ASX LIVE | XJO to Fall; Wall St Flat Awaiting Fed Call Tomorrow, New Hope Net Profit Up 11pc

ASX 200 closed down 0.42% at 7,200.0

With rising oil prices bolstering the Energy Sector, it was the only sector that was marginally positive today, up 0.25%.

All Ords fell 0.45% as shares in mining companies fell today on weaker iron ore prices, BHP dropped 1.42%, Fortescue Metals fell 1.20%, and Rio Tinto fell 0.77%.

Oil hit its highest level this year above US$92 per barrel for WTI Crude futures and US$94.95 for Brent Crude futures.

ASX 200 Sector Top Performance

• Energy, up +0.25%
• Discretionary, flat +0.068%
• Utilities, flat +0.01%

ASX 200 Sector Worst Performance

• Materials, down -0.75%
• Staples, down -0.59%
• Real Estate, down -0.51%

Chinese property developer Country Garden has won approval from creditors to extend repayment on another onshore bond, the last in the batch of eight bonds it has been seeking for an extension.

Country Garden was previously China’s second-largest property developer and is one of many of the large developers that are facing issues as China’s property sector crumbles.

A subsidiary of the company issued the 492 million yuan (US$104 m) onshore bond, which has been extended by three years in the latest deal.

China’s property sector, once a major driver of economic growth, has been struggling in recent years. A combination of factors, including government crackdowns on excessive debt, a slowing economy, and changing demographics, have led to a sharp decline in home sales and prices.

The sector’s woes have had a ripple effect on the broader economy, weighing on GDP growth and consumer confidence. The Chinese government has taken a number of steps to try to stabilize the market, but the recovery has been slow and halting.

One of the biggest challenges facing the property sector is its high debt levels. Many developers have borrowed heavily to finance their expansion, and they are now struggling to repay their loans as sales and cash flow dwindle. This has led to a number of high-profile defaults, which has further eroded confidence in the sector.

 

Chevron announced yesterday that its Wheatstone Liquefied Natural Gas Facility in WA is back to full production after a fault cut production by 1/5th last week.

Wheatstone and the nearby Gorgon facility account for over 5% of the global LNG supply, and the sites have been under pressure as rolling strikes and faults have pressured deliveries, which have managed to stay on track.

‘During [the fault], LNG continued to be produced at approximately 80% of usual rates, and vessel loading continued,” a Chevron spokesperson said in an emailed statement.

“There has been no change to scheduled LNG deliveries. Domestic gas facilities and supply were unaffected.”

The intensity of the strikes has been rising as the workers began escalating their strike action to 24-hour stoppages from previous halts and limited bans on certain tasks.

The strikes were set to run until the end of the month, but the Offshore Alliance, a coalition of two unions, has signalled that they intend to extend the industrial action.

Currently, Australia’s Fair Work Commission has been brought on by Chevron to intervene in the dispute. So far mediation has not seen either party move on their position, but it’s thought that Chevron is hoping that the commission will be able to force parties into an agreement under new laws that came into affect in June.

The tribunal will hold its first, and so far only hearing on the 22nd of September.

The latest survey data from the ACCI/Westpac, available in full here, had some interesting revelations.

Unit labour costs continued to climb.

But the tight labour market was not the biggest constraint on increasing output.

AMP chief economist Shane Oliver had the first scoop so I’ll link to him with the chart below.

ACCI/Westpac survey shows orders now more of a constraint on increasing output than lack of labour.
(Macquarie Macro Strategy chart) pic.twitter.com/3QEqNsES6W

— Shane Oliver (@ShaneOliverAMP) September 19, 2023

 

90% of stocks are fairly priced, according to some buy-side analysts. This doesn’t mean that there aren’t opportunities to make money in the stock market, however. The smart money chases down the 10% of stocks that are meaningfully mispriced.

But how efficient are markets really?

The efficient market hypothesis

The efficient market hypothesis (EMH) states that stock prices reflect all available information. This doesn’t mean that all stock prices are correct, but it does mean that it’s very difficult to beat the market.

Click below to see me run an experiment on five randomly selected stocks from the ASX 200 to see if their share prices reflect their intrinsic value.

https://www.moneymorning.com.au/20230919/are-most-asx-stocks-efficiently-priced.html

The Reserve Bank of Australia’s last interest rate meeting minutes were released today, showing how close the board came to raising rates at the beginning of September.

In the meeting minutes, it was clearly spelled out that the RB is still concerned about high inflation despite 12 interest rate rises since May last year. The minutes show that the board considered lifting the official cash rate by 0.25 per cent this month but decided to keep rates on hold for the third month in a row.

AMP deputy chief economist Diana Mousina thinks the RBA is done with rate hikes and may even reduce borrowing costs next year.

‘We think that there is a chance of rate cuts, because of that view that we think the economy will be quite slow and soft and growth will be disappointing next year, she said.

‘So that’s what we think the Reserve Bank will be cutting interest rates, probably to start in the March quarter of 2024.’

Ms Mousina also sees a 50:50 chance of a recession next year as unemployment rises above 4%. That’s as interest rate rises work their way through the economy and migration increases, meaning more people are competing for jobs.

The RBA minutes also warned of a sharp deterioration in the Chinese economy, which would deliver another blow to Australia’s tepid growth outlook. Exports would fall, and fewer international students would arrive in the event of a slowdown.

Downside risks to the Chinese economy were among the reasons the RBA board decided to keep interest rates unchanged at 4.10% at former governor Philip Lowe’s final board meeting on September 5.

The RBA thinks it may have already done enough to get inflation, currently 4.9%, back to its 2−3% target.

Governor Michele Bullock said on Monday she wanted to keep inflation low and stable while keeping the level of employment as high as possible. The comment was a stark change from her previous comments as Deputy governor, where she is quoted as saying that unemployment needed to go up in order to tame inflation.

The change in tone is very intentional as the RBA begins to take on the independent recommendations made to change RBA culture and to avoid the repeats of Dr. Lowe’s tenure, where he garnered the ire of many Australians for his communication and decisions to extend the tightening cycle for so long.

Mining explosives giant Orica has announced accelerated climate change targets today, including:

• An increased target to reduce net operational scope 1 & 2 emissions by 45% by 2030, up 5% from previous goals.
• A new short-term target to reduce net operational 1 & 2 emissions by 30% by 2026
• A new ambition to reduce scope 3 emissions by 25% by 2035.

Sanjeev Gandhi, managing director and CEO, explained the move today, saying:

‘Orica is taking action on climate change and expecting to deliver at least a 19 per cent emissions reduction by the end of FY2023. We are also accelerating our commitments and expanding the scope – building a credible pathway towards achieving our ambition of net zero emissions by latest 2050 while positioning our business for a lower carbon world.’

In the announcement, the company also confirmed they were on track to meet guidance for the full year 2023.

Shares of the company are up by 1.82% so far today.

Shares in coal miner New Hope Corporation are up 3.65% around midday after the company posted strong FY23 results this morning.

Source: New Hope Corp

New Hope Coal’s results mean that the company has made more profits in the past two years than in the previous 16 years combined.

ASX 200 is down 0.55% at 7,190.7 at midday as Australian markets have shown little progress this month.

The XJO has only gained 0.60% in the past 1 month, while over the year to date, the XJO has only gained 2.16%.

The best individual performers:

• Ramelius Resources [ASX:RMS], up 3.57%
• Boss Energy [ASX:BOE], up 3.43%
• Perseus Mining [ASX:PRU], up 3.42%
• New Hope Corporation [ASX:NHC], up 2.92%
• Bluescope Steel [ASX:BSL], up 2.79%

The worst performers:

• Block Inc [ASX:SQ2], down 4.44%
• Abacus Storage King [ASX:ASK], down 3.45%
• Virgin Money Uk [ASX:VUK], down 2.79%
• Lovisa Holdings [ASX:LOV], down 2.78%
• Megaport [ASX:MP1], down 2.63%

 

AI progress has hit an incredible point while the Wall St AI-led rally continues.

The ten largest companies in the S&P 500 now comprise 34% of the index with an average P/E ratio of 50x.

This is the highest percentage since 2001, during the Dot-com bubble.

Even in the 2008 bubble, this percentage peaked at ~26%.

These same ten companies have accounted for ~80% of the Nasdaq’s entire rally this year.

Markets are increasingly held up by a few stocks, particularly in the technology sector.

But much of this has been on the hope of a step change in productivity across the board, but where has been the evidence for this?

In the latest paper (published 15 September), we finally have concrete data showing evidence for the productivity effects of AI on worker productivity and quality.

Source: (Dell’Acqua, 2023)

Consultants using AI finished 12.2% more tasks on average, completed tasks 25.1% more quickly, and produced 40% higher quality results than those without.

The other important takeaway from the results was that AI became a significant skill leveller between experienced/high-skill workers and new entrant/low-skill workers.

The biggest jump in performance was seen in the bottom half of users in terms of skills, who saw a 43% increase in performance.

It seems the hoped productivity boost we have been promised from AI is beginning to be felt in businesses.

Here’s another look at the progress these systems are making across the board versus humans.

incredible AI progress in one eye-full. this is what exponential looks like.

speech, image, reading, language understanding, grade school math, codegen – all nearing or exceeded human performance pic.twitter.com/HEi0Xl6A2A

— Mustafa Suleyman (@mustafasuleyman) September 18, 2023

As crude continues to climb, traders await the inevitable point of $100 per barrel.

As cuts from Saudia Arabia and Russia have steadily tightened supplies at a time when consumption has picked back up, we are seeing stockpiles drop to dangerously low levels, forcing refineries to snap up barrels to keep up fuel production.

The premiums are jumping as northern hemisphere refineries ramp up diesel production ahead of the winter demand.

Many have criticised OPEC+ for flexing its muscles and extending cuts until the year, seeing it as a geopolitical move that has angered the Whitehouse.

Meanwhile, Saudi Arabia has defended the decision to extend cuts, insisting the move was not about ‘jacking up prices, saying:

‘It’s not about… jacking up prices, it’s about making the decisions that are right when we have the data,‘ said Energy Minister Prince Abdulaziz bin Salman.

The International Energy Agency expects global oil consumption to average a new record of 101.8 million barrels a day this year, led by rising demand from China.

Rising prices have increased pressure on central banks as inflationary pressures land back on headline CPI data, something which could force the hand of the RBA to raise rates at a time when everyone is expecting them to remain on hold, a contentious time considering Michele Bullock only began in her new role as the governor of the RBA yesterday.

ASX 200 opened down 0.36% to 7,204.6 this morning.

ASX 200 Futures are currently flat at 7,225.0

All Ords down 0.27% at 7,407.2

Real Estate has begun the day down 1.7%, with Arena REIT down 0.83% this morning.

Meanwhile, oil begins its inevitable climb to $100 per barrel as more supply cuts loom.

Source: Bloomberg

Good morning all,

Australian shares are set to slide while Wall St remains in a holding pattern awaiting the big decision from the Fed.

According to the CME FedWatch Tool, the market thinks the probability of a raise is at only 1%.

Despite this apparent confidence of an interest rate hold, the markets still remain cautious before the meeting on Wednesday night (AEST).

In other news, X/Twitter faced controversy as Elon Musk raised plans during a live stream with Benjamin Netanyahu that he was considering charging users a small monthly fee in order to combat bots on the website.

Spot gold jumped overnight, while oil continues to climb as more production cuts loom on the horizon.

In forex markets, things remained relatively flat for the AUD, with it gaining some ground versus the pound overnight.

• $AUD flat +0.04% at 64.38 US cents
• ASX futures flat +0.05% to 7,255.0
• S&P 500 flat +0.072%
• NASDAQ flat +0.014%
• DOW flat +0.018%
• FTSE down -0.76%
• STOXX down -0.93%
• SSE up +0.26%
• Bitcoin up +1.12% to $US 26,773.5
• Spot gold up +0.56% to $US 1,934.04
• Iron ore up +0.61% to $US 121.29
• Brent Crude up +0.15% to $US 94.57pb

All figures shown are from 09:30am AEST