Fall in US consumer price index causes ASX to open higher: AUS shares up 0.94% at noon

Market Reports

by Peter Milios

All sectors, except for Consumer Staples, are up at noon, as the ASX responds to overnight news that December’s US consumer price report shows that inflation has fallen to 5.7 per cent, down from 6 per cent the previous month.

Echoing this news, the European Central Bank has stated that consumer expectations for inflation for the next 12 months have slowed down for the first time since May 2022.

Mining stocks are continuing to rally, with BHP (ASX:BHP) nearing an all-time high. Shares are up 1.03 per cent higher at noon at $49.89.

At noon, the S&P/ASX 200 is 0.94 per cent or 68.6 points higher at 7,349.00.

The SPI futures are pointing to a rise of 61 points.

Best and worst performers

The best-performing sector is Energy, up 2.17 per cent. The worst-performing sector is Consumer Staples, down 0.20 per cent.

The best-performing large cap is New Hope Corporation (ASX:NHC), trading 4.98 per cent higher at $6.215. It is followed by shares in Ampol (ASX:ALD) and Santos (ASX:STO).

The worst-performing large cap is Pilbara Minerals (ASX:PLS), trading 1.20 per cent lower at $4.11. It is followed by shares in Amcor (ASX:AMC) and Endeavour Group (ASX:EDV).

Asian markets

Asia-Pacific shares were mixed, after the U.S. consumer price index showed inflation cooled in December, raising investors’ hopes that the Federal Reserve can return to slower interest rate hikes. Japan’s Nikkei 225′s dipped 0.3 per cent in its first hour of trade, while the Topix declined fractionally. The Kospi rose 0.92 per cent, and the Kosdaq edged up 0.53 per cent.

China is set to release its trade data for December later in the day.

Headline CPI declines in December

Headline December CPI down 0.1 per cent m/m, largely in line with Street expectations and below November's 0.1 per cent monthly rise. Up 6.5 per cent y/y, in line with forecasts and below November's 7.1 per cent (smallest 12-month rise since October 2021). Core CPI up 0.3 per cent m/m, in line with consensus and a step up from prior month's 0.2 per cent rise. Headline decrease driven by another month of lower energy prices (particularly gasoline). Food-price inflation ticked down to a 0.3 per cent m/m rise after November's 0.5 per cent increase. Core prices saw upward pressure from 0.8 per cent m/m rise in shelter inflation. Declines were seen in used-vehicle pricing (down 2.5 per cent m/m, sixth consecutive monthly decline), airline fares, and personal care. Market volatile around the release, but report unlikely to shift expectations for a further Fed slowdown in hiking pace and eventual pause. Elsewhere, initial jobless claims 205K in the last week, below consensus for 220K and last week's upwardly revised 206K. Continuing claims at 1634K, well below forecasts for 1715K and prior week's 1697K.

Latest Fedspeak adds more support for 25 bp hike in February

Philadelphia Fed's Harker (voter) was the latest Fed official to offer support for a 25 bp rate hike in February FOMC meeting (Bloomberg). Harker said he wants to be cautious to avoid causing unnecessary harm to the labour market, though said he still sees rates hitting 5 per cent before a pause. St. Louis' Bullard (non-voter) said despite a better CPI report, risk is that inflation doesn't moderate as fast as markets expect, and rates will have to remain higher for quite some time to get inflation back to 2 per cent. CME's FedWatch tool now shows a ~90 per cent chance of a 25 bp February hike, up from ~80 per cent yesterday. Markets continue to price in two rate cuts by year-end 2023, as well, which continues to reflect the risks around the divergence between investors and the Fed on the rate path for this year (Bloomberg).

Peltz planning proxy fight at Disney

Nelson Peltz is planning a proxy fight for a seat on Disney's board. Disney said that while executives have engaged with Peltz numerous times in past few months, it does not want him on the board. In its "Restore the Magic" presentation, Peltz's Trian highlighted a number of concerns surrounding Disney, including the disappointing recent share price and operating performance, along with its belief that investor sentiment surrounding Disney is low. On the capital allocation front, Trian argued Disney has shown poor judgment on recent M&A, including overpaying for the $52B 21st Century Fox assets. Added increased leverage and deteriorating cash flow resulted in eliminating the dividend, even parks EBITDA surpassed historical levels. Also flagged corporate governance issues, noting failed succession planning, over-the-top compensation practices and poor shareholder engagement. In addition, it argued Disney's DTC strategy has been flawed, as it struggles with profitability despite reaching similar revenues as Netflix and having a significant IP advantage.

Energy, REITs lead US sector performance

Most sectors were higher in Thursday trading, with both growth and value factors ending somewhat stronger. Energy was the standout as crude extends the week's gains, with E&Ps and oilfield services among best performers. Airlines rallied after AAL-US 's update included an increase in Q4 revenue and TRASM guidance. Entertainment also stronger, led by DIS-US on Trian updates and NFLX-US upgrade. Banks outperformed despite the Treasury rally, with regionals faring better than the money centers. Semis, REITs, media, multis, machinery, and A&D (BA-US upgrade) were also stronger. Among the laggards, biotech and MedTech were largely down in healthcare. There was some drag in staples from beverages (BUD-US downgrade), food, HPCs, and tobacco. Tech hardware, building products, waste, credit cards, life insurers, restaurants were some other areas of weakness.

Company news

Moab Minerals (ASX:MOM) has received strong gold in soil anomaly in the assay results for the sampling they completed in November last year. Moab Managing Director, Mr Malcolm Day, commented: “We are pleased to update shareholders with the results from the gold sampling program completed at Mt Amy in November 2022, with a gold in soil anomaly generated that justifies follow-up sampling to determine the extent of the anomaly.” Shares are trading 10 per cent higher at 1.1 cents.

European Lithium (ASX:EUR) has signed a non-binding MOU with Obeikan Investment Group to build and operate a hydroxide plant in Saudi Arabia for the 100 per cent owned Wolfsberg Lithium Project in Austria. Tony Sage, EUR Chairman, commented: “The JV with Obeikan will allow EUR to focus its efforts on building the facilities to start mining concentrate in addition to benefiting from the JV opportunities.” Shares are trading 6.41 per cent higher at 8.2 cents.

Hot Chili (ASX:HCH) announced that drilling has commenced across the recently secured western extension to the Cortadera copper-gold discovery. Importantly, Hot Chili has more than doubled the prospective strike length of the discovery from 2.3km to 5.2km increasing the near term, material resource growth potential for Hot Chili. Shares are trading 9.47 per cent higher at $1.04.

Commodities and the dollar

Gold is trading at US$1782.70 an ounce.
Iron ore is 0.3 per cent lower at US$123.65 a tonne.
Iron ore futures are pointing to a 0.93 per cent rise.
One Australian dollar is buying 69.67 US cents.

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