The Overnight Report: Just Buy Anyway

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World Overnight
SPI Overnight	7471.00	+ 17.00	0.23%
S&P ASX 200	7479.00	+ 25.00	0.34%
S&P500	4446.59	+ 49.14	1.12%
Nasdaq Comp	13643.59	+ 272.02	2.03%
DJIA	34564.59	+ 344.23	1.01%
S&P500 VIX	21.82	– 2.44	– 10.06%
US 10-year yield	2.69	– 0.04	– 1.39%
USD Index	99.85	– 0.46	– 0.46%
FTSE100	7580.80	+ 4.14	0.05%
DAX30	14076.44	– 48.51	– 0.34%

By Greg Peel

Squaring Back Up

On Tuesday the ASX200 fell -0.5% in what appeared little more than cautiously taking some risk off the table ahead of an anything-could-happen US inflation number. While the US CPI was another “hot” number, (a) it was no hotter than expected and (b), there were signs US inflation may be starting to peak.

US bond yields thus fell and stocks rallied initially, but pulled back again by the close. Yesterday local investors looked and saw a muted response on Wall Street, so decided to reverse Tuesday’s caution in an “as you were” session. If not for a -10 late drop on market-on-close orders, it would have been a two-day zero-sum event.

So yesterday most everything that fell a bit on Tuesday rose back again, helped by the Dow futures starting to gain ground in the afternoon. The exception to a simple reversal was a 1.0% jump for energy, driven by a 6% jump in oil prices as China begins to ease restrictions. Materials chimed in with 0.6% and resources were again the major drivers.

Healthcare came back 0.4% and the banks 0.2%. The RBNZ got in ahead of the Fed yesterday and raised its cash rate by 50 basis points to 1.50%, suggesting inflation will peak in NZ in the first half of 2022. Seems bold.

The Aussie ten-year yield fell -3 points.

Even consumer discretionary managed a 0.5% rebound in its downtrend ahead of an expected Easter spending spree. Lingering covid restrictions have been lifted in various states in order to cash in.

Technology and communication services took an early holiday, so only real estate had a soft session (-0.4%).

Speaking of real estate, a note from Morgan Stanley yesterday warning of the impact NSW-Queensland floods have had on builders’ capacity to build, and thus on building material demand, had Adbri ((ABC)) down -4.6% to be the worst index performer, and James Hardie ((JHX)) second worst in falling -2.3%.

On the top five winners’ list, EML Payments ((EML)) jumped 10.5% after informing of private equity sniffing around again, while Paladin Energy ((PDN)) had another strong session on an ever rising uranium price, which has now all but wiped out its long-winded fall post Fukushima in 2011.

With Europe scrambling to recue its exposure to Russian energy exports, nuclear is very much back in favour. Meanwhile the US just wants to cut Russia out of the game.

In other news, mixed trade data from China showed exports rising 14.7% (year on year) in March when 13.0% was forecast, and imports falling -0.1% when an 8.0% increase was forecast. April will no doubt be different, given lockdowns.

Last night the rally Wall Street tried to stage on Tuesday night, only to be knocked down by sellers who missed out on the way down, succeeded. Our futures are up 17 points.

It should nevertheless be a quiet session, with offices (CBD and home) emptying out quickly from lunchtime in the rush to beat the rush.

Not Peaking Yet

Wall Street was relieved by signs on Tuesday night that US consumer price inflation might just be showing signs of peaking. There was also some relief last month when wholesale inflation rose only slightly in February.

But it was not the case in March. The headline PPI jumped 1.5% month on month when economists had forecast 1.1%, taking the annual rate up to 11.2% from 10.0% in February. It was all about food and energy, and that is all about Ukraine.

Strip those out, and the core rate rose 0.9% in March compared to a 0.5% forecast, so in fact it’s not just about food and energy.

As the PPI numbers were being released, JPMorgan (Dow) released its March quarter earnings result, and promptly fell -3.2% despite beating on both revenues and earnings as it usually does. The main issue was an increased provision taken for potential bad debts, reflected in a downbeat economic outlook provided by CEO Jamie Dimon.

When Dimon speaks, Wall Street listens.

So add that all up and you’d expect that a Wall Street that looked wobbly on Tuesday night would perhaps capitulate again. But no, the indices opened higher and ground steadily upward all session, to close on their highs.

There is much talk of a recession being inevitable at some point, but perhaps not for up to two years. In the interim, stocks always rally, so why see the doom and gloom now?

The US ten-year bond yield fell again last night, by another -4 points to 2.69%. If anything is getting the wobbles now, it might be TINA. While the general trend for US yields remains to the upside, as an investment, a yield over ten years of 2.7% or so is finally beginning to look attractive as an alternative to risky stocks.

But hey we did this back in March too – the S&P500 staging a snapback rally only to run out of steam and roll over again. The good news is the index has not this time tested the March low.

It is also suggested that the turnaround in bond yields was overdue anyway, after such a sharp run up, so it may prove just a breather.

And there’s still a war on.

In other news, the Bank of Canada also hiked its cash rate by 50 points last night and the UK reported its highest CPI in thirty years, at 7.0%.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1977.30	+ 11.10	0.56%
Silver (oz)	25.72	+ 0.40	1.58%
Copper (lb)	4.65	+ 0.01	0.11%
Aluminium (lb)	1.56	– 0.00	– 0.31%
Lead (lb)	1.11	+ 0.01	0.98%
Nickel (lb)	14.95	+ 0.05	0.36%
Zinc (lb)	2.03	+ 0.06	2.92%
West Texas Crude	104.25	+ 3.65	3.63%
Brent Crude	108.86	+ 3.83	3.65%
Iron Ore (t)	153.72	– 2.11	– 1.35%

The standout rise in zinc was to do with another indication of low LME inventory levels.

Beijing has allowed for shortened quarantine times for travellers in eight Chinese cities. It’s only a trail at this stage, but still more good news for oil prices.

It’s as if gold thinks no one’s looking as it continues to sneak up.

The Aussie is flat at US$0.7456, despite the US dollar index running away from Tuesday night’s 100 mark by -0.5%.

Today

The SPI Overnight closed up 17 points or 0.2%.

Our March jobs numbers are out today. (Someone please let Albo know.)

The ECB holds a policy meeting.

The US will see consumer sentiment.

Bank of Queensland ((BOQ)) reports earnings today and Whitehaven Coal ((WHC)) releases its quarterly report.

New Hope Corp ((NHC)) goes ex.

All Western markets are closed tomorrow, and again on Monday, except for the US.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ABC	AdBri	Downgrade to Equal-weight from Overweight	Morgan Stanley
ANZ	ANZ Bank	Upgrade to Buy from Neutral	Citi
		Downgrade to Equal-weight from Overweight	Morgan Stanley
NEA	Nearmap	Downgrade to Neutral from Outperform	Macquarie
WEB	Webjet	Upgrade to Buy from Neutral	Citi

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

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