The Overnight Report: Not This Time

This story features WESTPAC BANKING CORPORATION, and other companies. For more info SHARE ANALYSIS: WBC

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

World Overnight
SPI Overnight	7003.00	– 99.00	– 1.39%
S&P ASX 200	7120.70	– 84.90	– 1.18%
S&P500	3991.24	– 132.10	– 3.20%
Nasdaq Comp	11623.25	– 521.41	– 4.29%
DJIA	32245.70	– 653.67	– 1.99%
S&P500 VIX	34.75	+ 4.56	15.10%
US 10-year yield	3.08	– 0.04	– 1.41%
USD Index	103.72	+ 0.06	0.06%
FTSE100	7216.58	– 171.36	– 2.32%
DAX30	13380.67	– 293.62	– 2.15%

By Greg Peel

The China Syndrome

The war is not over, but the bittersweet benefits that were being felt by the commodity-driven Australian market have now been fundamentally overridden by the relentless Chinese lockdowns, as well as the impact of rising interest rates – the two being inexorably connected via inflation pressures.

Yesterday saw Day Two of the local market sell-off, and Day Three is upon us with the futures down -99 points this morning.

While Wall Street is being driven lower by the size of its tech sectors, and indeed our technology sector was down another -3.2% yesterday, a -2.1% fall for materials tells more of the local tale yesterday in market cap terms.

The other big market cap sector – financials – held on yesterday with only a -0.3% fall on a balance of Westpac ((WBC)) posting a positive earnings result and gaining 3.2% to lead the index on the day, and ANZ Bank going ex-dividend.

Energy was one of three sectors to close in the green (+0.5%), but that will change dramatically today. The S&P500 energy sector fell -8.3% last night. Otherwise only the defensives of staples (+0.2%) and healthcare (+0.1%) snuck across the line.

The impact on rate rises for high-yielding real estate continues to hammer that sector, down another -4.1%. The Aussie ten-year yield rose another 9 points to 3.56%.

Losses in remaining sectors exceeded -1%.

While there were a couple of miners on the top five losers’ board yesterday as expected, News Corp ((NWS)) stood out with another -8.8% fall post Friday’s result, and that’s ahead of an election.

We need not labour the point – a quick glance at the commodity price table below confirms we’re in for another tough day.

Toothless

Remember the original “FANGs”, which for a decade led Wall Street higher? Well Facebook and Amazon are now down -40% from their highs, Netflix is down -75% and Google is down -24%. Classmates Microsoft and Apple are down -21% and -12%, while Tesla is down -29%.

With exception of Netflix, these are among some of the smaller falls in the US tech sectors this year. The not-yet-profitable names have really been taken to the cleaners. Oh and bitcoin is down -50%.

Forget 1994, this is 2000 all over again. It’s not as much about earnings (or in the case of the non-earners, sales) as it is about simply “multiple compression”. Valuations had become way too overblown, so while the E in PE has been relatively stable, the P has been trashed.

This trashing is largely due to Fed rate rises undermining future growth valuation, but earnings are not out of the woods looking forward either, given the ongoing supply issues due to the Chinese lockdowns.

The impact of the extent of market cap weighting of tech on Wall Street is what is driving down not just the Nasdaq but the S&P500 in its wake, which last night closed below 4000 for the first time since March last year.

Last night the S&P technology sector fell -3.9%, consumer discretionary -4.2% and communication services -2.4%, which account for all the FANGs and friends. US real estate is going the same way as it is here, down -4.6%. All this talk of a recession has the banks falling as well, down -2.5% last night.

And then there is the greater Chinese lockdown impact. Materials fell -3.2% and energy -8.3%. Is there nowhere to hide? Staples closed up 0.05%.

When will it end?

While there may need to be some earnings forecast adjustment to account for ongoing supply problems and subsequent inflation, US tech companies – particularly the big boys – are not about to go broke. They will at some point reach a valuation level that once again looks attractive. All last year whenever Big Tech took a tumble the buyers were straight in on the dips.

This year they’re on the sidelines, waiting for the liquidation to run its course. Given the extent of data provided around the trading of bitcoin, we know that 40% of all bitcoin holders are currently underwater, ie sitting on unrealised losses.

The popular expression in 2008 was “don’t try to catch a falling knife”. Currently no one is.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1854.10	– 29.00	– 1.54%
Silver (oz)	21.76	– 0.58	– 2.60%
Copper (lb)	4.18	– 0.05	– 1.14%
Aluminium (lb)	1.34	– 0.04	– 3.16%
Lead (lb)	0.97	– 0.04	– 3.65%
Nickel (lb)	12.71	– 0.97	– 7.11%
Zinc (lb)	1.67	– 0.05	– 2.95%
West Texas Crude	103.09	– 6.68	– 6.09%
Brent Crude	105.10	– 7.29	– 6.49%
Iron Ore (t)	131.99	– 6.45	– 4.66%

Yeah well, enough said.

The flip-over in oil prices can be put down to Chinese lockdown concerns finally outweighing the impact of the EU looking to ban Russian energy exports. The reality is, those bans are not going to happen – not on a required unanimous vote anyway, and even so, not in any hurry.

Meanwhile yesterday’s Chinese trade data showed oil imports down -4.8% year on year for the year to April. That seemed to be the trigger, and oil prices have often seen these sharp pullbacks after grafting gains in recent times.

Get your flares on – the Aussie is down -1.5% at US$0.6956.

Today

The SPI Overnight closed down -99 points or -1.4%.

NAB’s business confidence survey for April is out today.

Pendal Group ((PDL)) may have picked a bad time to report earnings.

Atlas Arteria ((ALX)) holds its AGM and Lifestyle Communities ((LIC)) hosts an investor day.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
COF	Centuria Office REIT	Downgrade to Equal-weight from Overweight	Morgan Stanley
CTD	Corporate Travel Management	Downgrade to Accumulate from Buy	Ord Minnett
FLT	Flight Centre Travel	Downgrade to Sell from Lighten	Ord Minnett
FMG	Fortescue Metals	Upgrade to Neutral from Underperform	Credit Suisse
HMC	HomeCo	Upgrade to Neutral from Sell	UBS
LOV	Lovisa Holdings	Buy	Citi
MQG	Macquarie Group	Upgrade to Add from Hold	Morgans
		Downgrade to Neutral from Buy	Citi
		Downgrade to Underperform from Neutral	Credit Suisse
NAB	National Australia Bank	Downgrade to Neutral from Buy	UBS
PTB	PTB Group	Upgrade to Add from Hold	Morgans
REA	REA Group	Upgrade to Outperform from Neutral	Credit Suisse
		Upgrade to Add from Hold	Morgans
		Upgrade to Buy from Accumulate	Ord Minnett
		Downgrade to Equal-weight from Overweight	Morgan Stanley
RWC	Reliance Worldwide	Upgrade to Overweight from Equal-weight	Morgan Stanley
SHL	Sonic Healthcare	Downgrade to Accumulate from Buy	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