The Overnight Report: Spending Spree

This story features ALS LIMITED, and other companies. For more info SHARE ANALYSIS: ALQ

The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

World Overnight
SPI Overnight	7441.00	+ 32.00	0.43%
S&P ASX 200	7420.40	– 49.70	– 0.67%
S&P500	4700.90	+ 18.10	0.39%
Nasdaq Comp	15973.86	+ 120.01	0.76%
DJIA	36142.22	+ 54.77	0.15%
S&P500 VIX	16.37	– 0.12	– 0.73%
US 10-year yield	1.63	+ 0.01	0.68%
USD Index	95.90	+ 0.40	0.42%
FTSE100	7326.97	– 24.89	– 0.34%
DAX30	16247.86	+ 99.22	0.61%

By Greg Peel

Still Plausible

A -36 point fall in the futures ahead of yesterday’s trade on the ASX with Wall Street flat seemed out of context, suggesting a market sell order set to hit from the open. Judging by the opening fall and relative uniformity of sector losses on the day, this was the case.

Backing up that assumption is the fact the ASX200 did bounce from a momentum-driven low of -66 points with half an hour to go to close down -49, and the fact the futures are up 32 points this morning (albeit Wall Street was stronger).

The only standout moves yesterday were in technology (+0.2%), which is all about Square and can be duly ignored, and materials (-1.7%), which responded to lower commodity prices.

Of more interest yesterday were the minutes of the November RBA meeting, and a speech from Dr Lowe post-release, including Q&A.

The minutes suggested the board’s central forecast for the economy accords with the cash rate remaining at its current level until 2024, although this could be late 2023. Lowe later said it was “still plausible” that the cash rate will not move until 2024, while a move in 2022, as the market is pricing in, seems a “very, very low probability.” He didn’t rule it out completely.

There seem to be chinks appearing in the dovish armour.

Lowe also explained why the RBA went MIA following the CPI release, allowing yields to rise in defiance of the board’s 0.10% target, suggesting the central bank did not want to jump in to a thin market before the board had had an opportunity to consider the implications for monetary policy of the most recent data and the updated forecasts.

In reference to that CPI result, the minutes suggested the board was willing to “look through” inflation of 3% or more if it is not accompanied by stronger wages growth. Yet a question in the later Q&A had economists on the edge of their seats.

What does the RBA think the “neutral rate” is now?

The neutral rate is a Shangri-La concept of what the cash rate should be if maximum economic growth and full employment meets stable inflation. Lowe said 2.5%, which surprised economists to the upside.

Arguably this slightly less dovish RBA rhetoric overall could be blamed for weakness yesterday, but the banks were down -0.4%, and they’d be cheering on an early rate hike.

So we might as well put yesterday behind and see what transpires today. Fittingly, today will bring the September quarter wage price index.

Shut up and pay up

US retail sales rose 1.7% in October to mark the biggest monthly gain since March, when Biden’s stimulus cheques hit bank accounts. Economists had forecast 1.5%.

Given this is a dollar-value measure, economists estimate about half of the gain represents actual demand and the other half higher prices. Consumers are simply biting the bullet and paying up. This is at odds with last week’s consumer sentiment measure which hit a decade low on inflation concerns.

That said, the biggest contributors to the rise were fuel, which is not for most discretionary, followed by electronics/appliances and department store sales. It must be noted that retailers spent the month warning consumers to buy now for Christmas and not to wait for the traditional Thanksgiving week sales (next week), and certainly don’t leave it till December.

Whatever is topping Santa lists this year may simply be gone, due to supply shortages and delays. On this basis, this month’s retail sales result will perhaps be less buoyant than history suggests due to a pull-forward.

Dow components and retailers Walmart and Home Depot (think Colesworth and Bunnings) both posted strong September quarter earnings results last night, underscoring that bigger companies are better able to manage supply problems. Yet while Home Depot jumped 5.6%, Walmart fell -2.2% despite upgrading full-year guidance for a third consecutive quarter.

Sell the fact, one presumes.

US industrial production rose 1.6% in October when 0.8% was forecast, but this represents a catch-up from a -1.3% fall in a September impacted by Hurricane Ida.

However one dissects the data, Wall Street liked it, and the result only gave the US dollar an extra dose of adrenalin.

The S&P500 is now within only a few points of its all-time high.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1850.50	– 12.20	– 0.65%
Silver (oz)	24.80	– 0.25	– 1.00%
Copper (lb)	4.40	– 0.07	– 1.56%
Aluminium (lb)	1.18	– 0.02	– 1.37%
Lead (lb)	1.07	– 0.00	– 0.29%
Nickel (lb)	8.91	– 0.05	– 0.56%
Zinc (lb)	1.46	– 0.02	– 1.17%
West Texas Crude	80.76	– 0.16	– 0.20%
Brent Crude	82.48	+ 0.42	0.51%
Iron Ore (t)	90.40	+ 1.25	1.40%

The US dollar index rose yet another 0.4%. This was again not encouraging for base metal prices.

Iron ore, however, which rarely correlates with the dollar, had a rare bounce.

It was finally all too much for gold, which has fought against a rising greenback and rising (nominal) US yields this month to be the inflation hedge.

It looks like the shaky shorts are now out of the Aussie market, with a fall of -0.6% to US$0.7303 more text book on the greenback’s gain.

Today

September quarter wage price index, as noted.

New Zealand will release its September quarter PPI, the eurozone its October CPI, and the UK October CPI and PPI.

Earnings results are due today from ALS Ltd ((ALQ)), Nufarm ((NUF)), United Malt Group ((UMG)) and Catapult ((CAT)).

Commonwealth Bank ((CBA)) will provide a quarterly update to wrap up the bank results season.

There is an extensive number of AGMs today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AZJ	Aurizon Holdings	Downgrade to Neutral from Buy	UBS
COL	Coles Group	Upgrade to Buy from Neutral	Citi
JBH	JB Hi-Fi	Downgrade to Neutral from Buy	Citi
LOV	Lovisa Holdings	Upgrade to Outperform from Neutral	Macquarie
MTS	Metcash	Downgrade to Neutral from Buy	Citi
ORI	Orica	Upgrade to Outperform from Neutral	Credit Suisse
		Downgrade to Neutral from Buy	Citi
		Downgrade to Hold from Add	Morgans
QUB	Qube Holdings	Upgrade to Outperform from Neutral	Credit Suisse
RHC	Ramsay Health Care	Downgrade to Accumulate from Buy	Ord Minnett
XRO	Xero	Upgrade to Buy from Neutral	Citi
		Upgrade to Hold from Lighten	Ord Minnett

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

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