The Overnight Report: Get Me Out

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

World Overnight
SPI Overnight	7170.00	– 107.00	– 1.47%
S&P ASX 200	7318.00	– 155.30	– 2.08%
S&P500	4175.20	– 120.92	– 2.81%
Nasdaq Comp	12490.74	– 514.11	– 3.95%
DJIA	33240.18	– 809.28	– 2.38%
S&P500 VIX	33.52	+ 6.50	24.06%
US 10-year yield	2.77	– 0.05	– 1.91%
USD Index	102.35	+ 1.13	1.12%
FTSE100	7386.19	+ 5.65	0.08%
DAX30	13756.40	– 167.77	– 1.20%

By Greg Peel

Hero to Zero

The ASX200 fell along with every other market when Russia invaded Ukraine in late February, but from early March the implications for global commodity supply had our rock-driven market heading toward a new high right up until Friday last week.

We had weathered the initial lockdowns in Shanghai, which began as a one-week affair. But by Friday what appeared to be indefinite lockdowns sent commodity prices, and thus the ASX200, rolling over. By Monday, news that widespread testing had been implemented in Beijing, suggesting lockdowns would inevitably follow, caused commodity price falls to accelerate.

A big fall in the iron-ore price sent BHP Group ((BHP)), the biggest stock in the index by a margin, tumbling -5.8% yesterday. Rio Tinto ((RIO)) fell -4.3%. Fortescue Metals ((FMG)) fell -6.9%. Mineral Resources fell -9.9%. The list goes on.

The materials sector lost a largely unheard of -5.1% on the day. Energy fared little better on oil-price falls, losing -4.0%. This flowed into a -1.2% drop for utilities.

There is now talk of the RBA not waiting for the election result to make its first upward move, if today’s CPI number comes in hot – probably only 15 points to take us to 0.25%, before another 25 points in June. Rate increases are good for banks, but not if the economy slows and loans are under pressure. Financials lost -1.0% yesterday.

Technology lost -1.7%, which for technology is a quiet day, with EML Payments ((EML)) down -38.6% on a guidance downgrade.

While every other sector closed in the red, no other sector’s fall exceeded -1%. Other sectors had to be sold to cover losses in the resource sectors. It did not help that the resource sectors had flown high in the lead up to last Friday. The bigger they are…

The index bottomed out before 11am, down -183 points. The recovery from there was not much to write home about. The good news is the Chinese government pledged more stimulus yesterday to support a locked-down economy, providing for at least some stabilisation of commodity prices, particularly oil, up 3% overnight.

The bad news is Wall Street has tanked again overnight without any particular new impetus, having staged somewhat of the comeback rally on Monday night. It’s a familiar pattern, with brief snapbacks featuring all year before heading back towards 2022 lows again.

With the ASX200 having fallen a net -280 points in two sessions, our futures are suggesting another -107-point loss today.

Fear And Loathing

Microsoft reported an earnings beat after the Wall Street close this morning and is up 6%. Google (Alphabet) reported a miss and is down -2%. Both had fallen during the day-session.

It has been hoped March-quarter earnings results will save the day for Wall Street, and with the bulk of reports yet to come, maybe Microsoft provides a glimmer. Earlier, Netflix had put the frighteners through the market. Earnings results to date have been net positive, and beats running well, but June-quarter guidance has been the stumbling block.

It seems the snapback rally on Monday night did little more than provide the slow-movers with their chance to sell. There was no new news last night beyond more testing in Beijing, and the Fed is “dark” ahead of next week’s meeting. It had long been suggested US tech valuations have been overblown, not just in the no-profit-yet names but also in the mega caps that had been seen as defensives.

The “risk-off” tone can be seen in US bond yields, which retreated from their highs in the past two sessions (10-year down -5 points last night to 2.77%), and in the VIX volatility index, which as jumped 24% to 33% overnight having risen from a “complacent” 20% only recently.

The gold price had fallen from nearly US$2000/oz to US$1900/oz but last night found buyers.

Not helping the mood was a -12% plunge for Tesla, as investors made the assumption Elon would have to sell some of his own stock to fund his Twitter acquisition. Tesla is the second biggest stock in the S&P500 consumer discretionary sector by a margin, after Amazon, and that sector fell -5%.

The other tech-based sectors fell -3% to -4% and the banks -2.5%. Materials fell another -1.6% but energy managed to close flat.

The rapid de-rating of US tech stocks, following their covid glory days, has shades of the 2000 tech-wreck. The Nasdaq is again down more than -20%, and the S&P500 is down more than -10%, but the S&P500 equal-weighted index is not yet down -10% which reflects the weighting of tech in the S&P.

In 2000, most dotcom stocks were but fanciful notions, and no one had made a profit yet. While there are still high-flying no-profit-yet stocks being rapidly de-rated in 2022, the tech mega-caps are cash machines.

Maybe Microsoft can provide some hope a bottom may be forming, with the likes of Facebook, Apple and Amazon also to report this week.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1905.70	+ 7.30	0.38%
Silver (oz)	23.47	– 0.14	– 0.59%
Copper (lb)	4.48	– 0.01	– 0.28%
Aluminium (lb)	1.49	– 0.00	– 0.17%
Lead (lb)	1.07	+ 0.00	0.41%
Nickel (lb)	14.91	+ 0.04	0.26%
Zinc (lb)	1.95	+ 0.01	0.44%
West Texas Crude	101.70	+ 3.16	3.21%
Brent Crude	105.27	+ 2.70	2.63%
Iron Ore (t)	150.39	+ 0.66	0.44%

Reflective of the China stimulus pledge.

The Aussie is down another -0.8% at US$0.7127 as the US dollar plays safe haven even as bond yields slip back, rising 1.1% overnight.

Today

The SPI Overnight closed down -107 points or -1.5%. Hope you had a nice holiday break.

Do we really need to go again?

It will likely come down to today’s March quarter CPI numbers. A “hot” number (4.6% is the forecast) will probably lead to capitulation. A better than feared number may just stem the flow.

29Metals ((29M)) releases a quarterly report.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
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
GWA	GWA Group	Downgrade to Hold from Add	Morgans
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.)

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