The Overnight Report: Rate Hike Expectations Move Forward

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The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

World Overnight
SPI Overnight	7403.00	+ 32.00	0.43%
S&P ASX 200	7381.90	– 42.00	– 0.57%
S&P500	4649.27	+ 2.56	0.06%
Nasdaq Comp	15704.28	+ 81.58	0.52%
DJIA	35921.23	– 158.71	– 0.44%
S&P500 VIX	17.66	– 1.07	– 5.71%
US 10-year yield	1.56	0.00	0.00%
USD Index	95.16	+ 0.32	0.34%
FTSE100	7384.18	+ 44.03	0.60%
DAX30	16083.11	+ 15.28	0.10%

By Greg Peel

Rock’n’Roll

It was half an hour after the open yesterday before the ASX200 dropped -48 points to 11.30am. Initially the market took Wall Street’s fall in its stride but some weak earnings reports/AGM updates set a sour mood ahead of the jobs report release.

Someone then hit the wrong button when the jobs numbers came out, sending the index back up 30 points in a heartbeat, before the correct response had the index down -94 points an hour later.

But was it correct?

Australia lost -46,000 jobs in October when a gain of 50,000 was forecast. The unemployment rate leapt up to 5.2% from 4.6% in September when 4.8% was forecast, which is a big jump compared to average monthly movements. Has Australia’s economic recovery gone into reverse?

No. It’s all just noise. The Sydney and Melbourne lockdowns ended this month and economists, despite missing on their forecasts, have brushed off the October numbers and look forward to the November release. Which is why less trigger-happy investors had the index back up to only a -23 point loss mid-afternoon, before late selling swept in.

The futures are up 32 points this morning so if accurate, the whole episode will be worth a net -10.

It could have looked a lot worse but not for a 2.2% jump in the materials sector, led by goldminers, but also by iron ore miners as the iron ore price rebounded in Singapore. Fortescue Metals ((FMG)) was given an extra boost 8.2% after talking up hydrogen and ensuring the halving of the iron ore price in recent months will not impact on development funding.

That got Fortescue into second on the index leaders’ board behind Chalice Mining ((CHN)) which rose yet another 9.6%.

Telcos managed a gain (+0.8%) but every other sector closed in the red, led by energy (-2.0%) on lower oil prices, healthcare (-2.2%) on a weak update from Ramsay Health Care ((RHC)) and despite a plunging Aussie, and technology (-2.5%) on big falls of -12.3% for Nearmap ((NEA)), -6.2% for Xero ((XRO)) and -5.2% for Zip Co ((Z1P)).

Nearmap held its AGM, Xero reported earnings and Zip Co’s US rival Affirm expanded its deal with Amazon.

Financials fell -0.9% led by the banks (higher unemployment presumably) but interestingly insurers did alright on the day. Take a look out the window guys.

Wall Street staged a mild recovery last night (S&P up 0.1%) but a 32 point gain for our futures this morning suggests more of a rethink on those jobs numbers.

Mild Comeback

The Nasdaq was hardest hit on Wednesday night on the US inflation data and a spike in bond yields but fought back to some extent last night. Investors do tend to buy any dip in Big Tech names but the US bond market was also closed for Veterans Day, so no further scares there.

The Dow continued its slide but -80 Dow points were lost by Disney alone, after the stock fell -7% on its earnings results. It was a bit of a no brainer given Disney was recycling its extraordinary gains in 2020 on the launch of its streaming service, in what might be called good timing.

Materials was the sector that managed to get the S&P500 over the line (+0.9%) on strength in commodity prices, including gold, which are a hedge against inflation as they are inflation.

Speaking of inflation, crypto currencies are also a story du jour as they are also seen as an inflation hedge, but on the CPI release on Wednesday night profit-takers swiftly moved in after initial gains, given how far the likes of bitcoin and ether have run up these past months. Bitcoin recovered 2% last night and ether 4%.

Another story du jour is EVs.

Wednesday night saw the IPO of Rivian, maker of electric vans, pick-ups and SUVs. The stock rallied 30% on its listing price to reach a market cap equivalent to that of General Motors and greater than Ford. Rivian is yet to sell a vehicle.

But it does have an order for 100,000 delivery vans from Amazon, who just happens to own 20%. And Ford won’t be that miffed– it owns 12%.

While the bond market was closed, the futures markets weren’t, and last night the Fed funds rate futures moved the pricing in of a full Fed rate hike in September 2022 forward to July.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1862.30	+ 16.20	0.88%
Silver (oz)	25.20	+ 0.65	2.65%
Copper (lb)	4.47	+ 0.03	0.60%
Aluminium (lb)	1.20	+ 0.05	4.34%
Lead (lb)	1.08	+ 0.01	0.58%
Nickel (lb)	8.98	+ 0.05	0.59%
Zinc (lb)	1.50	– 0.00	– 0.14%
West Texas Crude	81.23	+ 0.10	0.12%
Brent Crude	82.60	+ 0.14	0.17%
Iron Ore (t)	94.20	+ 4.70	5.25%

Evergrande supposedly made good on an interest rate payment this week but there is some confusion, and news is scant. Beijing has nonetheless said it will support Chinese property developers with their cash and debt problems and developer stocks rallied in Hong Kong yesterday.

The bounce-back in the iron ore has been attributed to this news. Looks like aluminium was a big winner too.

Global inflation data have given gold a new lease of life.

The “weak” jobs report had the Aussie down yesterday but the -0.6% fall to this morning, to US$0.7292, was also helped by another 0.3% rise in the greenback.

Today

The SPI Overnight closed up 32 points or 0.4%.

Today brings AGMs from Lendlease ((LLC)), NextDC ((NXT)) and Orocobre ((ORE)).

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ASB	Austal	Upgrade to Outperform from Neutral	Credit Suisse
AWC	Alumina Ltd	Upgrade to Outperform from Neutral	Macquarie
CCP	Credit Corp	Downgrade to Accumulate from Buy	Ord Minnett
CSL	CSL	Upgrade to Outperform from Neutral	Macquarie
REA	REA Group	Downgrade to Sell from Neutral	UBS
SRV	Servcorp	Downgrade to Neutral from Buy	UBS
SSG	Shaver Shop	Upgrade to Accumulate from Hold	Ord Minnett
UWL	Uniti Group	Upgrade to Accumulate from Hold	Ord Minnett

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

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