The Overnight Report: Core Response

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The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

World Overnight
SPI Overnight	7417.00	– 7.00	– 0.09%
S&P ASX 200	7454.00	– 31.20	– 0.42%
S&P500	4397.45	– 15.08	– 0.34%
Nasdaq Comp	13371.57	– 40.38	– 0.30%
DJIA	34220.36	– 87.72	– 0.26%
S&P500 VIX	24.26	– 0.11	– 0.45%
US 10-year yield	2.73	– 0.06	– 1.98%
USD Index	100.31	+ 0.33	0.33%
FTSE100	7576.66	– 41.65	– 0.55%
DAX30	14124.95	– 67.83	– 0.48%

By Greg Peel

Playing it Safe

There’s not much to read into yesterday’s trade on the ASX. Investors appeared to be simply squaring up a bit ahead of last night’s US inflation number, in quiet holiday trade.

It’s good to see we’re not just blindly following Wall Street in terms of magnitude of moves. The S&P500 was down -1.7% on Monday night and the Nasdaq -2.2%, while yesterday the ASX200 closed down -0.5% and the tech sector only -0.9%.

All sectors closed in the red to varying extents, including energy (-0.6%) despite a 2% rebound in oil prices overnight. Last night the oils were up 6% so it might be a different story today.

Healthcare was the worst performer (-1.4%), with CSL ((CSL)) falling -1.3%. It is likely investors fear a creeping rise in US Ba2 cases will further hamper blood collections.

Consumer discretionary continued its fall, down another -0.8%. High inflation, negative real wage growth and the threat of rising rates and falling house prices are conspiring to shift consumers back to frugality after the covid spending spree.

Even the winner in the current scenario – staples – fell back -0.4% yesterday after a solid run, again suggesting little more than a bit of a square-up.

The Aussie ten-year yield rose another 5 points to 3.08% and the banks slipped -0.2%.

Gold has become the little battler in recent sessions, in the face of rising yields, and with Aussie dollar behaving itself investors continue to turn to the sector for safety and gains. Three of the five top index gainers yesterday were gold miners.

Agriculture has been another winner, on a combination of war-driven global shortfalls and the bumper summer harvest we’ve enjoyed. Nufarm ((NUF)) and GrainCorp ((GNC)) have had good runs lately, and yesterday Elders ((ELD)) joined in with 2.8% to take the silver.

Lithium miners are either on one side or the other most days, and yesterday Pilbara Minerals ((PLS)) fell -5.8% on its production report and Liontown Resources sympathised (-5.3%).

After another volatile session on Wall Street last night, in which traders could not make up their minds whether the US inflation numbers were bad or good, the S&P500 closed down -0.3% but our futures were down a mere -7 points this morning.

It’s rare to see single digits in the current climate.

Positive Signs?

The US CPI rose 1.2% in March – the biggest monthly gain since Hurricane Katrina hit in 2005. The annual rate rose to 8.5% from 7.9% in February, to the highest level since 1982, which followed the 1980 oil shock.

But no one was much surprised. It was a difficult number to forecast, as the annual result was cycling the first big jump in a decade in US inflation in March last year (covid-driven), countered by the impact of the war on food and fuel prices, which were not yet evident in the February result.

Eyebrows were nevertheless raised when the core CPI – ex food & energy – showed a monthly gain of only 0.3% when 0.5% was forecast. The annual core rate did tick up again, but only to 6.5% from 6.4% in February.

Is the core rate, at least, peaking? The biggest impact here are supply constraints and freight costs across the wider economy. There were signs of supply constraints easing, but then China reinstated lockdowns this month. Freight costs have nevertheless clearly fallen, quite hard.

At the headline level, oil prices are lower in April than they were in March.

The assumption is that as soon as the war is over, US inflation will quickly retreat. But no one knows when the war will be over.

As for Chinese lockdowns, Beijing yesterday moved to slightly ease restrictions yesterday, particularly in Shanghai, where 25 million people can’t even get out to buy groceries. That’s the factor that’s been eased, but 45 Chinese cities remain in some state of lockdown.

The news of easing is nevertheless what put a rocket under oil prices once again.

How did Wall Street respond? Well, to begin with, the US ten-year yield fell -6 points to 2.73% and the two-year yield fell -12 points to 2.39% — its biggest fall in a month – to take the spread further out to +34 points.

The Dow jumped 360 points and the Nasdaq 2%, as investors cheered the core CPI, and the fall in rates, following days of weakness in the lead-up to the result. But only half an hour in, the naysayers saw an opportunity to sell and so they did, until the Dow was down -200 heading into the last half hour.

Bond yields nevertheless held their losses.

It was very much an opposite reaction to what we saw in 2021, when every mild pullback sparked up the buyers who saw opportunity in cheaper Big Tech prices. It was Big Tech that shot up early last night, and then back down again.

Tonight JPMorgan (Dow) reports March quarter earnings. Bank results are often seen as a bellwether for the broader market, but the market is a lot more disjointed in the current climate than “normal”.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1966.20	+ 12.10	0.62%
Silver (oz)	25.32	+ 0.25	1.00%
Copper (lb)	4.65	+ 0.03	0.60%
Aluminium (lb)	1.57	– 0.05	– 3.00%
Lead (lb)	1.10	+ 0.01	0.77%
Nickel (lb)	14.89	+ 0.07	0.50%
Zinc (lb)	1.97	+ 0.01	0.36%
West Texas Crude	100.60	+ 6.31	6.69%
Brent Crude	105.03	+ 5.51	5.54%
Iron Ore (t)	155.83	+ 2.65	1.73%

LME base metal prices were all lower in the official session last night on ongoing Chinese lockdowns, but recovered later on news of easing. Aluminium didn’t get the memo.

Oil markets did.

The US dollar index has hit the ton once more, up 0.3% to 100.31, but the Aussie is also up, by 0.4% to US$0.7455, for which you can probably thank oil.

Today

The SPI Overnight closed down -7 points.

The RNBZ meets this morning.

Westpac’s consumer confidence survey is out locally.

China reports March trade numbers.

The US March PPI is due tonight.

Iluka Resources ((ILU)) holds its AGM.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ANZ	ANZ Bank	Upgrade to Buy from Neutral	Citi
		Downgrade to Equal-weight from Overweight	Morgan Stanley
NEA	Nearmap	Downgrade to Neutral from Outperform	Macquarie
ORG	Origin Energy	Downgrade to Hold from Add	Morgans

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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