ASX LIVE | XJO to Rise, NZ CPI hits 6%, US Banks Post Profits

That’s all from me today, folks.

Thought I’d leave you with another short list of things to look out for in markets overnight— and ours tomorrow.

• Tonight: Eurozone CPI data will be released for June. The previous CPI was 6.1%and the forecast is for 5.5%
• Overnight: Building permits for June from the US will paint a clearer picture of the market’s health while we wait for employment data.
• Tomorrow: Employment data for June in Australia will be the top topic as it will be a clearer (albeit lagging) indicator of the economy’s strength and consequently the next actions of the RBA.

Here’s today’s AI-generated image of the US bank’s latest revenue.

ASX 200 closed up 0.55%, trading at 7,323.7 after a stable day after this morning’s jump, which was supported by a positive day in US markets. Iron ore prices have pushed the bigger miners down for today, but Iron ore is beginning to bounce back, so expect similar movements up tomorrow for the largest players.

• $AUD down -0.32% at 67.87 US cents
• ASX futures up +0.61% to 7283.5
• S&P 500 up +0.71%
• NASDAQ up +0.76%
• DOW up +1.06%
• FTSE up +0.64%
• STOXX up +0.52%
• SSE down -0.10%
• Bitcoin up +0.03% to $US 30,080.90
• Spot gold up +0.05% to $US 1,976.47
• Iron ore up +0.32% to $US 112.17
• Brent Crude down -0.01% to $US 79.62pb

ASX 200 Sector Top Performance

• Energy up 1.70%
• Financials up +1.49%
• Real Estate up +0.90%

The best individual performers:

• Coronado Global Resources [ASX:CRN], up 5.50%
• Ampol [ASX:ALD], up 4.59%
• New Hope Corporation [ASX:NHC], up 4.08%
• Endeavour Group [ASX:EDV], up 3.52%
• Virgin Money Uk [ASX:VUK], up 3.05%

The worst performers:

• Northern Star Resources [ASX:NST], down 5.83%
• Meridian Energy [ASX:MEZ], down 4.47%
• Sandfire Resources [ASX:SFR], down 3.07%
• Lendlease Group [ASX:LLC], down 2.89%
• Iluka Resources [ASX:ILU], down 2.56%

All figures shown are from 4:25pm AEST

Whitehaven Coal has had a bumpy week with shares seesawing as the company struggled to refinance its $1 billion debt facility. Australia’s biggest banks turned their back on the coal giant and sent it offshore to find lenders.

By the end of June 2023, Whitehaven held $2.65 billion in net cash. The security of that alone was not enough for Aussie banks to soot their names with coal.

A complete turnaround from February 2020, when the company reported being significantly over-subscribed with interest from lenders.

Whitehaven Chief Financial Officer Kevin Ball blamed the cash position as being too strong for lenders, saying:

‘It is fairly challenging when you go to a bank and say ‘I have got $2.6 billion on my balance sheet, and sir, can I borrow some money?’ Because they look at you and say, ‘Why do you need that?’ That certainly played into the conversation.‘

The trouble around this sent negative signals amongst miners, concerned about a banking sector souring on the prospect of supporting non-renewables.

The news turned around quickly, with these rough headwinds turning to positive news as the company posted production and sales for the quarter.

Despite receiving an average price of $264/t in the three proceeding months to June (compared to last year’s $445/t) the company still generated $435 million and $2.65 billion in cash after $1.6 billion in capital returns via dividends and $950 million share buckback.

Even with major flooding in the first half of the year, plus labour shortages, Whitehaven still managed to boost production by 19% qoq in the three months to June — with 5.1 million tonnes.

The next question will be, where will Whitehaven spend all that cash?

Here’s a great chart from a student of history, Jurrien Timmer looking at 10-year bond yields and their inversion.

Many of the recessions— seen here in pink— often occur with a preceding bond yield inversion. The time between inversion and downturn has ranged between 6–24 months.

Many US analysts are now saying that this time will be different and we will see a soft landing this time around.

Since 1955 eight out of nine recessions have been preceded by an inverted yield curve, so its an important one to watch closely as we turn towards the end of year.

For a great read on why you should not fear the yield inversion click here.

Where stock valuation goes from here depends largely on earnings: At a 2024 consensus EPS estimate of $240, a 21x multiple would be 5000 for the S&P 500 and a 22x multiple would be 5300. (We are at 20.0x now.)

What about that elusive recession? Well, history suggests that it is… pic.twitter.com/vJdsVoDlwy

— Jurrien Timmer (@TimmerFidelity) July 18, 2023

For a second day, iron ore prices have declined in afternoon trading, dragging major miners with it.

Iron ore is down 0.51% to US$111.81 with futures trading lower on the Singapore exchange, down 1.4% to US$110.05

Iron producers share movements today:

• BHP [ASX:BHP] fell by 1% today
• Rio Tinto [ASX:RIO] fell by 0.77% today
• Fortescue Metals [ASX:FMG] fell by 2.29%

For a second day, iron ore prices have declined in afternoon trading, dragging major miners with it.

Iron ore is down 0.51% to US$111.81 with futures trading lower on the Singapore exchange, down 1.4% to US$110.05

Iron producers share movements today:

• BHP [ASX:BHP] fell by 1% today
• Rio Tinto [ASX:RIO] fell by 0.77% today
• Fortescue Metals [ASX:FMG] fell by 2.29%

ASX 200 up 0.47% to 7,317.8

The best sectors this morning were Energy (+1.91%) and Financials (1.34%), while Telecoms (-0.66%) sector fell.

The best individual performers:

• Coronado Global Resources [ASX:CRN], up 5.50%
• Ampol [ASX:ALD], up 4.84%
• Whitehaven Coal [ASX:WHC], up 3.74%
• Zimplats Holdings[ASX:ZIM], up 3.38%
• Virgin Money UK [ASX:VUK], up 3.38%

The worst performers:

• Northern Star Resources [ASX:NST], down 6.25%
• Aurizon Holdings [ASX:AZJ], down 2.37%
• Ansell [ASX:ANN], down 2.35%
• Neuren Pharmaceuticals [ASX:NEU], down 2.30%
• Genesis Energy [ASX:GNE], down 2.02%

All figures shown are from 12:19pm AEST

ASX 200 up 0.47% to 7,317.8

The best sectors this morning were Energy (+1.91%) and Financials (1.34%), while Telecoms (-0.66%) sector fell.

The best individual performers:

• Coronado Global Resources [ASX:CRN], up 5.50%
• Ampol [ASX:ALD], up 4.84%
• Whitehaven Coal [ASX:WHC], up 3.74%
• Zimplats Holdings[ASX:ZIM], up 3.38%
• Virgin Money UK [ASX:VUK], up 3.38%

The worst performers:

• Northern Star Resources [ASX:NST], down 6.25%
• Aurizon Holdings [ASX:AZJ], down 2.37%
• Ansell [ASX:ANN], down 2.35%
• Neuren Pharmaceuticals [ASX:NEU], down 2.30%
• Genesis Energy [ASX:GNE], down 2.02%

All figures shown are from 12:19pm AEST

The Westpac-Melbourne Institute Leading Index of Economic Activity today flipped to positve (0.1%) today, the first time since April 2022.

The index integrates a number of economic factors that often precede variations in economic activity into a single cyclical indicator for the Australian economy.

The index’s components include the S&P/ASX 200, dwelling approvals, US industrial production, the RBA Commodity Prices Index, aggregate monthly hours worked, the Westpac-MI CSI expectations index, the Westpac-MI Unemployment expectations index, and the yield spread

While todays gain was modest, it still alligns with a growing postive sentiment out of the US where more market analysts are pointing towards the idea of a soft landing for many economies who’s central banks attempt to thread the needle between slowing inflation without crashing the economy.

Australia MI Leading Index (MoM)

Source:Investing.com

The Westpac-Melbourne Institute Leading Index of Economic Activity today flipped to positve (0.1%) today, the first time since April 2022.

The index integrates a number of economic factors that often precede variations in economic activity into a single cyclical indicator for the Australian economy.

The index’s components include the S&P/ASX 200, dwelling approvals, US industrial production, the RBA Commodity Prices Index, aggregate monthly hours worked, the Westpac-MI CSI expectations index, the Westpac-MI Unemployment expectations index, and the yield spread

While todays gain was modest, it still alligns with a growing postive sentiment out of the US where more market analysts are pointing towards the idea of a soft landing for many economies who’s central banks attempt to thread the needle between slowing inflation without crashing the economy.

Australia MI Leading Index (MoM)

Source:Investing.com

Inflation in NZ has fallen to its lowest levels since late 2021.

CPI data out today shows a figure of 6%, down from the previous 6.7%.

Last week the RBNZ paused hikes but indicated that it expects inflation to be within its target band in 2024 — signalling an extended pause.

For Kiwis, the feeling of inflation remains as food prices remain high, with Vegetable prices increasing 23.3% this year so far, though much of these prices were attributed to floods earlier in the year that hurt the season.

For all goods in the CPI, prices were up 1.1% on a quarterly basis.

‘Prices are still increasing at rates not seen since the 1990s but are rising at a lower rate than the last few quarters,’ Nicola Growden of Stats NZ said today.

Prices for building increased 7.8% this year to June 2023, following an 11.5% increase in the year to March.

Source: StatsNZ

Woodside Energy [ASX:WDS] reported a revenue of US$3.1 billion ($4.5 billion), down 29% after a 4% fall in sales.

Production was also down 5% due to planned maintenance which brought production down to 44.5 million barrels of oil.

Woodside CEO Meg O’Neill said today:

‘Whilst production and sales were lower compared with the first quarter of 2023, they were higher than the
corresponding period last year, reflecting Woodside’s expanded operations portfolio.‘]

As the price of oil continues to climb thanks to lower production from OPEC and Russia, there are hopes of a turnaround as further production kicks in from the Argos platform through 2023.

Core logic data shows house prices are still holding but showing definite signs of slowing across Australia. For potential homebuyers, the concern of high mortgage rates could slow some purchases, while some analysts are concerned about a significant house price drop if the RBA continues rate hikes into 2023.

While I think a correction of that magnitude is unlikely, it’s worth considering the risks of a continued aggressive RBA hike cycle. Moving away from the speculative, here is an update from the ground, with changes in dwelling values, three months to June this year.

Source: Propertyupdate.com.au

Home loan repayment in 2023 vs 2022

Assuming that your lender passes on every single cash rate hike in full to your home loan as per Westpac’s predictions and that you are currently repaying a variable rate loan, you may find that your monthly repayments are $1,315 more expensive in 2023 compared to April 2022.

Home Loan Monthy repayments

Average rate April 2022 (2.86%) $2,335

Forecast average rate 2023 (7.36%) $3,650

Difference $1,315

With strained budgets from these repayments, retail spending and consumer confidence will remain subdued. Let’s hope the RBA is nimble enough to know when to pivot to rate slashes when the economy cools enough for their liking.

CoreLogic Aust home prices July mth to date:
Syd +0.5%mom (+0.9% at mthly rt)
Mel +0.2%
Bri +0.8%
Ade +0.5%
Per +0.6%
5 city avg +0.5% (+0.8% at mthly rt)
Continuing to show some loss of momentum this mth pic.twitter.com/IuLuDD2JHF

— Shane Oliver (@ShaneOliverAMP) July 17, 2023

Core logic data shows house prices are still holding but showing definite signs of slowing across Australia. For potential homebuyers, the concern of high mortgage rates could slow some purchases, while some analysts are concerned about a significant house price drop if the RBA continues rate hikes into 2023.

While I think a correction of that magnitude is unlikely, it’s worth considering the risks of a continued aggressive RBA hike cycle. Moving away from the speculative, here is an update from the ground, with changes in dwelling values, three months to June this year.

Source: Propertyupdate.com.au

Home loan repayment in 2023 vs 2022

Assuming that your lender passes on every single cash rate hike in full to your home loan as per Westpac’s predictions and that you are currently repaying a variable rate loan, you may find that your monthly repayments are $1,315 more expensive in 2023 compared to April 2022.

Home Loan Monthy repayments

Average rate April 2022 (2.86%) $2,335

Forecast average rate 2023 (7.36%) $3,650

Difference $1,315

With strained budgets from these repayments, retail spending and consumer confidence will remain subdued. Let’s hope the RBA is nimble enough to know when to pivot to rate slashes when the economy cools enough for their liking.

CoreLogic Aust home prices July mth to date:
Syd +0.5%mom (+0.9% at mthly rt)
Mel +0.2%
Bri +0.8%
Ade +0.5%
Per +0.6%
5 city avg +0.5% (+0.8% at mthly rt)
Continuing to show some loss of momentum this mth pic.twitter.com/IuLuDD2JHF

— Shane Oliver (@ShaneOliverAMP) July 17, 2023

Bank Earnings released overnight posted strong equity-underwriting estimates for the second quarter.

‘It feel as though things are getting better and signs are encouraging’ Morgan Stanley Chief Financial Officer Sharon Yeshaya said Tuesday.

Bankers are hesitant to call it a comeback, but sentiment in the US has shifted gears, with many analysts thinking that the US is heading for a ‘soft landing’, instead of recession.

Some of the results from the US overnight:

• Charles Schwab (+12.6%) big numbers by the bank however, quarterly revenue fell by 9% YoY which was near expectations of a 7.4% fall. The results led the charge for its best share price gains since 2009.
• Bank of America (+4.4%) posted a 14% increase in net interest income, earnings double beat with quarterly earnings rising 19% to US$7.4b
• Morgan Stanley (+6.5%) profits fell 18% YoY, but earnings posted a double beat surprising analysts.
• Citi Bank (-1.0%) despite breaking from the pack and posting a small fall in revenue, the bank still surpassed analysts expectations and earned an upgrade to buy from hold by Odeon Capital.

Source: Bloomberg

Bank Earnings released overnight posted strong equity-underwriting estimates for the second quarter.

‘It feel as though things are getting better and signs are encouraging’ Morgan Stanley Chief Financial Officer Sharon Yeshaya said Tuesday.

Bankers are hesitant to call it a comeback, but sentiment in the US has shifted gears, with many analysts thinking that the US is heading for a ‘soft landing’, instead of recession.

Some of the results from the US overnight:

• Charles Schwab (+12.6%) big numbers by the bank however, quarterly revenue fell by 9% YoY which was near expectations of a 7.4% fall. The results led the charge for its best share price gains since 2009.
• Bank of America (+4.4%) posted a 14% increase in net interest income, earnings double beat with quarterly earnings rising 19% to US$7.4b
• Morgan Stanley (+6.5%) profits fell 18% YoY, but earnings posted a double beat surprising analysts.
• Citi Bank (-1.0%) despite breaking from the pack and posting a small fall in revenue, the bank still surpassed analysts expectations and earned an upgrade to buy from hold by Odeon Capital.

Source: Bloomberg

ASX 200 opens up 0.39%, trading at 7,312.0

• $AUD up +0.11% at 68.18 US cents
• ASX futures up +0.07% to 7,283.5
• S&P 500 up +0.71%
• NASDAQ up +0.76%
• DOW up +1.06%
• FTSE up +0.64%
• STOXX up +0.52%
• SSE down -0.37%
• Bitcoin down -1.04% to $US 29,851.87
• Spot gold up +0.89% to $US 1,977.31
• Iron ore down -0.51% to $US 111.81
• Brent Crude up +0.24% to $US 79.82pb

All figures shown are from 10:10am AEST

ASX 200 is set to open higher, mirroring US equities that shrugged off tepid retail sales data in the US. The big focus was on the largest four banks, which all topped equity-underwriting estimates.

Westpac’s leading index is due at 11:00am today, which should provide a good yardstick for the next few months.

Here’s this morning’s AI-generated image showing the largest banks’ newest data.