The Overnight Report: Damn The Torpedos

This story features CLEANAWAY WASTE MANAGEMENT LIMITED, and other companies. For more info SHARE ANALYSIS: CWY

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

World Overnight
SPI Overnight	7581.00	+ 47.00	0.62%
S&P ASX 200	7565.20	+ 41.80	0.56%
S&P500	4462.21	+ 70.52	1.61%
Nasdaq Comp	13619.66	+ 287.30	2.15%
DJIA	34911.20	+ 499.51	1.45%
S&P500 VIX	21.37	– 0.80	– 3.61%
US 10-year yield	2.91	+ 0.05	1.78%
USD Index	100.98	+ 0.18	0.18%
FTSE100	7601.28	– 15.10	– 0.20%
DAX30	14153.46	– 10.39	– 0.07%

By Greg Peel

Rocks and NIMs

When Easter falls close to Anzac Day, it’s a good time to take a holiday. This year four days off gives you an eleven-day break, notwithstanding it’s also school holidays in NSW and elsewhere.

Trading was thus quiet on the ASX yesterday and volumes low, allowing for volatility. This will likely be the theme for the rest of the second of three consecutive four-day weeks. Despite an indecisive Wall Street overnight, yesterday the ASX200 opened up around 50 points and remained in a tight range all session, before closing up 41.

It was all about resources and banks.

Energy rose 1.3% on only a slight gain in oil prices. Materials rose 1.0% despite little movement in commodity prices – indeed the LME was closed on Monday night. We might ascribe these moves to the better than expected Chinese GDP result on Monday – 4.8% growth to 4.4% forecast.

How the June quarter fares in China will depend on just how long the lockdowns last.

After a couple of days of retreat on bond yields, following the sharp run-up, it was back to business yesterday. The two-, five- and ten-year Aussie bond yields rose by 10 points each – the latter to 3.08%. This is good for bank net interest margins (NIM), at least until rates move too high, hence the financials sector rose 0.9%.

The minutes of the April RBA meeting reinforced forecasts of the first rate hike coming in June.

Other than utilities (+1.0%), which are tied to energy but a much smaller sector, it was a case of thanks for playing among other sectors.

Could be a different story today, with oil prices down -5% overnight and nothing to speak of among the major metals/minerals, yet the futures are suggesting up 47 points this morning, on the back of Wall Street strength.

Among individual stocks, Cleanaway Waste Management ((CWY)) jumped 5.9% on news private equity is sniffing around. Otherwise it was resources all the way among the top five leaders, split between gas, fertiliser, gold and copper producers.

Nothing much to highlight among the losers, as Fisher & Paykel Healthcare ((FPH)) topped the board with only a -2.9% fall.

Aside from Monday’s Chinese data, updated global growth forecasts from the IMF released yesterday may also have driven resources/banks excitement yesterday.

IMF forecasts are typically around six months behind the curve, and draw more media attention than market attention. But yesterday’s numbers had Australia as one of few countries enjoying a growth forecast increase amidst a flood of downgrades due to the war.

The IMF has cut its global growth forecast to 3.6% in 2022 from a 4.4% forecast in January. The US drops to 3.7% from 4.0% and China to 4.4% from 4.8%. Russia has dropped to -8.5% contraction from a pre-war forecast of 2.8% growth. We won’t mention poor old Ukraine.

Australia’s forecast has nonetheless been upgraded to 4.2% from 4.1%, on the back of the benefits of higher commodity prices driven by the war. Brazil and Saudi Arabia also saw upgrades, for the same reason.

Bully for us.

Oh how the mighty have fallen  

In breaking news, Netflix has reported earnings this morning. The lockdown darling was already down -40% for the year, and -50% from its October high, before reporting a big miss on subscription growth guidance, after taking Russian suspensions into account, and promptly falling another -25% in the aftermarket.  

The homo erectus of the digital world – IBM (Dow) – also reported this morning and is up 2.4%.

Johnson & Johnson was another of the big Dow names to report last night, ahead of the opening bell, and it rose 3.0%. This result was more indicative of the season so far (very early stages), which is suggesting that as usual, analysts have marked down earnings expectations too far.

That was one excuse last night to release the pent up buying on Wall Street that seemed not to be able to make headway on Monday night. Another was a -5% fall in oil prices and an -8% fall in the US natural gas price after hitting a 14-year high, which suggest easing inflation.

We’ve seen these sharp dips in energy prices before.

We have also seen, at least three times this year, the Nasdaq rebounding sharply despite the headwind of rising rates. Last night the US ten-year yield rose another 5 points to 2.91% but the Nasdaq gained 2.2%. On any other day, a jump in yields could explain a -2% fall in the Nasdaq.

The drop in energy prices was a fillip for the consumer discretionary sector, and particularly the rebounding travel-related stocks. They were also boosted by Biden’s mask mandate on public transport, including planes, being quashed by the court.

Wall Street was also heartened by a 4% year on year increase in US housing starts, despite soaring materials and fuel inflation, and rising mortgage rates. (The average US 30-year fixed mortgage rate now exceeds 5%.)

No one was at all fussed by the IMF.

So is this yet another snap-back, dead cat rally, or the real deal this time? It will all come down to earnings, and this is the biggest week another than next week, which is the peak.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1950.10	– 28.60	– 1.45%
Silver (oz)	25.16	– 0.68	– 2.63%
Copper (lb)	4.65	– 0.02	– 0.39%
Aluminium (lb)	1.57	– 0.02	– 1.07%
Lead (lb)	1.10	– 0.01	– 0.77%
Nickel (lb)	15.27	+ 0.25	1.65%
Zinc (lb)	2.04	+ 0.02	1.06%
West Texas Crude	102.56	– 5.65	– 5.22%
Brent Crude	107.28	– 5.51	– 4.89%
Iron Ore (t)	153.49	– 1.69	– 1.09%

Commodities

On Monday night Libya was forced to shut down its largest oil field, and over the weekend, Russia’s new offensive in the east was confirmed as very much underway. So why the fall in oil prices?

Traders suggest it’s because Xi Jinping has only steeled his resolve to keep China locked down for as long as it takes, as Xi could never be wrong. At least rules have been relaxed over access to groceries. But as noted above, these sudden dips in oil prices have occurred more than once in past months, and usually prices quietly regain the lost ground.

Gold took its first decent backward step in some time, but that was probably overdue as well.

Despite these moves, the Aussie has jumped back 0.4% following the big drop over the weekend, to US$0.7382, despite the dollar index rising 0.2%.

Today

The SPI Overnight closed up 47 points or 0.6%.

The Fed Beige Book is out tonight.

Atlas Arteria ((ALX)), Beach Petroleum ((BPT)) and Rio Tinto ((RIO)) release quarterly reports.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
DEL	Delorean Corp	Upgrade to Speculative Buy from Hold	Morgans

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