The Overnight Report: Hope Springs Eternal

This story features MAGELLAN FINANCIAL GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: MFG

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

World Overnight
SPI Overnight	7503.00	+ 56.00	0.75%
S&P ASX 200	7464.30	+ 51.90	0.70%
S&P500	4631.60	+ 56.08	1.23%
Nasdaq Comp	14619.64	+ 264.73	1.84%
DJIA	35294.19	+ 338.30	0.97%
S&P500 VIX	18.90	– 0.73	– 3.72%
US 10-year yield	2.40	– 0.08	– 3.11%
USD Index	98.43	– 0.71	– 0.72%
FTSE100	7537.25	+ 64.11	0.86%
DAX30	14820.33	+ 402.96	2.79%

By Greg Peel

Spendfest

The ASX200 was set to open higher yesterday, and it did, with the futures showing up 38 points on Wall Street strength. But the kicker came when it was revealed Josh planned to announce a $420 tax offset for low-middle income earners in FY22 returns in last night’s budget.

The index closed up 51 after peaking at up 78 but the big gains were made before midday.

So, what to do with that money?

If we ignore a 3.3% rise in the technology sector, on daily Nasdaq volatility, we see the next best performer as consumer discretionary (+2.1%). Retail landlords thus helped the real estate sector to 1.1% gain and staples also scored 0.9%.

Healthcare was another winner (+1.8%), with a little help from the Aussie slipping under US75c. Communication services, which includes telcos but also media in all its forms, rose 1.0%.

Add it all up and the banks were happy (+0.6%), with no movement in the Aussie ten-year yield for once.

Not playing were industrials and utilities, which posted only small gains, while energy (-0.6%) and materials were the only two sectors in the red, after pullbacks in commodity prices.

Amongst individual stocks, the top five winners’ board featured tedious familiar faces in tech and also Magellan Financial ((MFG)) which, for a stock that should just follow the market up and down, is currently a day-trader’s plaything. It topped the board with a 7.1% gain.

IDP Education ((IEL)) nevertheless snuck in at the bottom (+4.9%) while outside the index, Nearmap ((NEA)) jumped 16.6% after updating on annual contract value.

The losers’ board was all commodity-related, topped by a -4.3% drop in Whitehaven Coal ((WHC)) and including GrainCorp ((GNC)), while the odd one out was SkyCity Entertainment ((SKC)), which is a casino. Enough said.

So, how did things pan out last night?

The futures are up 56 points this morning, or 0.8%, but with the S&P500 up 1.2% last night on glimmers of hope for Ukraine, it’s hard to judge what extra budget reaction we might get today after yesterday.

It was clearly a budget of all give and no take, and you’d be forgiven for thinking an election was looming. Josh was at pains to highlight the Coalition’s superior economic management, as usual, while never once mentioning budget-saving revenues due from iron ore, coal, LNG, wheat…

The bombshell was nonetheless a full -22c per litre cut to the fuel excise, or -50%, when 5c was being touted. That, again, will put more money in consumer pockets and possibly stave off some demand destruction for the fuel industry.

All inflationary, of course.

Here We Go

Last night the US two-year yield fell -4 points to 2.37%, and the ten-year fell -8 points to 2.40%, for a mere 3 point spread, down from 12 the night before. It appears inevitable now that the US yield curve will invert.

Bovvered?

Clearly not, judging by the stock market’s reaction. But aside from the average 16-month lag to recession from inversion, and average stock market gains over that period, last night was all about a glimmer of hope for Ukraine.

Russia said it would “fundamentally” cut back operations near Kyiv, and now states its goal is the “liberation of Donbas” rather than the earlier “denazification of Ukraine”. Evacuation corridors would also be opened for some cities.

Russia announced a shift in focus to just Donbas in the east last week, and then bombed Lviv in the west.

Ukraine has in turn offered a referendum on neutrality.

Everyone is understandably taking whatever Russia says with a grain of salt, and as yet there is no sign of an actual ceasefire being agreed upon. But, it’s a possible step, if Russia can withdraw and claim victory.

The news fired up Wall Street, with all S&P500 sectors closing in the green bar energy (-0.4%). WTI crude fell below US$100/bbl early in the session but has since rebounded.

Even the materials sector managed a 0.8% gain despite commodity prices, particularly aluminium and wheat, slipping back as a result.

The Conference Board’s monthly consumer confidence index has risen to 107.2 in March, which is surprising compared to the similar Michigan Uni index showing the high 50s of late. Both are 100-neutral indices, but clearly the surveys ask different questions.

However, the “rise” to 107.2 came only after the February result was revised down to 105.7 from an original 100.5, so make up your own mind, but economists do suggest a strong jobs market in the face of the inflation shock is providing relief.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1919.20	– 3.00	– 0.16%
Silver (oz)	24.75	– 0.13	– 0.52%
Copper (lb)	4.65	– 0.02	– 0.44%
Aluminium (lb)	1.65	– 0.08	– 4.81%
Lead (lb)	1.08	+ 0.01	0.94%
Nickel (lb)	14.43	– 0.14	– 0.96%
Zinc (lb)	1.84	– 0.01	– 0.30%
West Texas Crude	104.99	+ 1.51	1.46%
Brent Crude	111.20	+ 1.52	1.39%
Iron Ore (t)	150.30	+ 0.30	0.20%

Russia is or was a big exporter of aluminium so progress on the peace front is reflected above. The same can be said for nickel, but that market is broken.

Benchmark US wheat futures fell -4%.

Elsewhere moves were minimal, and as noted, the oils did fall initially but have since rebounded.

Any great hope for oil prices to plunge back again if there is peace in Ukraine and China is undermined by a simple lack of global supply, and there is upside risk if Chinese lockdowns end swiftly.

The Aussie is back up 0.2% at US$0.7511.

Today

The SPI Overnight closed up 56 points or 0.8%.

The US will report March private sector jobs numbers tonight.

Don’t be shocked when the real estate sector opens sharply lower this morning. Today is quarterly ex-dividend for most REITs and other funds.

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
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
GOR	Gold Road Resources	Upgrade to Neutral from Underperform	Macquarie
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
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.

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.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms