Daily Market Reports | Mar 17 2022
| World Overnight | |||
| SPI Overnight | 7290.00 | + 106.00 | 1.48% |
| S&P ASX 200 | 7175.20 | + 77.80 | 1.10% |
| S&P500 | 4357.86 | + 95.41 | 2.24% |
| Nasdaq Comp | 13436.55 | + 487.93 | 3.77% |
| DJIA | 34063.10 | + 518.76 | 1.55% |
| S&P500 VIX | 26.67 | – 3.16 | – 10.59% |
| US 10-year yield | 2.19 | + 0.03 | 1.30% |
| USD Index | 98.38 | – 0.66 | – 0.67% |
| FTSE100 | 7291.68 | + 115.98 | 1.62% |
| DAX30 | 14440.74 | + 523.47 | 3.76% |
By Greg Peel
Double Your Bets
The futures were showing up 41 points yesterday morning on a balance of a strong rally on Wall Street and another night of steep commodity price falls. The rally on Wall Street was as much about a retreating oil price as anything else, hence while lower oil may not be good for the energy sector, it’s good for everyone else.
Having duly opened up around 40 points the ASX200 then spent the first hour wondering what to do next. Investors stopped wondering when Beijing came to the rescue.
One reason oil has come off its highs is related to lockdowns in China, which also had the Hang Seng index plunging -5.7% on Tuesday on economic slowdown assumptions. Yesterday Beijing pledged to keep its stock markets stable and take measures to boost economic growth in the first quarter.
The government will roll out policies favourable to capital markets while being cautious in introducing contractionary measures and continues to support companies’ listing of shares overseas and has maintained “good communications” with US regulators on Chinese companies’ listings in the US. China’s monetary policy should “actively respond” to support the economy and new credit should help maintain “appropriate growth”.
In other words, the Chinese capital markets will do exactly what the Chinese Communist Party wants. And they did – the Hang Seng jumped 9.1%.
Note that on Tuesday night, Morgan Stanley had lowered its Chinese March quarter GDP growth forecast to zero.
On this news the Australian resource sectors managed not to take another tumble yesterday, with energy closing up 0.2% and materials 0.4%. But relief from oil prices is positive for the consumer sectors – discretionary and staples both up 2.0% — which flows through to the banks (+1.1%).
Indeed every sector closed in the green yesterday, with technology leading the percentages (+3.3%) on the Nasdaq bounce overnight.
We could delve deeper, but there’s little point when we note Wall Street shot up again last night, evoking talk of a bottom being in (not for the first time), and our futures are up 106 points this morning.
Buy the Fact
The bounce on Wall Street kicked on ahead of the Fed last night, with the Dow up over 400 points through to lunchtime. A little bit of squaring followed before the 2pm Fed statement release, and then on that release, the Dow dropped into the negative within half an hour.
The median FOMC forecast, as denoted by the infamous “dot plots”, was for seven consecutive rate hikes in 2022, and another four in 2023. The first one was last night, up 25 points.
A rate hike at every meeting this year had been forecast by some economists, although consensus was around 4-5 hikes in 2022, particularly given the impact of Ukraine. But when Jay Powell made his accompanying speech at the press conference, he confirmed every meeting this year is now “live”.
This doesn’t mean seven hikes are priced in – data will still inform – but it does mean the Fed will go seven in seven if it is deemed to be necessary. All Powell really had to do was say: We were behind the curve.
For leading up to the Fed meeting, the US two-year bond yield had reached 1.75%. The Fed funds rate is overnight but the two-year is seen as a reliable indicator, and from zero, 1.75% is seven times 0.25%. Wall Street had already priced in the Fed’s now even more hawkish stance.
On that basis, one might have expected that when the dust settled, the US stock market would close the day unchanged. But aside from Powell underscoring his hawkishness with an insistence that the US economy is very strong, in response to growing recession fears, the fact is the Fed has laid out its policy position for the whole rest of the year.
The greatest enemy of financial markets is uncertainty. We now know every meeting from here is “live”. While the data flow will still be critical at each coming meeting, the Fed will now begin catching up to the market, not leading it down the wrong path.
Add in a call by many that Wall Street had been oversold on geopolitical fears, as well as Tuesday night’s bounce, and the light was green last night for investors to at least assume a bottom is now in. The only caveat is Putin.
The US economy is, nevertheless, very dependent on the US consumer. In January, US retail sales rose 4.9% month on month. In February, as revealed last night, they rose only 0.3%. In March, the oil price spike will come into play.
There was also no talk last night of when the Fed will start reducing its balance sheet – maybe to be discussed at the next meeting – which may be when any relief rally comes to a screaming halt.
The aforementioned US two-year yield rose 9 points last night to 1.95%, while the ten-year rose 3 points to 2.19%. If the twos exceed the tens, it’s a signal of a possible recession afoot. Note that the US seven-year yield rose 5 points to 2.23% last night.
But for now, a 3.8% rally for the Nasdaq in particular is a sign Wall Street is back on track, albeit the Nasdaq is still -17% below its high. Last night’s move was aided by a bounce for Chinese stocks listed in the US, all of which posted jumps of 30-40% on the news out of Beijing.
Last night Wall Street turned positive for the month.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1923.30 | + 9.10 | 0.48% |
| Silver (oz) | 25.03 | + 0.22 | 0.89% |
| Copper (lb) | 4.55 | + 0.11 | 2.40% |
| Aluminium (lb) | 1.60 | + 0.03 | 2.03% |
| Lead (lb) | 1.01 | – 0.01 | – 0.52% |
| Nickel (lb) | 16.69 | – 0.63 | – 3.65% |
| Zinc (lb) | 1.72 | + 0.02 | 1.19% |
| West Texas Crude | 94.75 | – 0.37 | – 0.39% |
| Brent Crude | 97.58 | – 1.02 | – 1.03% |
| Iron Ore (t) | 145.45 | + 9.90 | 7.30% |
The return of nickel trading on the LME last night was somewhat unspectacular, although the -3.5% fall did defy solid rebounds across other base metals, and iron ore.
Gains in base metals were not about the Fed, or a subsequent -0.7% fall for the US dollar, as the LME closes ahead of the press conference. The gains, including that of iron ore, were all about Chinese stimulus.
Gold managed a slight bounce after a tough few sessions.
The fall in oil prices slowed.
Chinese stimulus? The Aussie is up 1.3% at US$0.7290.
Today
The SPI Overnight closed up 106 points or 1.5%.
The local February job numbers are out today.
New Zealand dusts off a December quarter GDP result.
The Bank of England meets tonight.
Today is expiry day for March quarter ASX derivatives, which may be interesting if the futures call is accurate.
Should be a crack today anyway, to be sure.
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 Buy | Citi |
| Downgrade to Neutral from Outperform | Macquarie | ||
| RRL | Regis Resources | Downgrade to Neutral from Outperform | Macquarie |
| Downgrade to Equal-weight from Overweight | Morgan Stanley | ||
| UWL | Uniti Group | Downgrade to Hold from Buy | Ord Minnett |
| 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.
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.)
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