The Overnight Report: Jay The Hawk

This story features LIONTOWN LIMITED, and other companies. For more info SHARE ANALYSIS: LTR

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

World Overnight
SPI Overnight	7316.00	+ 80.00	1.11%
S&P ASX 200	7278.50	– 15.90	– 0.22%
S&P500	4461.18	– 1.94	– 0.04%
Nasdaq Comp	13838.46	– 55.38	– 0.40%
DJIA	34552.99	– 201.94	– 0.58%
S&P500 VIX	23.53	– 0.34	– 1.42%
US 10-year yield	2.32	+ 0.17	7.77%
USD Index	98.50	+ 0.27	0.27%
FTSE100	7442.39	+ 37.66	0.51%
DAX30	14326.97	– 86.12	– 0.60%

By Greg Peel

A Step Too Far

Another rally on Friday night on Wall Street had our futures suggesting up 45 points yesterday morning and the ASX200 duly opened up 56 points in the first half hour. Then the sellers moved in.

Having rallied 2.6% in a week, the index was apparently ready for a breather and talk on Friday night on Wall Street was of it, too, getting a bit frothy.

Sectors that rallied solidly, outside of resources, on Friday pulled back yesterday, including healthcare (-1.0%) and industrials (-1.2%) while the banks retreated -0.6% after a solid, interest rate-driven run.

Technology continued to follow the Nasdaq (+2.5%) while the resource sectors posted modest gains following Friday’s jumps.

There was reportedly some disappointment that the Chinese government did not cut its corporate and household lending rates yesterday in line with all Beijing’s talk of stimulus, but given the PBoC left its rate unchanged last week – upon which the government bases its rates – no change was widely expected. Economists suggest cuts will come in the June quarter.

It then gets a bit weird. After an initial plunge and last-hour comeback last night, the S&P500 closed flat. Our futures are up 80 points, or 1.1%, this morning. So much for a breather.

We can look to another 7% pop for oil prices overnight, and a 3.6% gain for aluminium on the LME as positive drivers, and perhaps a hint the Fed might hike its rate by the full 50 points at its next meeting, which is a positive sign for banks, but 80 points?

More on all that below, but for now we might note yesterday’s index winners were mostly the usual suspects. That BNPL company topped the list (yawn) and there were other familiar (and extremely volatile) faces therein.

Liontown Resources ((LTR)) just keeps heading north following its deal with Tesla, while to underscore the uncertainty of the market at this point, Eagers Automotive ((APE)) fell -4.1% on Friday to be the fifth worse index performer and rallied 3.4% yesterday to be the fifth best.

Fifty’s a Charm

“If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so,”, the Fed chair told the US National Association for Business Economics last night, around early afternoon New York time.

The six-day rally on Wall Street had stalled in the morning, but on that note the Dow plunged over -400 points.

There was much talk heading into the March Fed meeting last week that the FOMC might go a full 50 points on its first hike, until Powell confirmed ahead of the meeting it would only be 25. But now, 50 is back on the table for the next meeting in May, and maybe again thereafter.

In each of the rally sessions leading up to last night, the indices accelerated into the close. Last night, once the shock had sunk in, Wall Street again rallied to the close. Is 50bp that much of a surprise?

The Nasdaq had been hardest hit, as in response to Powell the US ten-year yield shot up 17 points to 2.32% to mark the highest level since 2019. The spread from the two-year yield fell to under 20 basis points, which recently had been a support level, to imply recession indications are growing.

Powell is nevertheless confident a currently strong US economy can cope with more aggressive tightening, and on the late comeback last night, Wall Street seems to agree.

The Dow ended up as the underperformer last night, but then about -50 of the -201 fall was contributed by high-priced Boeing, which fell -3.6% after a Chinese 737 (not a Max) fell out of the sky.

Wall Street also took in its stride another jump up in oil prices, which bumped up the energy sector by 3.8% yet only had the typical losers of consumer discretionary (-0.8%) and communication services (-0.7%) down modestly.

With the S&P closing square we might suggest Wall Street has reached the near term peak of the latest rally, and may now wonder what to do next.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1935.00	+ 13.10	0.68%
Silver (oz)	25.18	+ 0.20	0.80%
Copper (lb)	4.63	– 0.02	– 0.50%
Aluminium (lb)	1.69	+ 0.06	3.64%
Lead (lb)	1.02	+ 0.01	0.80%
Nickel (lb)	11.02	– 1.76	– 13.77%
Zinc (lb)	1.78	+ 0.03	1.92%
West Texas Crude	112.03	+ 7.33	7.00%
Brent Crude	116.28	+ 8.35	7.74%
Iron Ore (t)	150.25	– 1.10	– 0.73%

We knew that Russia is a big producer and exporter of aluminium, but did you know Russia buys 20% of its alumina from Australia? Yesterday the Australian government banned all exports of alumina and bauxite to Russia.

This comes in the wake of Rio Tinto ((RIO)) suggesting it will have nothing to do with Russia anymore, putting its 80/20 joint venture with Rusal in Queensland Aluminium Ltd in a state of flux.

The Australian government’s move was enough to send aluminium up on the LME from the open.

With the nickel price not quite limit-down last night, despite an earlier halt, we can now get a price point.

The jump in oil came on news the EU is seriously considering a ban on Russian oil & gas imports, in line with the US. Biden will meet with NATO leaders, most of whom are also EU members, on Thursday night in Brussels.

Given the sheer disruption it would cause for European refineries totally dependent on Russian oil, it is not clear whether a full ban could be implemented, and implemented immediately, as the move would be mutually destructive to both economies.

But just to top things off, Houthi rebels have attacked a Saudi oil terminal.

The Aussie is off a tad at US$0.7400.

Today

The SPI Overnight closed up 80 points or 1.1%.

Nothing of note on the calendar for the next 24 hours, other than a few ex-divs.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
CLV	Clover	Downgrade to Neutral from Buy	UBS
MYD	MyDeal.com.au	Downgrade to Hold from Add	Morgans
RED	Red 5	Upgrade to Add from Hold	Morgans

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

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