The Overnight Report: OPEC To The Rescue?

This story features NICKEL INDUSTRIES LIMITED, and other companies. For more info SHARE ANALYSIS: NIC

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

World Overnight
SPI Overnight	7064.00	+ 27.00	0.38%
S&P ASX 200	7053.00	+ 72.70	1.04%
S&P500	4277.88	+ 107.18	2.57%
Nasdaq Comp	13255.55	+ 459.99	3.59%
DJIA	33286.25	+ 653.61	2.00%
S&P500 VIX	32.45	– 2.68	– 7.63%
US 10-year yield	1.95	+ 0.08	4.06%
USD Index	97.97	– 1.10	– 1.11%
FTSE100	7190.72	+ 226.61	3.25%
DAX30	13847.93	+ 1016.42	7.92%

By Greg Peel

Risk On

Whatever sparked the buying on the ASX yesterday morning, it was not Philip Lowe. The RBA governor's speech was not available until late morning, by which point the ASX200 was most of the way to the day’s high. The futures had suggested up 5 points, but after a slight stumble at the open, the index shot up in a straight line.

It was not about commodities this time. It may have been a risk-on session but the commodity markets at this point are just too risky, as the nickel price debacle and oil prices flying around are testament.

To the first point, Nickel Mines ((NIC)) was down -24% yesterday until the company halted trading. The miner’s largest shareholder is China’s Tsingshan, which happens to be the world’s largest nickel producer, and happened to be caught short in the nickel market (sometimes hedges don’t work).

So Tsingshan sold some stock, but later assured Nickel Mines it was not planning to sell down its stake. Trading resumed with Nickel Mines closing down -4.7% — still the worst index performer on the day.

To the latter point, the energy sector rose only 0.1% yesterday despite another move up in oil prices. But prices had skyrocketed again before pulling back sharply for the second day running. Stay out of it? The oils were down -12% last night.

Materials fared only slightly better (+0.5%) despite a near US$60/oz jump in the gold price. Industrial metal markets are scary places right now.

The big driver yesterday, in market cap terms, was a 1.8% gain for financials, even as the floods continue to wreak havoc. Nor were the banks deterred by what the RBA governor had to say.

Lowe suggested the RBA has the “scope to wait and assess incoming information,” arguing it “can be patient in a way that countries with substantially higher rates of inflation [eg US] cannot”.

There is a risk to waiting too long, said Lowe, but there is also a risk of moving too early.

These comments suggest the RBA is in no rush to raise rates, a la the Fed, and economists are now shifting their June hike assumptions out into the second half. This should disappoint bank shareholders, but not yesterday.

Technology was the best performer yesterday (+3.2%), thanks to the usual suspects that fly around as much as oil prices. Telcos rose 2.4% on a 3.2% gain for Telstra ((TLS)), and consumer discretionary gained 1.8%, with beaten-down travel stocks once more rebounding.

They’ll likely rebound more today on oil price falls.

Wall Street has posted another solid rebound overnight – the second since the war began, so don’t count your chickens – having attempted to consolidate on Tuesday night. If that consolidation led investors to plough into the local market yesterday, well played.

The futures are up 22 this morning.

Re-Energised

Oil prices plunged -12% last night amid indications of possible progress by the US in encouraging more oil production from other sources. Reuters reported that Iraq said it could increase output if OPEC-Plus asks. US Secretary of State Antony Blinken also signalled that the UAE would support increased production by OPEC-Plus.

I think the “Plus” part may be the sticking point. Saudi Arabia is still the swing producer. One assumes Putin has had a little word in the King’s ear.

The wheat price also pulled back sharply last night after its parabolic rise, but it's relief in energy costs that spurred Wall Street on after the largely technical consolidation pattern of Tuesday night, at which point the S&P500 had fallen over -10% from its high and the Nasdaq -20%.

The chartists are also up in arms about an approaching “death cross” for the S&P (50-day moving average crosses down below the 200-day), which works sometimes, but not always, and no one seemed too concerned last night.

Not bond traders, who sent the ten-year yield up 8 basis points to 1.95%, turning the gold price on its heels (-US$60/oz) even as the previously surging US dollar index plunged -1.1%.

The move up in yields re-ignited US banks after a tough few weeks, sending that sector up over 3%, joined by the Big Tech-dominated technology, communication services and consumer discretionary sectors that had been driving the Nasdaq to its big correction.

The energy sector fell -3%, with related utilities (-0.8%) the only other sector not to enjoy a solid session.

The list of multinational corporations suspending trade in Russia grows ever longer, and investors have been rewarding such moves, despite retailers in particular continuing to pay the thousands of everyday Russians they employ. Ukrainians are still being paid as well, despite stores being closed for other reasons.

Last night saw the second such Wall Street bounce since the invasion. The first was in early March, when the S&P pushed back up towards 4400. Noting that last night the S&P was pushing up towards 4300, no one is going to call the all-clear at this point.

At the end of the day, the global economy’s fortunes rest on those oil prices.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1989.50	– 61.40	– 2.99%
Silver (oz)	25.61	– 0.84	– 3.18%
Copper (lb)	4.60	– 0.05	– 1.09%
Aluminium (lb)	1.60	– 0.07	– 4.19%
Lead (lb)	1.09	– 0.03	– 2.99%
Nickel (lb)	17.32	0.00	0.00%
Zinc (lb)	1.82	– 0.10	– 5.11%
West Texas Crude	109.61	– 13.93	– 11.28%
Brent Crude	112.10	– 15.83	– 12.37%
Iron Ore (t)	157.55	– 4.70	– 2.90%

The pullback in base metal prices continued last night in the wake of the ongoing halt of nickel trading on the LME.

With commodity prices down across the board, it’s hard to explain a 0.8% bounce for the Aussie to US$0.7331, other than the -1.1% drop for the greenback.

Today

The SPI Overnight closed up 27 points or 0.4%, following the big run yesterday.

The US February CPI is out tonight. Might be scary, but will have missed most of the war-related surge in commodity prices.

There are a large number of stocks going ex-dividend today, but only one will send shivers from the open. Rio Tinto ((RIO)) will drop -$6.63.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
BPT	Beach Energy	Downgrade to Underperform from Neutral	Macquarie
IPL	Incitec Pivot	Upgrade to Outperform from Neutral	Credit Suisse
MIN	Mineral Resources	Upgrade to Buy from Neutral	Citi
PAR	Paradigm Biopharmaceuticals	Downgrade to Reduce from Hold	Morgans
RIO	Rio Tinto	Downgrade to Neutral from Buy	Citi
SHL	Sonic Healthcare	Upgrade to Buy from Hold	Ord Minnett

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.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms