The Overnight Report: Speed Is Of The Essence

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

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

By Greg Peel

Hail Number Two

National Australia Bank ((NAB)) provided its quarterly update yesterday morning and enjoyed a 4.5% share price jump in response. For decades there had always been a clear split between the two big big banks and the two small big banks, but now the hierarchy has shifted.

As of yesterday, NAB is the second biggest Australian bank by market cap, surpassing Westpac ((WBC)).

The release lit a fire under the ASX200, at least for 40 minutes. The index peaked at a gain of 68 points, but by lunchtime was flat again, likely taking a cautious approach ahead of last night’s US CPI release.

Smart move.

It was a mixed bag otherwise on the earnings result front yesterday, with releases from ASX ((ASX)), AGL Energy ((AGL)) and Downer EDI ((DOW)) landing all of them in the top five losers’ list, topped by Cimic ((CIM)), which fell -7.1%.

Bucking the trend was AMP ((AMP)), up 5.9%.

By contrast, the top five winners list included Bapcor ((BAP)), up 10.0%, and Megaport ((MP1)), up 7.6%, both of which had reported on Wednesday and had been sold down initially. Broker opinions contrasted with market opinions, and there was a hint of a takeover offer for Bapcor.

The winning sector on the day was technology, up 2.6%, given Block ((SQ2)) jumped back 9.7% having rallied in the US. Different story today (more below).

Financials provided the counter (+0.9%) thanks to NAB, while materials (+0.5%) was the only other sector to close in the green. Staples, industrials, healthcare and utilities all fell -0.8%. Given the index closed up 20 points, the ASX200’s market cap concentration issue is stark.

There’s only a small number of stocks reporting earnings today, Insurance Australia Group ((IAG)) being one, but we’re set for a rough ride following Wall Street’s overnight panic.

Having smashed through 7300 yesterday, briefly, we’ll be on our way back towards 7200 today with the futures down -55.

The One Percenter

The suggestion on Wall Street was that if last night’s US CPI number came in below the consensus 7.2% forecast, the market would take off. If it came in above 7.2%, the market would likely not panic as the Fed is already well set to start hiking.

Before the opening bell, the number came in at 7.5% — the highest annual inflation rate in 40 years. The Dow opened down -260 points. But sure enough, an hour later it was back into the green.

Everything was hunky dory, until St Louis Fed president and FOMC voting member James Bullard opened his mouth at lunchtime to say he is backing a full 100 basis point hike by July 1.

There are only three meetings before July 1, which means three hikes by then and one has to be 50 points. (The alternative is one hike in between meetings). Before Bullard spoke, Wall Street had considered a 50 point hike in March a possibility, but ascribed less than a 50/50 chance. Now those odds are priced at better than 60%.

Wall Street lost its bottle. The US ten-year yield jumped 10 basis points to 2.03%. But that was nothing compared to the two-year yield, which jumped 22bps.

Given the market already assumed a 25 point hike in March, a 22 point gain in the two-year implies a 50 point hike is now the expectation.

The response on Wall Street, it is suggested, was not just about the speed of Fed hikes, potentially, but what that speed implies: The Fed got it wrong.

Very wrong. And now they have to play catch-up, suggesting a risk they overreact the other way, and send the economy into recession.

The biggest contributors to higher prices in January were used cars, by quite a margin, energy and then food. The used car issue relates back to shortages of computer chips, meaning the stalling of new car production.

Used car prices in Australia are through the roof too.

US service sector inflation is not nearly as hot as goods inflation, but it’s still higher. Wages have also grown strongly. But while goods inflation can eventually come down once supply shortages ease, service (eg rents) and wage inflation will not.

In other news, US BNPL leader Affirm reported earnings last night and fell -21%. Is this indicative of the BNPL industry, or just Affirm? Block fell -3.5%. PayPal fell -3.2%, but it had already been trashed by -23% on its earlier result release, and Block has been caught in the downdraught.

Commodities

Wow. Our futures might be down -55 this morning but it won’t be because of a soft materials sector.

The moves up in base metal prices are not a response to US inflation, as they are inflation, but more of concern over Russia-Ukraine, given Russia is a major producer, in aluminium and nickel particularly.

So much for Beijing’s latest attempt to manipulate the iron ore market.

The Aussie is down -0.3% at US$0.7165.

Today

The SPI Overnight closed down -55 points or -0.7%.

The US will see consumer sentiment numbers tonight.

The UK reports December quarter GDP.

Insurence Australia Group ((IAG)) is among today’s reporting stocks and United Malt Group ((UMG)) holds its AGM.

For upcoming earnings result dates, and a summary of results to date, please refer to the FNArena Corporate Results Monitor.

The Australian share market over the past thirty days…

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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