The Overnight Report: Of War And Pestilence

This story features WASHINGTON H. SOUL PATTINSON AND COMPANY LIMITED, and other companies. For more info SHARE ANALYSIS: SOL

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

World Overnight
SPI Overnight	7415.00	+ 38.00	0.52%
S&P ASX 200	7412.40	+ 6.20	0.08%
S&P500	4575.52	+ 32.46	0.71%
Nasdaq Comp	14354.90	+ 185.60	1.31%
DJIA	34955.89	+ 94.65	0.27%
S&P500 VIX	19.63	– 1.18	– 5.67%
US 10-year yield	2.48	– 0.02	– 0.60%
USD Index	99.14	+ 0.34	0.34%
FTSE100	7473.14	– 10.21	– 0.14%
DAX30	14417.37	+ 111.61	0.78%

By Greg Peel

Over to you Josh

On Friday the ASX200 traded up 40 points mid-session before settling back to close flattish, with investors reluctant to carry positions over a weekend at present. Yesterday was a repeat performance. The index was up 40 points at lunchtime and closed up 6, ahead of tonight’s federal budget.

Admittedly news from China did take the wind out of the energy sector’s sails yesterday, despite another 2% increase in oil prices on Friday night to have Brent trading back at US$120/bbl. As Beijing remains one of the last bastions of zero-covid policy, Shanghai will be split in two for the purpose of lockdowns – one half for the next four days and the other for the subsequent four days – until everyone in a city of some 25 million people is tested.

Oil prices have fallen -9% overnight. If Josh cuts the excise, it won’t much matter for oil & gas company share prices.

Rarely do budgets have a huge impact on stock markets unless there is a significant policy shift in some area. It seems infrastructure spending will be part of the playbook, eg fast Sydney-Newcastle rail line, when the NSW government is deferring its ambitious infra plans due to cost inflation and labour shortages.

But saying you will do something ahead of election by no means implies you will.

Banks (+0.6%) and materials (+1.3%) were the main upside drivers yesterday, along with modest gain in staples and utilities, with every other sector weaker.

Following a 15 point spike in the US ten-year yield overnight to 2.49%, the Aussie equivalent rose 13 points to 2.90% yesterday. The Aussie two-year rose 17 points to 1.72% to take the 2-10 spread to a mere 18 basis points, in line with the US spread until last night. More on that below.

Further gains in most commodity prices drove materials.

Tech was the biggest loser, down -2.7%, because the Nasdaq fell -0.2% (and yields spiked). Healthcare is struggling against a US75c Aussie (-1.2%), while communication services, consumer discretionary and property all fell -1.2% as well.

Washington H. Soul Pattinson ((SOL)) is not a stock you see topping the index winners’ board often, but it rose 3.1% after reporting earnings last week and receiving an upgrade to Add from Morgans yesterday. The fact 3.1% won the day is indicative of a quiet market.

Paladin Energy ((PDN)) topped the losers’ board (-6.0%) amidst the usual day-to-day volatility of “exotic” minerals, while the rest of the board was filled with familiar faces.

Ahead of Friday and yesterday the futures were suggesting gains in excess of 30 points, and this morning is no different on 38. On Friday and yesterday the index closed flat.

Let’s see what Josh has in his goodie bag.

Damn the Recession

At one point before the open on Wall Street last night, the yield on the US five-year bond exceeded that of the thirty-year, but only briefly. During the session, the ten-year fell back a couple of points and the two-year rose, to further compress the spread to 14 points.

It appears all but a given the Fed will hike by 50 points in May, but talk now is of another 50 points following consecutively. Citi economists have pencilled in three consecutive 50s.

Were the two-ten spread to fall into negative it is the first sign a recession is forthcoming. It needs to be confirmed by the three-month to ten-year spread and that’s still a long way off, but if the Fed’s tightening cycle is as aggressive as many fear, it may not be that long off.

But – and it’s a big “but” – it typically takes 18 months for a recession to follow the signs it’s coming, and the stock market typically rallies in the interim. The fear is the Fed will be tightening into a slowing economy, except the US economy is holding up relatively well in the face of inflation.

The test will come in a couple of weeks when the real numbers begin to be released, being corporate earnings.

Meanwhile, Wall Street opened lower last night, led down by a big fall in the energy sector on the oil price fall, accompanied by a fall in the banks on yield curve movements.

The indices then squared up heading into the closing bell, and yet again spiked in the final minutes to provide for a positive session.

One significant driver of the Nasdaq and S&P500 was an 8% gain for Tesla, after the company flagged another stock-split, of as yet unknown ratio. When Tesla last split in August 2018, the share price soared.

Commentators put the move down to ignorant young retail traders who did not understand it doesn’t matter how many slices there are in a pizza, it’s still the same pizza, but given Tesla has since rallied 280% people are actually paying attention this time.

Having taken a big dive in early 2022, Tesla is now back to square for the year.

Sentiment was also buoyed mid-session by Ukraine’s preparedness to offer neutrality to Russia in tonight’s talks in Istanbul, raising hopes of a possible ceasefire.

Good luck with that. NATO fears Belarus is about to enter the war to support the failing Russians, as payback for the Russian financial and military support to Lukashenko’s fraudulent election victory.

Amidst all the uncertainty of war, inflation, covid and recession fears, the VIX volatility index last night fell below 20.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1922.20	– 37.20	– 1.90%
Silver (oz)	24.88	– 0.65	– 2.55%
Copper (lb)	4.67	+ 0.01	0.15%
Aluminium (lb)	1.73	– 0.01	– 0.31%
Lead (lb)	1.07	+ 0.01	1.18%
Nickel (lb)	14.57	+ 0.14	0.96%
Zinc (lb)	1.85	– 0.00	– 0.22%
West Texas Crude	103.48	– 10.42	– 9.15%
Brent Crude	109.68	– 10.97	– 9.09%
Iron Ore (t)	150.00	– 0.20	– 0.13%

It appears nickel may have found a price but it’s difficult to tell given frequent trading halts.

Gold traders are running away from rising yields.

Shanghai lockdowns hit oil prices.

The Aussie is down -0.2% at US$0.7493.

Today

The SPI Overnight closed up 38 points or 0.5%.

The ABS will update its February retail sales data today.

The US will see monthly consumer confidence and house prices.

Sigma Healthcare ((SIG)) will report earnings.

Get the popcorn ready for 7.30pm (Canberra time).

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ALX	Atlas Arteria	Downgrade to Neutral from Outperform	Macquarie
		Downgrade to Hold from Add	Morgans
ASB	Austal	Downgrade to Neutral from Outperform	Macquarie
BHP	BHP Group	Upgrade to Add from Hold	Morgans
BKW	Brickworks	Upgrade to Buy from Accumulate	Ord Minnett
EVN	Evolution Mining	Downgrade to Sell from Neutral	UBS
FMG	Fortescue Metals	Upgrade to Neutral from Sell	UBS
MIN	Mineral Resources	Upgrade to Overweight from Equal-weight	Morgan Stanley
NCM	Newcrest Mining	Downgrade to Neutral from Buy	UBS
RIO	Rio Tinto	Upgrade to Neutral from Sell	UBS
RMD	ResMed	Downgrade to Accumulate from Buy	Ord Minnett
SEK	Seek	Downgrade to Neutral from Outperform	Macquarie
SOL	WH Soul Pattinson	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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