.7%.

The S&P500 fell -0.4% last night but our futures are showing down -0.6%, or -39 points this morning, despite some strong gains in base metal prices.

Recent history suggests that seemingly oversized moves in the futures reflect hedging of a big order set to hit the physical market in the morning. T’would be a bold move ahead of tonight’s CPI, or maybe it’s a square-up for safety’s sake.

Inflation Consternation

It is widely assumed tonight’s US headline CPI will come in lower than June’s 9.1%, confirming a peak in inflation may have been seen, given falls in oil prices, various commodity prices (from copper to lumber) and freight costs. But Wall Street may not be too happy if that dip is only minimal.

Moreover, it is also expected the core CPI, ex food and energy, could actually tick up, and this is more pertinent for the Fed.

The problem is the biggest component of the index is rent, and rents have continued to rise with US mortgage rates, despite an apparent rollover in the housing market, due to higher mortgage rates. As I have noted before, rents can quickly go up but will not quickly come down unless an economic slump leads to vacancies. With unemployment at historical lows, mass vacancies are unlikely.

Wall Street posted another session last night that was largely stable ahead of the CPI, otherwise impacted by more falls in the chip sector dragging down both the Nasdaq and S&P500.

On Monday night heavyweight sector Nvidia fell -6.3% after warning of lower revenues ahead due to supply chain problems and a fall-off in gaming demand. Last night peer Micron fell -3.7% after echoing Nvidia completely. Nvidia fell another -4%.

While these falls are not massive, problems in the chip business resonate across the wider tech sectors, including the Mega-Techs.

The moves come on the day the president signed the CHIPS Act into law, which green lights subsides and incentives to build chip manufacturing facilities in the US. Like chipmaker Intel, Micron also has plans ready for construction of such a facility, but like Intel, no spade has yet broken the ground. The benefits will be long term.

So looking ahead tonight, the fundamental issue will be whether Wall Street becomes more certain the Fed will go another full 75 points in September, or the 50 hinted at by Jerome Powell. The strong July jobs number has already provided concern.

The US will see another jobs number and another CPI result before then.

commodities

Spot Metals, Minerals & Energy Futures
Gold (oz)	1793.90	+ 4.70	0.26%
Silver (oz)	20.51	– 0.14	– 0.68%
Copper (lbs)	3.58	+ 0.00	0.09%
Aluminum (lb)	1.21	+ 0.01	0.61%
Lead (lbs)	0.99	+ 0.02	2.33%
Nickel (lb)	9.85	+ 0.10	1.01%
Zinc (lbs)	1.69	+ 0.10	6.31%
West Texas Crude	90.50	– 0.26	– 0.29%
Brent Raw	96.40	– 0.32	– 0.33%
Iron Ore	109.28	– 1.67	– 1.51%

Glencore’s warning last week that it would have to cut back production at its zinc smelters due to too-high energy costs is continuing to resonate across the base metal spectrum.

The Aussie is down -0.2% at US$0.6968.

Today

The SPI Overnight closed down -39 points or -0.6%. If it comes to pass that would take the ASX200 back below 7000.

Ahead of tonight’s US numbers, China will report July inflation data today.

Commonwealth Bank ((CBA)) and Mineral Resources ((MIN)) are among those reporting earnings today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AMC	Amcor	Downgrade to Equal-weight from Overweight	Morgan Stanley
asx	asx	Downgrade to Lighten from Hold	Ord Minnett
IPC	Century Industrial REIT	Upgrade to Outperform from Neutral	Credit Suisse
DHG	Domain HoldingsAustralia	Downgrade to Neutral from Buy	citi
NVA	Evolution Mining	Downgrade to Neutral from Buy	UBS
IPL	Incitec Pivot	Upgrade to Overweight from Equal-weight	Morgan Stanley
LOV	Lovisa Holdings	Downgrade to Neutral from Buy	UBS
OZL	OZ Minerals	Upgrade to Accumulate from Lighten	Ord Minnett
		Downgrade to Hold from Add	Morgan’s
RBL	Redbubble	Upgrade to Buy from Neutral	UBS
OER	REA Group	Downgrade to Neutral from Buy	citi

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)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms