The Overnight Report: Yeah Right

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World Overnight
SPI Overnight	7494.00	+ 10.00	0.13%
S&P ASX 200	7514.50	+ 50.20	0.67%
S&P500	4602.45	– 29.15	– 0.63%
Nasdaq Comp	14442.27	– 177.36	– 1.21%
DJIA	35228.81	– 65.38	– 0.19%
S&P500 VIX	19.33	+ 0.43	2.28%
US 10-year yield	2.36	– 0.04	– 1.75%
USD Index	97.81	– 0.62	– 0.63%
FTSE100	7578.75	+ 41.50	0.55%
DAX30	14606.05	– 214.28	– 1.45%

By Greg Peel

Re-Run

I could just say this morning “see yesterday’s report”, as not only did the ASX200 close up by an almost identical amount yesterday as Tuesday but the sector contributions were much the same as well.

On Tuesday we pre-learned of a $420 tax offset in the budget, which sent anything impacting the consumer on a run, while yesterday we responded to the -22c per litre fuel excise cut, which had much the same effect. Of course the tax offset is a one-off and the excise cut is only for six months.

Gotta love a goodie bag.

Energy (-0.8%) and materials (-0.3%) were again the only sectors to close in the red, as commodity prices eased on Russia’s intentions to scale back its military operations to the east of Ukraine. That will all change today, as Russia has done nothing of the sort and base metal prices have all jumped back strongly, iron ore and gold are slightly higher and the oils are up 2%.

Technology again posted the biggest percentage gain yesterday (3.8%) on a 1.8% gain for the Nasdaq overnight, but last night the Nasdaq fell -1.2% and Block, in particular, dropped -4.6% as Apple seeks to cut its grass.

Having risen 2.1% on Tuesday, consumer discretionary rose another 1.2% yesterday, but the most notable consecutive gain was in the REITs. They rose 1.1% on Tuesday and another 1.0% yesterday despite almost all of them going ex-dividend.

UR Westfield ((URW)) made the top five winners’ board with a 6.0% gain.

While healthcare also put in a repeat performance (+1.4%), industrials (+1.3%) and utilities (+1.0%) decided to join in yesterday having been left behind on Tuesday.

Having risen 0.5% on Tuesday, the banks rose 0.9% yesterday despite Aussie bonds yields falling around -10 basis points across the curve. More money in consumers’ pockets can only be a good thing, but also the two-years and ten-years each fell -10 points after solid, US-inspired run-ups of late, so no shift in the curve.

Incidentally, as Wall Street watches nervously for the US two-ten spread to invert (last night +3 points), the Aussie equivalent is +100 points. No recession in sight here.

At the individual stock level, nothing much new. Outside of UR Westfield, and a 5.7% gain for Domino’s Pizza ((DMP)), given $420 will buy a lot of extra toppings, the usual names were in play.

The losers’ board was again full of miners, representing all of gold, coal and lithium, and in South32’s ((S32)) case, most everything else.

As noted, commodity prices have returned to strength overnight thus while the S&P500 fell -0.6%, and the Nasdaq -1.2%, our futures are up 10 points this morning.

Note that the ASX200 is only 75 points below its starting point for 2022.

Note also that today is the last day of the March quarter, so we could see some non-fundamental volatility as books are squared one way or the other.

Russian Roulette

While the response from the US to Russia’s suggestion it will consolidate its efforts to the east was one of “we’ll believe when we see it”, Wall Street was not going to take any chances on Tuesday night given if it proved to be true, stocks would soar.

It’s not. The shells were still flying all about the place last night.

So Wall Street pulled back again, but it was hardly dramatic. The Dow was down -170 points at its low before the usual late burst had it down only -65.

Nor does Wall Street seem concerned about yield curve inversion, unless traders have decided the inversion point would provide a good excuse to take profits. Last night the two-ten was hanging in there at +3 points.

The US private sector added 455,000 jobs in March, according to ADP, just to add to the “strong economy” theme, but it was not market-moving given economists had forecast 450,000.

History shows that every US recession since the War has been signalled by yield curve inversion, but not every yield curve inversion has led to a recession. Moreover, the average move in the S&P500 between inversion and recession, noting recession needs two negative growth quarters to confirm, is a 19% gain.

If you sold on inversion in 1988 you missed 34% and in 1998 you missed 39%.

So no one’s overly fussed, and nor will they be fussed when the Fed hikes 50 points in May.

The question remains as to whether the rally back from the depths can run further, or run out of steam, notwithstanding last night’s minor dip. Note that while the ASX200 needs only a 1% gain to be up on 2022, the S&P500 still needs 4.2%.

It will no doubt come down to US earnings results, which begin to flow freely in a couple of weeks. There is always a trickle of out-of-cycle reports, and last night three big retailers released their numbers.

RH (restoration hardware) fell -13% after warning of supply chain and inflation hits, Chewy (pet care) fell -16% on the same theme, but Lululemon (leisurewear) surprised and rose 10%, proving it was not just a covid wonder, and could cope with supply chain/inflation issues.

Analysts see this mix of results as underscoring an assumption the March quarter earnings season will not be a macro affair, but an individual stock performance measure.

In Australia, we’ll see March quarter trading updates across the board throughout April.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1933.70	+ 14.50	0.76%
Silver (oz)	24.84	+ 0.09	0.36%
Copper (lb)	4.69	+ 0.03	0.74%
Aluminium (lb)	1.70	+ 0.05	3.31%
Lead (lb)	1.10	+ 0.02	1.69%
Nickel (lb)	15.02	+ 0.60	4.13%
Zinc (lb)	1.89	+ 0.05	2.67%
West Texas Crude	107.40	+ 2.41	2.30%
Brent Crude	112.60	+ 1.40	1.26%
Iron Ore (t)	150.88	+ 0.58	0.39%

The table tells the story.

The Aussie is nevertheless stalled now around the 75 mark, right now at US$0.7513.

Today

The SPI Overnight closed up 10 points.

Locally we’ll see numbers for building approvals and private sector credit today.

China releases its March PMIs.

The US will see February PCE inflation.

Tonight Labor will outline its own budget policies ahead of the election.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
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
UWL	Uniti Group	Upgrade to Accumulate from Hold	Ord Minnett
WPL	Woodside Petroleum	Downgrade to Neutral from Buy	UBS

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

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