The Overnight Report: Reliving The Eighties

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World Overnight
SPI Overnight	7068.00	– 58.00	– 0.81%
S&P ASX 200	7151.40	+ 34.70	0.49%
S&P500	4363.49	– 23.05	– 0.53%
Nasdaq Comp	13537.94	– 214.08	– 1.56%
DJIA	33794.66	– 96.69	– 0.29%
S&P500 VIX	30.48	– 0.26	– 0.85%
US 10-year yield	1.84	– 0.02	– 1.13%
USD Index	97.77	+ 0.39	0.40%
FTSE100	7238.85	– 190.71	– 2.57%
DAX30	13698.40	– 301.71	– 2.16%

By Greg Peel

Ever Resourceful

Excitable investors followed the bounce on Wall Street in pushing the ASX200 up 80 points in the morning yesterday, ahead of an afternoon fade-out. When the closing bell rang it was all about resources.

With the oils breaching US$110/bbl, energy rose 2.6% and utilities 1.3%, and materials also rose 2.6% on further moves up in iron ore, coal, lithium and base metal prices.

If we dismiss the -2.3% fall for consumer staples, as both the big supermarkets went ex, healthcare (-1.3%) was the only major drag as it would appear a surging Aussie dollar is biting.

To that point we note Australia’s trade surplus rose to $12.89bn in January when economists had forecast $9.05bn. Exports were up 8%, driven by iron ore and coal, and imports down -2%.

The Australian ten-year yield gained 9 points to 2.16%, but this didn’t do much for the financials sector, with insurers rather damp.

Building approvals fell -27.9% in January but we can put that down to omicron.

The Aussie is up another 0.3% over 24 hours.

An up and down session on Wall Street overnight has the S&P500 down -0.7% and our futures down -0.8% this morning. This is curious given surging commodity prices have been countering Wall Street sentiment all week. While oil prices have taken a breather, base metal and iron ore prices have surged again, and gold is higher once more.

Maybe a Russian oligarch has a sell order on.

Among individual stocks, PointsBet Holdings ((PBH)) jumped 18.2% to top the index yesterday on reports of pending betting shop consolidation in the US market. As has been the case during covid of an explosion in video streaming services, online gambling has also exploded as state after state admit they can’t control illegal sports betting and legalise instead.

But the betting shops can’t all be winners.

The next four stocks on the index top five winners’ board yesterday were a coal miner, two lithium miners and a nickel miner.

On the other side of the ledger, fund managers and Zip Co ((Z1P)) continued to get hammered.

There are fewer stocks going ex today ahead of a surge next week. Index rebalancing will be announced today.

If the local market is under pressure today, it will likely reflect a desire not to go home long ahead of a weekend during a war.

The Volcker Rule

At a second day of testimony to Congress last night, Fed chair Jerome Powell acknowledged the plan had been to implement a series of rate hikes this year but the Ukrainian situation suggests the FOMC needs to “tread carefully”.

Yet at the same time, the war and subsequent sanctions will only serve to further increase inflation and the one 25 point hike in March is not going to have much impact. Hence when asked, Powell implied he was prepared to “do a Volcker” [not his words].

Former Fed chair Paul Volcker was the first central banker to address inflation with monetary policy. Following the oil shocks of the seventies, US inflation peaked at 14.8% in 1979, at which point the Fed funds rate was 11.2%. By 1981, Volcker had hiked the funds rate to 20%, knowing full well it would send the US economy into recession, which it did.

By 1983 US inflation was 3%.

Powell suggested last night however that the US economy is much stronger now than it was at the end of the seventies, and hence doing a Volcker did not necessarily imply recession.

Wall Street was bouncing around aimlessly ahead of this piece of testimony, with the Dow fluctuating between down -200 and up 200 before flattening out. Powell’s words sent the Dow down -100 by the close, but more specifically the Nasdaq fell -1.6%.

The US ten-year bond yield, nevertheless, fell -2 points to 1.84%.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1941.00	+ 11.80	0.61%
Silver (oz)	25.18	– 0.11	– 0.43%
Copper (lb)	4.72	+ 0.08	1.82%
Aluminium (lb)	1.70	+ 0.11	6.66%
Lead (lb)	1.10	+ 0.00	0.14%
Nickel (lb)	12.90	+ 0.77	6.31%
Zinc (lb)	1.80	+ 0.09	5.47%
West Texas Crude	108.34	– 3.62	– 3.23%
Brent Crude	110.76	– 3.79	– 3.31%
Iron Ore (t)	153.00	+ 8.00	5.52%

“Concerns about supply disruption, historically low global stockpiles and rocketing energy costs have lit a fire under base metals, trumping concerns over the longer term impact of the Ukraine invasion on global growth, rising interest rates in the developed world and a slowing economy in China.”  – mining.com

It seems base metal prices only woke up this week when very low levels of inventory held in global exchanges were revealed. Now it’s on for young and old.

Iron ore is back over US$150/t.

Wheat is on track to post its biggest daily gain since 1959. Don’t hoard toilet paper, hoard bread.

With US bond rates steady, gold has moved up again.

Brent crude traded up to US$120/bbl last night and sparked profit-takers into action. No one believes it won’t get there again.

The Aussie is up 0.3% at US$0.7323.

Today

The SPI Overnight closed down -58 points or -0.8%.

US February jobs numbers tonight.

S&P announces promotions and relegations for the S&P/ASX indices, to become effective in two weeks.

Ampol ((ALD)) and Nick Scali ((NCK)) are a couple of the large ex-divs today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AKE	Allkem	Upgrade to Buy from Accumulate	Ord Minnett
		Upgrade to Buy from Neutral	UBS
BPT	Beach Energy	Upgrade to Neutral from Underperform	Macquarie
CIM	Cimic Group	Downgrade to Hold from Buy	Ord Minnett
CWP	Cedar Woods Properties	Upgrade to Add from Hold	Morgans
GPT	GPT Group	Upgrade to Outperform from Neutral	Macquarie
IDX	Integral Diagnostics	Upgrade to Outperform from Neutral	Macquarie
IVC	InvoCare	Upgrade to Neutral from Sell	Citi
		Downgrade to Hold from Add	Morgans
KLL	Kalium Lakes	Downgrade to Neutral from Outperform	Macquarie
		Downgrade to Hold from Speculative Buy	Morgans
MWY	Midway	Downgrade to Hold from Buy	Ord Minnett
ORG	Origin Energy	Upgrade to Hold from Lighten	Ord Minnett
WPR	Waypoint REIT	Downgrade to Accumulate from Buy	Ord Minnett
Z1P	Zip Co	Downgrade to Sell from Neutral	UBS

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

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