by Peter Milios
Six out of eleven sectors are trading higher at noon, led by the efforts of Health Care, and Information Technology, whilst Materials lagged.
Ampol said its refining margin at the Lytton Refinery increased by 4.3 per cent in the quarter ending December 31. The Lytton Refiner Margin averaged US$11.75 per barrel, up from US$11.24 in the previous period.
Nickel Industries is aiming to obtain US$471m ($673m) from investors to expand its partnership with Chinese shareholder Shanghai Decent, as it aims to capitalise on the growing popularity of electric vehicles. The funds will be used to buy a 10 per stake Shanghai Decent’s Indonesian Huayue Nickel Cobalt project for US$270.
At noon, the S&P/ASX 200 is 0.02 per cent or 1 point lower at 7,385.00.
The SPI futures are flat.
Best and worst performers
The best-performing sector is Health Care, up 0.78 per cent. The worst-performing sector is Materials, down 0.58 per cent.
The best-performing large cap is JB Hi-Fi (ASX:JBH), trading 4.45 per cent higher at $48.58. It is followed by shares in Ampol (ASX:ALD) and Harvey Norman Holdings (ASX:HVN).
The worst-performing large cap is IGO (ASX:IGO), trading 3.21 per cent lower at $14.15. It is followed by shares in Cleanaway Waste Management (ASX:CWY) and Amcor (ASX:AMC).
Asian news
Asia-Pacific shares rose on Wednesday as investors await the outcome of the Bank of Japan’s monetary policy meeting.
Japan’s Nikkei 225 climbed 0.66 per cent in its first hour of trade, and the Topix edged up 0.39 per cent as Japan’s central bank enters its second day of monetary policy discussions, which comes amid high government bond yields and a strong yen with some economists expecting the central bank to scrap its yield curve control policy.
The Japanese yen last stood at 128.25 against the US dollar.
The Kospi inched up fractionally while the Kosdaq has so far added 0.3 per cent.
Struggling for direction
Several moving pieces in focus today, including some debate about the quality of the recent move higher and the potential support from positioning dynamics. Growth headlines mixed. China December activity data better but already de-risked by reopening dynamics. German ZEW economic sentiment surprised to the upside, moving back into positive territory. Empire manufacturing fell to lowest level since May 2020 vs expectations for an increase and composition weak, though both price indexes declined. IB earnings takeaways mixed with Goldman Sachs hit by higher provisions, higher expenses and asset marks, while Morgan Stanley higher with Wealth Management the bright spot. More momentum behind the central bank tightening slowdown theme on the back of Bloomberg report ECB may dial back pace of rate hikes to 25 bp in March following an expected 50 bp move next month. However, also some concerns Fedspeak could lean more hawkish into the blackout period. In addition, lots of uncertainty surrounding the BoJ, though also talk another YCC surprise largely de-risked by massive central bank intervention as of late.
Sector performance very mixed and bunched
Sector performance mixed and fairly bunched today, with market breadth slightly positive. Growth a bit of an outperformer to value, though most FANMAG names lower. Banks underperformed while IBs are mixed (MS-US rallying on its report while GS-US saw biggest earnings miss since 2011). P&C insurers saw a big drag from TRV-US on its preliminary Q4 report. MHK-US the big drag in building products after its weak guidance. EMR-US weighed down in multis on its offer to buy NATI-US . Airlines, pharma, asset managers, machinery, industrial metals, packaging, apparel retailers also trailed. China tech broadly lower as well. To the upside, EVs outperformed as TSLA-US in particular had a a good session. Energy mostly higher alongside oil as refiners fared best. Rails, beverages, QSRs, HPCs, ag chemicals, cruiselines, OTAs, REITs better as well.
Big themes in the press
Several high-profile themes in the headlines over the long holiday weekend in the US. Companies are pulling back on price increases in response to some backlash from wary consumers, another sign inflation pressure may be easing (WSJ). Despite negative revision trend, strategists concerned consensus earnings estimates for 2023 are still too high in the face of recession risk (Bloomberg). While soft-landing hopes have picked up a bit, still no shortage of headlines about how economists and chief executives believe a US and global recession are likely this year (WSJ, Bloomberg). Some hints of growth concerns evident in higher provisioning from the big banks, who set aside ~$4B in Q4 to prepare for possible recession (Reuters). Lingering big tech scrutiny keeping S&P 500 in bear market, though about three-quarters of the index is actually trading 20 per cent or more above lows (Bloomberg). Preference for global equity exposure vs the US evident in latest BofA Global Fund Manager Survey, which revealed allocation to US equities most underweight since October 2005 (Reuters).
Where things stand with the narratives
Current bullish narrative revolves around disinflation traction, further slowdown in pace of Fed tightening, near-term Fed move to the sidelines, easing financial conditions via rates and FX, easing supply chain constraints, soft-landing (and earnings) support from still tight labor market, corporate cost-cutting push to cushion margins, faster China reopening and more resilient Eurozone economy. Also more focus on positioning dynamics as a contrarian indicator, particularly with recent outsized gains in most-shorted baskets and plays leveraged to liquidity/risk sentiment (including China tech). This has even led to some renewed FOMO chatter. At the same time, still skepticism latest move is anything more than another bear market bounce. This gets back to the unrelenting higher-for-longer and pivot pushback messaging from the Fed, sticky services inflation, worries about a Fed policy mistake (hard landing) via its focus on lagging indicators, QT, M2 growth collapse, TARA>TINA, debt ceiling risk, continued pickup in softer demand messaging from companies and the fairly widespread view that earnings estimates still have a lot of room (~10 per cent+) to come down.
Company news
Godolphin Resources (ASX:GRL) announced that drilling has confirmed rare earth and rare metal potential. In response, Managing Director Ms Jeneta Owens said: “Of the final 22 drill hole results, 19 intercepted mineralisation. This is extremely encouraging given eight of these were drilled outside of the bounds of known REE mineralisation, highlighting the potential for a considerably larger REE system.” Shares are currently trading 16.67 per cent higher at $0.105.
Volpara Health (ASX:VHT) announced a quarterly cash flow report for the quarter ending 31 December 2022. This was the company’s first positive net cash flow quarter on record and The Net operating and investing cash inflow in Q3 FY23 improved by 134 per cent. In response, Volpara Group CEO Teri Thomas said: “As planned, our top line continues to increase while our cost base has declined. We continue to emphasise sales and positive engagements with our customers alongside settling into our streamlined operations.” Shares are currently trading 12.06 per cent higher at $0.79.
Riedel Resources (ASX:RIE) has announced that their diamond drilling has confirmed high grade gold at their project in Arizona. In response, Riedel Chairman Michael Bohm stated: “These first assay results from recent diamond drilling again demonstrate that the mineralisation at Tintic commences at very shallow depths, is flat lying, and appears to be of exceptional grade.” Shares are currently trading 75 per cent higher at $0.014.
Commodities and the dollar
Gold is trading at US$1782.70 an ounce.
Iron ore is 0.6 per cent higher at US$121.50 a tonne.
Iron ore futures are pointing to a 1.31 per cent rise.
One Australian dollar is buying 69.84 US cents.
