The Overnight Report: On The Table

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By Greg Peel

Mixed Quarterlies

The S&P500 had closed flat overnight but the Nasdaq had another fall, hence our technology sector fell -2.6% yesterday as by default, Block ((SQ2)) fell -6.9% after a bad night in the US.

Otherwise investors were left with clean air to assess what was a big day of quarterly updates from a range of companies.

The biggest of them all – BHP Group ((BHP)) – mimicked rival Rio Tinto ((RIO)) from Wednesday in reporting a miss on exports due to WA labour shortages. It fell -3.1% and the materials sector -1.6%.

Energy went the other way (+1.2%), boosted by a 1.7% gain for Santos ((STO)) following its quarterly.

The biggest winner was Challenger ((CGF)), which scored a 9.8% gain, and along with renewed strength in the Big Banks, financials rose 1.1%.

The best sector performer was, unfamiliarly, industrials (+2.2%), following an 8.0% jump for Brambles ((BXB)) on report.

Real estate was next (+2.1%), thanks to the property developers. Stockland’s ((SGP)) update was worth 2.4% but Lendlease ((LLC)) enjoyed the benefit, up 5.1%.

On the flipside, Megaport ((MP1)) tumbled -21.5% on its report, although communication services closed flat.

Otherwise, there was general strength in other sectors, with tech and materials the only clear losers on the day.

Pity. Wall Street’s run scared overnight and our futures are down -65 points this morning.

In outside-the-index news, Betmakers Technology ((BET)) jumped 20.9% after signing a deal to build a betting platform for News Corp ((NWS)) so Rupert can have a punt. Bear in mind that as of last week, Betmakers was the second most shorted stock on the ASX at 11.2%.

Didn’t we know that?

The Dow opened up 300 points last night, following on from two days of gains on earnings reports, which continued from the open. But half an hour in it began to track a straight line downward, ultimately closing down -368.

Early gains on earnings reports were wiped out. Materials companies like Dow Inc (chemicals), which is in the Dow Jones, and Freeport MacMoRan (mining and oil) saw solid reports being ignored in the sentiment turnaround.

As did Tesla, which was up 10% early on following its aftermarket result on Wednesday night, but the stock closed up only 3.2%.

The turnaround was sparked by talk from the Fed chair who, alongside the ECB president and head of the IMF, chatted with CNBC last night.

Without specifically admitting it, Powell as good as confirmed the Fed had been way behind the curve when it came to inflation and although March possibly saw a peak, the FOMC now needs to be “expeditious” in returning the cash rate to the “neutral” rate (the balance point between easing and tightening) and this may require “front-loading”.

To that point, Powell said a 50 point hike in May was definitely “on the table” and did not shoot down a suggestion of three 50 pointers in a row.

The interesting thing is this is exactly what the market has been pricing in over the past month or more and it is the Fed who’s catching up. Yet on last night’s stock market performance you’d think Powell’s comments had come as a shock. Most notably, energy was the worst performing sector in the S&P500 (-3.1%) when oil prices rose 1% overnight.

Is it because Powell said inflation “may” have peaked? Not only has this been a suggestion before last night but Powell admitted he had no idea if it had or not. If you want an opinion on inflation, recent history suggests ask anyone but the Fed.

There have been suggestions recently from more than one more sober commentator that the market is pricing in a too-aggressive policy stance, and that the Fed will likely go hard early and then pause to gauge whether the US economy is subsequently coming in for a hoped for “soft landing” (slower growth) and not a “hard landing” (recession).

Maybe Powell’s comments last night suggested the Fed was simply going to go hard.

Or maybe investors were just bottling last night on wavering sentiment, not prepared to take the risk. Certainly the wipe-out of overstretched growth stock multiples was on display again. Such sell-now-ask-questions-later sentiment was on display after the bell when Snap Inc reported. It initially fell -18%, but is currently square.

Commodities

Again, not much to write home about.

We might note that gold’s “safe haven” rally has now given way to being balanced by US bond yields – the ten-year rose 8 points to 2.92% last night – and the US dollar index, up another 0.25%.

What on earth’s going on in the Aussie? Up a percent on Wednesday night and down a percent last night to US$0.7376.

Today

Japan will report its March CPI today while flash estimates of April PMIs will be provided across the globe.

OZ Minerals ((OZL)) will provide its quarterly report.

The Australian share market over the past thirty days…

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