Daily Market Reports | Mar 16 2022
This story features UNITI GROUP LIMITED. For more info SHARE ANALYSIS: UWL
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| World Overnight | |||
| SPI Overnight | 7138.00 | + 41.00 | 0.58% |
| S&P ASX 200 | 7097.40 | – 52.00 | – 0.73% |
| S&P500 | 4262.45 | + 89.34 | 2.14% |
| Nasdaq Comp | 12948.62 | + 367.40 | 2.92% |
| DJIA | 33544.34 | + 599.10 | 1.82% |
| S&P500 VIX | 29.83 | – 1.94 | – 6.11% |
| US 10-year yield | 2.16 | + 0.02 | 0.93% |
| USD Index | 99.04 | – 0.03 | – 0.03% |
| FTSE100 | 7175.70 | – 17.77 | – 0.25% |
| DAX30 | 13917.27 | – 11.84 | – 0.09% |
By Greg Peel
Bifurcation
Unlike recent sessions on the ASX, yesterday’s was quite straightforward. Energy fell -2.9% and materials -3.7%, with the fall in the ASX200 tempered by a 1.0% gain for the banks.
It was a simple matter of falling commodity prices, particularly oil, but also iron iron, gold, base metals and exotics (eg lithium).
The fall in commodity prices is largely due to fresh Chinese lockdowns, although the sharp pullback has been greater than loss of Chinese demand implies. Commodity prices had become stretched to the upside, for one, but then heightened volatility prompted the Intercontinental Exchange (ICE), upon which Brent crude and a range of petroleum product futures are traded, to significantly increase margins.
This had traders quickly winding back risk, and that meant selling.
The new lockdowns follow what proved to be a better than expected January-February period for the Chinese economy, which takes in Lunar New Year. Industrial production rose 7.5% year on year versus 3.9% expectation, retail sales rose 6.7% versus 3.0%, and fixed asset investment rose 12.2% compared to 5.5%.
But now, Morgan Stanley has cut its Chinese GDP growth forecast for the March quarter to zero.
And China is not the only country suffering another increase in omicron cases, with the new sub-strain starting to take hold in Europe and the US.
Meanwhile, the Aussie ten-year bond rate continues to march higher, up another 7 points yesterday to 2.52%. Last year the Aussie and US equivalent rates were trading fairly closely – currently the US rate is 2.16%. We’ll find out tonight just how aggressive the Fed plans to be on rate hikes, while the RBA remains “patient”.
Rising rates are good for banks, as is an easing in inflationary pressure, and thus household financial stress, from falling oil and other prices. Although presumably, if inflation continues to ease, so will rates.
Mining stocks were unsurprisingly clobbered yesterday, and you needed to fall at least -7.6% to get on to the top five losers’ board. Zip Co ((Z1P)) was in there again nonetheless (-9.3%), on another bad night for the Nasdaq.
Last night the Nasdaq bounced, so some reprieve is likely today. But not so for energy and materials. The oils are down another -7%, iron ore -6.5%, aluminium -2.7%, gold -2.0%…the list goes on.
The winners’ board yesterday featured another disparate list of stocks without a theme, topped by a 27.3% jump for telco services company Uniti Group ((UWL)) following a takeover bid.
Relief?
The US producer price index rose 0.8% in February, which is a big move in average terms. But the market had forecast 0.9%. What’s more, the annual rate was unchanged from January at 10.0%.
Is it a sign?
The February CPI, which came out last Thursday night, frightened Wall Street in being greater than expected at 7.9%, ahead of what was looming as an absolute shocker in March, with the WTI crude price nipping at US$130/bbl. But oil prices have since plunged, and last night the WTI price dropped to US$95/bbl.
That’s still a lofty price, when translated into the price at the pump, but provides some comfort given the FOMC began its policy meeting last night and will deliver its decision/guidance tonight. The Fed is stuck between the rock of soaring inflation and the hard place of economic slowdown, although expectations of a recession still remain below the 50% level at this stage.
That said, the Empire State (New York) Fed economic activity index was released last night to show a drop to -11.8 in February (zero neutral) from +3.1 in February when economists had forecast +5.5%.
Relief on the inflation front, and an arguably oversold stock market (S&P500 down -13% and Nasdaq down -22%), combined to affect another solid bounce on Wall Street last night.
Don’t count your chickens – this is the third such bounce post invasion.
The Hang Seng index on the other hand fell -5.7%, with traders no doubt assuming the lockdowns in Shenzhen – a technology centre — and Changchun – an auto manufacturing hub – won’t be the last. There also remains the threat of sanctions against China if Beijing is caught providing financial or other assistance to the Russians.
We may soon find out. The Russian central bank has warned Russia is close to defaulting on its sovereign debt, for the first time since the Bolshevik Revolution. Back in 1998 Russia only defaulted on domestic debt, devalued the rouble and placed a moratorium on foreign debt payments.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1914.20 | – 39.80 | – 2.04% |
| Silver (oz) | 24.81 | – 0.26 | – 1.04% |
| Copper (lb) | 4.45 | – 0.04 | – 0.97% |
| Aluminium (lb) | 1.57 | – 0.04 | – 2.70% |
| Lead (lb) | 1.02 | – 0.02 | – 1.73% |
| Nickel (lb) | 17.32 | 0.00 | 0.00% |
| Zinc (lb) | 1.70 | – 0.02 | – 1.04% |
| West Texas Crude | 95.12 | – 6.92 | – 6.78% |
| Brent Crude | 98.60 | – 7.47 | – 7.04% |
| Iron Ore (t) | 135.55 | – 9.35 | – 6.45% |
The news from London last night is that nickel will resume trading on the LME tonight following its week-long halt.
In a case of “better late than never”, the grand old LME has decided to put daily limits on price movements, as is the case on futures exchange. What was set to be a 10% limit on nickel – meaning trading would halt for a period if the price moved 10% in either direction – has now been tightened to 5%, recalling that the nickel price jumped one day by 50% and trading was halted only when on the next day it jumped 100%.
The other listed metals will have limits of 15%.
The impact of limits is not as great as abovementioned increases in futures margins, but with China locking down again, it matters little at this point.
If there is a standout in the table above it is gold, given it fell another -US$40/oz when the US ten-year yield only rose 2 points last night.
The Aussie is down slightly at US$0.7196 following its big tumble the night before.
Today
The SPI Overnight closed up 41 points or 0.6%. It will require a lot of relief in other sectors to counter what will no doubt be another bad day for resources.
There is also the small matter of the Fed statement and press conference tonight.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| BEN | Bendigo & Adelaide Bank | Upgrade to Outperform from Neutral | Credit Suisse |
| CBA | CommBank | Upgrade to Neutral from Underperform | Credit Suisse |
| DCN | Dacian Gold | Downgrade to Underperform from Outperform | Macquarie |
| ELD | Elders | Downgrade to Neutral from Buy | Citi |
| EVN | Evolution Mining | Downgrade to Underperform from Neutral | Macquarie |
| GOR | Gold Road Resources | Downgrade to Underperform from Outperform | Macquarie |
| NIC | Nickel Mines | Downgrade to Neutral from Outperform | Macquarie |
| NST | Northern Star Resources | Upgrade to Overweight from Equal-weight | Morgan Stanley |
| PRU | Perseus Mining | Downgrade to Neutral from Outperform | Macquarie |
| RRL | Regis Resources | Downgrade to Neutral from Outperform | Macquarie |
| Downgrade to Equal-weight from Overweight | Morgan Stanley | ||
| XRO | Xero | Upgrade to Accumulate from Hold | Ord Minnett |
For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.
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