The Overnight Report: Second Time Lucky?

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By Greg Peel

And Back Again

You know it’s a skittish market when a “buy everything” Friday, attributed to foreigners finding safety downunder, flips to a “sell everything” Monday, attributed to an equally skittish Wall Street, falling on weak guidance from two mega-cap tech companies not replicated here.

But whereas Friday’s was a very uniform rally amongst sectors, yesterday’s return to earth was more mixed.

Technology was the biggest loser of course (-4.0%), pretty much matching the Nasdaq, but it was an unusually big fall for real estate (-3.6%), after an unusually big fall for sector heavyweight Goodman Group ((GMG)), which announced it had issued US500m in sustainability-linked bonds. Over in the US major customer Amazon had made some negative comments and Goodman Group shares dropped -7.2%.

Communication services did not fare well on -2.2%, and nor did healthcare (-1.5%) and consumer discretionary (-1.4%), supposedly on all this talk of an RBA rate hike today that apparently no one knew about on Friday.

Thereafter, sector falls were less than -1%. Industrials “won” the day on -0.3%, after Qantas Airways ((QAN)) declared it would be back in the black by FY24, and announced direct flights from Sydney to London and New York by 2025, together worth +2.9%.

I could think of nothing worse.

Heavily shorted Flight Centre ((FLT)) and Webjet ((WEB)) nonetheless rallied on the coattails.

Leading the index was again PointsBet Holdings ((PBH)), up another 5.7%.

Financials also had a bad day (-0.8%), not helped by Royal Commission ghosts that just won’t go away, and talk of just how many mortgaged households are about to go belly-up.

At least the index managed to rally back in the afternoon to down -88 points having been down -135 at midday. This largely brought us back to where we were before Friday’s rally, ready to learn this afternoon what the RBA is cooking up.

If there is a rate rise it has nothing to do with the incumbent government of course. Governments are only responsible for delivering rate cuts.

The futures aren’t taking any chances – down another -25 points this morning despite an intraday turnaround on Wall Street.

It doesn’t help that the Chinese government has begun to lock down Beijing, starting with public places.

Clearing the Decks

After a stumbling start last night, the Dow was up over 250 points in the morning, following on from Friday night’s near -1000 point plunge. But when the US ten-year yield hit 3.00%, the Dow was swiftly down -500 points heading into the last hour.

Then Wall Street staged one of its familiar last-hour rebounds, with no specific trigger.

Consensus had the market well oversold after Friday night, so another drop last night was stretching the rubber band too far, it would seem. Commentators have been pulling out graphs left, right and centre showing that any number of measures of sentiment or hard numerical data are showing troughs or peaks (depending on how the data works) that suggest Wall Street is about as oversold as it has been in any of the big corrections seen since (and including) the GFC.

The expectation is of a sharp May rebound, which may have begun last night. Wall Street has to wait until Wednesday afternoon as to what the Fed’s decision will be (very short odds on a 50 point hike), but often the markets don’t wait to find out.

The Fed funds futures market has decided 50bp is a given, but are now pricing an 86% chance of a full 75 point hike in June, up from 19% only a month ago. A lot will rest on next week’s CPI data.

The US manufacturing PMI for April was forecast to rise to a healthy clip of 57.8 from March’s 57.1, but instead fell to 55.4 to mark the slowest pace of growth in 18 months.

China’s manufacturing is understandably going backwards, with a PMI of 47.4 for April (50 being the line between contraction and expansion).

It’s no wonder all talk is of recession, particularly given the US economy has already chalked up one negative quarter. If there is a recession everyone will blame the Fed, which is why many believe the Fed will not be quite as aggressive as the market is fearing.

Commodities

The LME was closed for May Day, and Singapore was on holiday as well hence nor iron ore either. China is on holiday until Friday so metals/minerals markets will likely be quiet, notwithstanding coal took a dive yesterday.

A US 3% bond rate is not healthy for gold, but Germany’s capitulation to the EU to ban all Russian oil imports (not gas yet) is providing support for prices.

The US dollar index was back on fire last night (which is now proving a major headwind for US multinationals) and the Aussie continues to tick down towards the swinging sixties, falling another -0.3% to US$0.7055.

All eyes on the RBA.

Today

All eyes on the RBA.

The SPI Overnight closed down -25 points or -0.3%.

China and Japan are closed today.

Santos ((STO)) and TPG Telecom ((TPG)) hold AGMs today and Nickel Mines ((NIC)) an EGM.

Woolworths ((WOW)) provides March quarter sales data.

The Australian share market over the past thirty days…

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