The Overnight Report: Finding A Base

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The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

World Overnight
SPI Overnight	7457.00	+ 38.00	0.51%
S&P ASX 200	7442.80	– 47.30	– 0.63%
S&P500	4500.21	+ 19.06	0.43%
Nasdaq Comp	13897.30	+ 8.48	0.06%
DJIA	34583.57	+ 87.06	0.25%
S&P500 VIX	21.55	– 0.55	– 2.49%
US 10-year yield	2.65	+ 0.04	1.65%
USD Index	99.77	+ 0.13	0.13%
FTSE100	7551.81	– 35.89	– 0.47%
DAX30	14078.15	– 73.54	– 0.52%

By Greg Peel

Holding the Fort?

The ASX200 hit its low down -53 points early yesterday afternoon but the close of down -47 was equivalent to the initial drop ten minutes from the open. So really we went nowhere all day, and indeed the day’s low was exactly the same as the low on Wednesday.

From the early (Fed-driven) plunge on Wednesday morning the index has basically not moved.

Action on Wall Street has been similar and in not breaching the prior low, last night the US indices turned an early loss into a modest gain by the close. Our futures are up 38 points this morning.

Yesterday saw the technology sector predictably fall -3.4% as it dutifully followed the Nasdaq. The Nasdaq was flat last night, so tech traders can have the day off.

The resource sectors did most of the damage on a pullback in commodity prices, with energy down -1.3% and materials -0.7%. Commodity prices were generally lower again last night, with the Chinese likely having an influence after being closed on Monday and Tuesday.

Consumer discretionary was again noticeably weak (-1.6%) and has more than given back the boost it enjoyed from budget handouts. The big names like Wesfarmers ((WES)) and JB Hi-Fi ((JBH)) have been sliding since the end of March but another biggie – Aristocrat Leisure ((ALL)) – has lost its gloss given one of its digital games has waned in popularity.

Today, Citi might have a few things to say about Aristocrat – see The Australian Broker Call Report.

The banks also pulled back yesterday (-0.6%) after a solid, bond yield-driven run this week.

The only sectors to close in the green were the defensives of staples (+0.6%), real estate (+0.1%) and utilities (+0.6%).

At the individual stock level, the headless chook that is Magellan Financial ((MFG)) topped the index with an 11.4% gain, this time on actual funds flow numbers. Bear in mind Magellan is still down -74% from its January 2020 high and global stock indices aren’t.

Another volatile stock of late is Liontown Resources ((LTR)), and indeed all lithium stocks have been volatile. It fell -6.7% yesterday but I think I’m right in saying it has been either one or the other side of the top five ledger every day this week.

If we do see a rally today it will have to be without support from the resource sectors, and the fact it’s another Friday in a war.

Priced In?

On Wednesday night the Dow fell -300 points early before recovering to close down -144. Last night the Dow fell -300 points early before recovering to close up 87.

It looks very much like Wall Street is trying to find a bottom amidst all the volatility this week driven by seemingly ever more aggressive Fed rhetoric. The 25 point rate hike in March now seems a world away.

Debate continues to rage over whether the US is headed for a recession. In reality, the chance of a recession is actually 100%, because economies perennially cycle boom-bust trajectories. But as to how long before the next recession, well, that is the unknown.

There is a growing school of thought that having been a good year or more behind the curve up to this point, the Fed will now go too hard with tightening to begin with and then have to ease back at some point to avoid a recession of its own making, before tightening again.

Economists continue to point to above-trend US growth as the reason a recession is not imminent, but the Fed could muck that up.

Wall Street is otherwise simply trying to weigh up whether Fed aggression is sufficiently priced in by now, while noting the stock market can run quite quite hard into a recession, so best to stay the course for now.

There are still bargains to be had, such as Hewlett Packard, which jumped 15% last night after it was revealed Warren Buffett had taken a big stake, in a classic Buffet value-trade style.

Much will depend on earnings results which begin to flow freely from next week.

An interesting case in point last night was early-reporter Levi Strauss – you may have heard of them. The company had not refreshed its guidance as a result of the invasion but after posting beats against consensus across all metrics, retained that guidance, despite additional war-driven supply-inflation issues.

Levi Strauss closed down -0.7%. What do you have to do this season?

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1931.20	+ 5.90	0.31%
Silver (oz)	24.58	+ 0.14	0.57%
Copper (lb)	4.65	– 0.01	– 0.26%
Aluminium (lb)	1.62	– 0.03	– 1.66%
Lead (lb)	1.08	– 0.02	– 1.84%
Nickel (lb)	15.46	+ 0.07	0.45%
Zinc (lb)	1.91	– 0.07	– 3.71%
West Texas Crude	96.03	– 0.20	– 0.21%
Brent Crude	101.34	– 0.40	– 0.39%
Iron Ore (t)	156.64	– 3.43	– 2.14%

Not a lot of red to be seen with the Chinese back in, and the Aussie’s trip up to US76c now seems but a dream.

It’s down another -0.4% to US$0.7485.

Today

The SPI Overnight closed up 38 points or 0.5%.

The RBA will release a Financial Stability Report Today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
A2M	a2 Milk Co	Downgrade to Sell from Buy	Citi
AGL	AGL Energy	Upgrade to Add from Hold	Morgans
GOR	Gold Road Resources	Upgrade to Outperform from Neutral	Macquarie
ILU	Iluka Resources	Upgrade to Neutral from Underperform	Credit Suisse
KLS	Kelsian Group	Upgrade to Outperform from Neutral	Macquarie
NWL	Netwealth Group	Downgrade to Neutral from Buy	Citi
PDL	Pendal Group	Downgrade to Hold from Add	Morgans
SGM	Sims	Downgrade to Neutral from Buy	Citi
WSA	Western Areas	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.)

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