The Overnight Report: Roll Over

This story features UNITI GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: UWL

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World Overnight
SPI Overnight	7295.00	– 54.00	– 0.73%
S&P ASX 200	7377.90	+ 36.80	0.50%
S&P500	4456.24	– 55.37	– 1.23%
Nasdaq Comp	13922.60	– 186.21	– 1.32%
DJIA	34358.50	– 448.96	– 1.29%
S&P500 VIX	23.57	+ 0.63	2.75%
US 10-year yield	2.32	– 0.05	– 2.19%
USD Index	98.62	+ 0.16	0.16%
FTSE100	7460.63	– 16.09	– 0.22%
DAX30	14283.65	– 189.55	– 1.31%

Greg Peel

Buy banks before they do

On Tuesday the ASX200 was led up 80 points solely by banks and resources as almost all other sectors closed in the red. Yesterday resources sat it out as investors bought every other sector by modest amounts, except for the banks, which were up another 1.0%.

Technology was up 3.5% as it blindly followed the Nasdaq yet again.

On Tuesday the Aussie ten-year yield rose 16 points to 2.77% in line with the US and yesterday traded as high as 2.82% before falling back again. But the extra kicker for the banks was a note put out by Morgan Stanley suggesting they are preparing to announce very big share buybacks when they report earnings in May.

So, every reason to buy the banks, except that last night the US ten-year yield fell back -5 points to 2.32% and the S&P500 financials sector, which Australia tends to mimic, fell -1.8% to be the worst performing sector on the day.

Indeed every sector was lower on Wall Street last night except energy and utilities, following another 5% gain in oil prices, and our futures are down -54 points this morning.

The materials sector should nevertheless kick back into gear today to provide some support, following solid gains in base metal and gold prices overnight.

Joe Biden has this morning landed in Brussels ahead of talks with NATO leaders, EU leaders and G7 leaders, most of whom are the same people. Biden will announce fresh sanctions on Russia, and will discuss ways to discourage China from coming to Russia’s aid, which may have provided some impetus for metal prices.

Brent crude again closed above US$120/bbl last night on more talk of European oil & gas sanctions, although Germany continues to hold out against destroying its own economy, which is totally dependent on Russian energy exports.

In yesterday’s “buy everything else” session, sector moves were relatively uniform. Among individual stocks, four of the top five index winners are not worth highlighting as they were all the usual tedious names.

Of actual interest was a 10.7% gain for telco services provider Uniti Group ((UWL)) after Macquarie Asset Management ((MQG)), in combination with a Canadian pension fund, launched a takeover offer at $5.00.

Amidst a positive session for healthcare (+0.4%), Fisher & Paykel Healthcare ((FPH)) fell -7.9% to be the worst index performer, after issuing a profit warning due to increased freight costs. The impact flowed through to sleep rival ResMed ((RMD)), which fell -3.0%.

The healthcare sector in general, which earns most of its income in the US, has managed only a 1.7% rise since the end of January when the Aussie dollar is up 7%, from US70c to US75c last night, in the period.

Fortunately for the big miners, soaring commodity prices have more than offset the currency drag.

Another Half Century

On Monday night Fed chair Jerome Powell suggested rate hikes of more than the standard 25 basis points (ie 50 points) may be needed in the Fed tightening cycle to fight inflation. Wall Street sold off early, but managed to recover to close the day square.

On Tuesday night, no one cared about rates.

Last night the Cleveland Fed president, Loretta Mester, suggested the Fed will need to implement “some” 50 point hikes this year, but that markets also can handle higher rates and the start of balance sheet reduction at the same time.

Apparently not.

The US ten-year yield dropped -5 points and the S&P500 fell -1.2%.

St Louis Fed president James Bullard has also been banging on about 50 point hikes, but as he has been doing so for months, no one listens anymore.

Rate hike fears were not necessarily the only factor impacting on Wall Street last night. For starters, the snap-back rally was surely due a breather.

Then there’s the oil price, which took another leg up last night just to drive home the inflation issue.

But it is also a week out from quarter-end, which is when pension funds rebalance their portfolios.

Before last night the S&P500 was only around -6% shy of its January all-time high following the week-long snap-back rally, while year to date the US ten-year yield had risen from 1.63% to 2.83% (bond prices fallen). In other words, equities have recently outperformed fixed income.

As pension funds are “balanced” funds – 60% equities, 40% fixed income – if equities outperform bonds then equities need to be sold and bonds bought to return to the mandated 60/40 balance. It may be the case that this process began last night.

Last night was also not a case of panic. Volumes to the upside on the NYSE almost matched volumes to the downside, implying the bulk of the selling was in the big cap names which had led the snap-back rally.

The world’s biggest company – Apple – nevertheless rose 0.8% against the tide after announcing the acquisition of UK fintech Credit Kudos, which compiles real-time data on consumers to assess their credit capacity, unlike existing services that rely on credit history.

Cutting a long story short in the weird and wonderful new world of digital consumer finance, the biggest loser from Apple’s move will be Square, aka Block ((SQ2)). It fell -4.5% last night.

So no doubt the familiar names on the ASX200 winners’ board yesterday will all be on the other side today.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1946.20	+ 25.10	1.31%
Silver (oz)	25.15	+ 0.39	1.58%
Copper (lb)	4.72	+ 0.10	2.12%
Aluminium (lb)	1.72	+ 0.03	2.04%
Lead (lb)	1.07	+ 0.04	3.81%
Nickel (lb)	14.80	+ 1.92	14.94%
Zinc (lb)	1.83	+ 0.06	3.10%
West Texas Crude	114.69	+ 5.42	4.96%
Brent Crude	121.65	+ 6.63	5.76%
Iron Ore (t)	148.90	+ 0.40	0.27%

Pretty much covered above. Nickel went limit-up again on the LME.

As Elon Musk danced a jig to celebrate the opening of his gigafactory in Berlin on Tuesday night, there is currently much talk about how EV sales are set to surge globally on the back of surging oil prices.

Just don’t mention surging nickel and lithium prices.

Again defying the greenback, the Aussie is up another 0.5% at US$0.7504. At this pace we’ll be back at parity by year-end.

Today

The SPI Overnight closed down -54 points or -0.7%.

Flash estimates of March manufacturing PMIs will be released across the globe today.

Biden’s NATO/EU/G7 meetings will be firmly in the spotlight.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
MYD	MyDeal.com.au	Downgrade to Hold from Add	Morgans
RED	Red 5	Upgrade to Add from Hold	Morgans
SHL	Sonic Healthcare	Upgrade to Outperform from Neutral	Credit Suisse
VTG	Vita Group	Upgrade to Speculative Buy from Hold	Ord Minnett

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

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