Daily Market Reports | Apr 26 2022
This story features RAMSAY HEALTH CARE LIMITED, and other companies. For more info SHARE ANALYSIS: RHC
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS
| World Overnight | |||
| SPI Overnight | 7298.00 | – 25.00 | – 0.34% |
| S&P ASX 200 | 7473.30 | – 119.50 | – 1.57% |
| S&P500 | 4296.12 | + 24.34 | 0.57% |
| Nasdaq Comp | 13004.85 | + 165.56 | 1.29% |
| DJIA | 34049.46 | + 238.06 | 0.70% |
| S&P500 VIX | 27.02 | – 1.19 | – 4.22% |
| US 10-year yield | 2.83 | – 0.08 | – 2.75% |
| USD Index | 101.74 | + 0.52 | 0.51% |
| FTSE100 | 7380.54 | – 141.14 | – 1.88% |
| DAX30 | 13924.17 | – 217.92 | – 1.54% |
By Greg Peel
Friday
For the past few weeks, the Australian market had not been blindly following Wall Street up and down, recognising that the bulk of US volatility was in the US tech-based sectors, making up the largest market cap chunk of the Nasdaq in particular but also the S&P500.
Our own tech sector is relatively small. In the US, the materials sector is comparatively immaterial in market cap terms. Here, materials/energy is the biggest chunk. In both markets, the banks have significant market caps.
Hence our market had been held up by solid commodity prices. On Thursday night in the US, Wall Street was pushing higher in the morning before the Fed chair basically confirmed a 50 point rate hike was coming in May. While this was what the market was expecting, it still sent shivers. If he would go 50 would he go 75? Otherwise, how many 50s might we see from here?
Jay Powell came across as hawkish as he has been to date. Wall Street flipped over. Leading the S&P500 down in percentage terms was the materials sector, and not because commodity prices had tanked. The Nasdaq was crunched on the growth stock versus higher rates theme, and the banks also took a hit. If the Fed goes too far too fast, then the US was heading for recession, and the benefits of higher rates for banks would be countered by loan defaults.
Note that JPMorgan – the first of the big US stocks to report earnings this season – surprised with an increase to its bad debt provisions.
For commodities it’s a simple matter of recession equals reduced spending equals reduced demand. But even on Friday night, commodity prices were not reflecting Wall Street weakness. On Friday, our materials sector fell -3.3% and energy -2.5%.
China isn’t exactly helping either, and it was only to get worse.
The banks fell -1.7%. That about sums up the -100-plus point fall. Technology didn’t help with a -2.5% drop.
Moves on other sectors paled by comparison. Healthcare even rose 0.5% against the tide, but the sector has been strong ever since private equity started sniffing around Ramsay Healthcare ((RHC)) earlier in the week. Staples – the ultimate defensive – closed flat.
The -120 point fall for the ASX200 took the index back to April 8, and also to early January. We had been close to pressing on to a new all-time high last week, but that’s out the window for now. The Dow fell close to -1000 points on Friday night, led by the same sectors. To assume we got there first, and hence Wall Street was catching us, is debunked by our futures falling another -121 points by Saturday morning.
And there was still another Wall Street session before we could get another go.
Friday Night
On Friday the ASX200 fell sharply from the open and hit its low in the morning, before tracking sideways at that level in the afternoon – not uncommon ahead of a long weekend. On Thursday night the Dow had closed down -368 points, having been up by roughly that amount before Jay Powell opened his mouth. On Friday night, the Dow opened down -180 points from the bell, and then tracked downwards in a straight line to the closing bell.
The other indices did the same, and the close of -981 points or -2.8% for the Dow, -2.8% for the S&P500 and -2.6% for the Nasdaq showed there was no rotation, just Sell Everything. Even consumer staples took a hit. Selling begat selling.
There was a slight pullback in the final hour when Cleveland Fed president and FOMC voting member Loretta Mester spoke to CNBC, and hosed down the suggestion of a 75 point hike, albeit in her opinion.
Mester suggested, again in her opinion, the “neutral” cash rate was 2.5% and the Fed should be there by year’s end. That 2.25% of hikes ahead, implying more than one has to be 50 points (or inter-meeting hikes are also implemented). She also suggested a return to 2% inflation was not likely within two years, but as long as the trend starts to come down, she would be happy.
Yet while “not 75” soothed Wall Street briefly, late selling picked up the pace to the close.
This week is the biggest in the US earnings season, and the week in which most tech mega-caps will report. Heading into the weekend, Wall Street traders pondered whether those results might save the day.
Commodities
Base metal prices were slightly weaker as a whole on Friday night and the oils were down -2%. Gold succumbed to US dollar headwinds in falling -1%.
If our resources sectors are to tank again today, it will not be for want of the Aussie trying to do its best. It fell -1.8% on a 0.6% rise for the greenback, to US$0.7242.
Monday
Xi Jinping has vowed lockdowns will continue in China until covid is eradicated. Pictures on the weekend showed fencing being erected around residential buildings and High Street shopping strips in Shanghai to further prevent the spread.
Yesterday Chinese authorities ordered mass testing to begin in the Chaoyang area of Beijing, setting off panic buying in supermarkets as residents assumed lockdowns would inevitably follow.
Fearing all of Beijing will end up in lockdown, markets again fell sharply. The Shanghai index fell -5% to mark its worst day since February 2020.
Monday Night
Base metal prices in London and iron ore futures in China also fell sharply. Ditto oil prices.
The Dow was down -300 points from the open. The S&P500 was closing in on support at 4200.
It has been argued that the turnaround that followed on Wall Street can be put down to that 4200 support, and a belief that the indices by that point had reached oversold territory. But the turnaround happened to coincide with what was to be almost the only news of the day – at least all anyone could talk about.
Elon Musk will acquire Twitter. Having taken steps last week to block Musk from acquiring more than a 15% stake, and amid all talk of him likely not being able to secure sufficient financing, the Twitter board has done a complete about-face, unanimously recommending the takeover.
Twitter is set to report earnings on Thursday night. The suggestion is the board knew that what would be released would not be well received on Wall Street. Take the money and run.
Twitter shares went into a trading halt, later reopening to rise 6% just before the closing bell. But whether it was the positive sentiment driven by the implied valuation of Musk’s bid, or simply technical, the big social media names turned around and so too did the rest of the market. Tech in general rebounded after a heavy de-rating of late, as indicated by a 1.2% gain in the Nasdaq by the close.
The Big Tech names begin to report earnings from tonight.
While the S&P500 typically splits the difference between the Dow Industrials and the Nasdaq, last night it underperformed on weakness in energy and materials.
This is reflected in our futures overnight which, having fallen -121 points on Friday night, have closed down another -25 points this morning despite the S&P500 rising 0.6%, for a cumulative -146 points.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1898.40 | – 33.90 | – 1.75% |
| Silver (oz) | 23.61 | – 0.52 | – 2.15% |
| Copper (lb) | 4.49 | – 0.11 | – 2.48% |
| Aluminium (lb) | 1.49 | – 0.07 | – 4.48% |
| Lead (lb) | 1.07 | – 0.02 | – 1.70% |
| Nickel (lb) | 14.87 | – 0.35 | – 2.29% |
| Zinc (lb) | 1.94 | – 0.10 | – 4.72% |
| West Texas Crude | 98.54 | – 3.53 | – 3.46% |
| Brent Crude | 102.57 | – 3.98 | – 3.74% |
| Iron Ore (t) | 149.73 | – 3.62 | – 2.36% |
A bit ugly.
Note the spot uranium price fell -16% last week.
A week ago the Aussie was trading at US74.5c. Another -0.8% fall last night has taken it to US$0.7183.
The Week Ahead
Just to possibly rub salt into the wound, Australia’s March quarter CPI numbers are out on Wednesday. The PPI follows on Friday. These results will further inform on the likely timing and quantum of the first RBA rate hike, ahead of next week’s policy meeting.
The Bank of Japan holds a policy meeting on Thursday.
The US will report a first estimate of March quarter GDP on Thursday and the eurozone on Friday.
The US will also see numbers for house prices and home sales this week, along with durable goods orders, consumer confidence, and the Fed’s preferred PCE measure of inflation on Friday for March, although the result is unlikely to derail a 50 point rate hike at next week’s FOMC meeting.
China will report April PMIs on Friday – what there is of them.
Locally we’ll see private sector credit numbers on Friday along with this week’s inflation data.
Volpara Health Technologies ((VHT)) reports earnings today.
There are a lot more resource sector quarterly reports to come this week, mostly on Thursday.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| AGL | AGL Energy | Downgrade to Accumulate from Buy | Ord Minnett |
| BHP | BHP Group | Upgrade to Buy from Neutral | Citi |
| CGF | Challenger | Downgrade to Sell from Neutral | Citi |
| EDV | Endeavour Group | Downgrade to Underperform from Neutral | Credit Suisse |
| EVN | Evolution Mining | Downgrade to Neutral from Buy | Citi |
| Downgrade to Hold from Accumulate | Ord Minnett | ||
| RHC | Ramsay Health Care | Upgrade to Outperform from Neutral | Macquarie |
| Downgrade to Neutral from Buy | Citi | ||
| RIO | Rio Tinto | Upgrade to Buy from Neutral | Citi |
| WHC | Whitehaven Coal | Downgrade to Neutral from Buy | Citi |
| Z1P | Zip Co | Downgrade to Hold from Add | 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.)
(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)
All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com
FNArena is proud about its track record and past achievements: Ten Years On
Click to view our Glossary of Financial Terms
CHARTS
For more info SHARE ANALYSIS: RHC - RAMSAY HEALTH CARE LIMITED
For more info SHARE ANALYSIS: VHT - VOLPARA HEALTH TECHNOLOGIES LIMITED