The Overnight Report: Much Wailing And Gnashing Of Teeth

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World Overnight
SPI Overnight	7181.00	– 55.00	– 0.76%
S&P ASX 200	7234.00	+ 22.80	0.32%
S&P500	4101.23	– 30.92	– 0.75%
Nasdaq Comp	11994.46	– 86.93	– 0.72%
DJIA	32813.23	– 176.89	– 0.54%
S&P500 VIX	25.69	– 0.50	– 1.91%
US 10-year yield	2.93	+ 0.09	3.06%
USD Index	102.55	+ 0.77	0.76%
FTSE100	7532.95	– 74.71	– 0.98%
DAX30	14340.47	– 47.88	– 0.33%

By Greg Peel

Flat Battery

The ASX200 bungled along in a narrow range achieving not much yesterday in what appeared to be a quiet session. But there was a helluva lot going on under the surface.

There was some confirmation that Tuesday’s session saw end-of-month selling, which included a -20 points drop after the bell, as yesterday saw a 17 points jump on market-on-close orders.

The big news of the day was Australia’s GDP growing a slightly better than consensus 0.8% in the March quarter, following a 3.6% jump in the December (reopening) quarter. Annual growth fell to 3.3% from 4.4%. It was a pleasant surprise to see a Treasurer respond pragmatically to the numbers rather than try and spin them to the government’s favour.

GDP results are “notoriously backward looking,” said Chalmers, before warning of the impact in the interim of surging energy price inflation, without once blaming the former government.

The standout in the numbers for ANZ Bank economists was the very strong average hourly wages growth implied in Tuesday’s lead-in data:

“Our estimate of 5.3% y/y [wage growth] is well above our expectations from just a few weeks back, certainly much stronger than the signal from the Wage Price Index, and seemingly tracking above the RBA’s forecast. It is also worth noting that the broadest measure of consumer inflation (the household consumption deflator) had the highest quarterly increase since 1990 (outside the GST).”

To that end ANZ is more convinced the RBA will hike by 40 points at next week’s meeting, rather than 25. Having jumped 10 points on Tuesday’s data, the Aussie ten-year yield rose another 8 points on the final numbers to 3.43%.

Which was good news for the banks yesterday, after not being so on Tuesday. The financials sector rose 1.2% to largely prevent the index closing in the red.

Communication services posted the biggest lift (1.9%) thanks to a 3.1% gain for Telstra ((TLS)), and despite Macquarie downgrading its stance on media companies to Underweight. Industrials (+1.2%) and staples (+0.7%) also helped out.

But there was turmoil in the resources sectors. Stronger iron ore prices led the big miners to gains on the day – Fortescue Metals ((FMG)) – topped the boards with 3.2% — but analyst warnings of a pending tip-over in lithium prices, and more specifically news yesterday that China has acquired no less than six lithium mines in Africa to feed its domestic battery/EV production, had lithium miners tumbling.

Pilbara Minerals ((PLS)) fell -22.0%, Liontown Resources ((LTR)) -19.1%, Allkem ((AKE)) -15.4% and IGO ((IGO)) -11.7 – the latter after Western Areas ((WSA)) shareholders approved IGO’s merger proposal.

These stocks are wild at the best of times, so the standout yesterday was a -13.7% plunge for Origin Energy ((ORG)), just as the new government contemplates what to do about surging energy costs. The company said it was having trouble finding coal for its Eraring power station (really? I thought we had loads of the stuff) and due to “extreme volatility across commodity markets” was withdrawing FY23 guidance.

Maybe it should consider a demerger.

The wash-up was that the utilities sector fell an unheard of -5.3% yesterday, while materials netted out to -0.3%. Tech fell -1.5%, ho-hum, and real estate lost -0.5% on rising bond yields.

While in recent times we have not always obediently followed Wall Street, last night the S&P500 fell -0.8% and so have our futures this morning.

September Fears

“Everyone thinks the Fed can handle this,” JPMorgan CEO Jamie Dimon said at a conference last night. “That hurricane is right out there down the road coming our way. We just don’t know if it’s a minor one or Superstorm Sandy, or Andrew or something like that. Better brace yourself.”

As I have noted before, when Dimon speaks, Wall Street listens. Traders also pay attention to St Louis Fed president James Bullard, despite him being a recognised uber-hawk on an otherwise more measured FOMC. Bullard warned last night that the Fed was in danger of losing control of how much inflation American households are expecting.

Bullard has previously called for a 3.5% cash rate by year-end. Consensus has 2.5%. Such talk only leads to more Wall Street nervousness, as evidenced by another wild session last night which saw the Dow open up 280 points, fall to be down -400, return almost to square and then fall -170 at the death.

Fears are mounting the Fed will follow up June-July 50 point rate hikes with another 50 in September, rather than the 25 (or nothing) many are assuming. But September is a long way away, and last night’s Fed Beige Book highlighted three of twelve Fed districts reporting signs of prices falling for goods.

This follows slight dips in April CPI and PCE inflation growth.

After jumping up on Tuesday night, last night the US ten-year yield added another 9 points to 2.93%, once again closing in on the 3% line in the sand.

Wall Street has fallen back into a pattern of wild intraday volatility, just as was exhibited in May when the market was trying to bottom. It is interesting that despite all the turmoil, Wall Street closed basically flat for the month.

It is nonetheless discomforting that last night’s 10% jump for Salesforce, following yesterday’s aftermarket result release, was worth 100 Dow points alone.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1846.50	+ 9.10	0.50%
Silver (oz)	21.81	+ 0.29	1.35%
Copper (lb)	4.27	– 0.01	– 0.13%
Aluminium (lb)	1.36	+ 0.00	0.02%
Lead (lb)	0.98	+ 0.00	0.22%
Nickel (lb)	12.36	– 0.26	– 2.09%
Zinc (lb)	1.78	– 0.02	– 0.86%
West Texas Crude	114.79	– 0.48	– 0.42%
Brent Crude	123.00	+ 0.16	0.13%
Iron Ore (t)	135.34	+ 0.32	0.24%

Nothing much to see here other than nickel remains as volatile as ever.

The Aussie has not moved one iota on the GDP result. It’s flat at US$0.7180.

Today

The SPI Overnight closed down -55 points or -0.8%.

We’ll see April trade numbers today.

New Zealand will release its March quarter terms of trade.

The UK now goes into a two-day jubilee holiday, so no more LME this week.

Wesfarmers ((WES)) hosts a strategy today.

TechnologyOne ((TNE)) goes ex.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
CAR	Carsales	Upgrade to Outperform from Neutral	Macquarie
HT1	HT&E	Downgrade to Neutral from Outperform	Macquarie
PX1	Plexure Group	Upgrade to Buy from Hold	Ord Minnett
REA	REA Group	Downgrade to Underperform from Neutral	Macquarie
SEK	Seek	Downgrade to Underperform from Neutral	Macquarie
SWM	Seven West Media	Downgrade to Neutral from Outperform	Macquarie
SXL	Southern Cross Media	Downgrade to Neutral from Outperform	Macquarie

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

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