The Overnight Report: Ugly One Day, Beautiful The Next

This story features WOODSIDE ENERGY GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: WDS

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

World Overnight
SPI Overnight	7245.00	+ 77.00	1.07%
S&P ASX 200	7175.90	– 58.10	– 0.80%
S&P500	4176.82	+ 75.59	1.84%
Nasdaq Comp	12316.90	+ 322.44	2.69%
DJIA	33248.28	+ 435.05	1.33%
S&P500 VIX	24.72	– 0.97	– 3.78%
US 10-year yield	2.91	– 0.02	– 0.61%
USD Index	101.77	– 0.78	– 0.76%
FTSE100	7532.95	– 74.71	– 0.98%
DAX30	14485.17	+ 144.70	1.01%

By Greg Peel

Forget About It

With Wall Street once again looking vulnerable to another fall in Wednesday night’s trade, our futures showed down -55 points yesterday morning and indeed the ASX200 closed down -58, but not before a little trip to down -84 at lunchtime.

Selling was relatively market-wide, although two sectors stood out as bucking the trend, albeit for stock-specific reasons.

The energy sector rose 3.1% with little movement in oil prices, after JPMorgan cleared its big block trade of Woodside Energy ((WDS)) shares it ended up with post-merger. This set Woodside free to jump 5.2% and top the index.

Funny how Woodside Petroleum for years was primarily a gas company, then on the day it merges with BHP’s petroleum division it changes its name to Woodside Energy.

Utilities rose 1.1% but only because Origin Energy ((ORG)) bounced back 2.7% following its -14% plunge on Wednesday due to withdrawn guidance.

Otherwise it appeared just to be a case of nervous sentiment across the market yesterday. This is evident in the fact the materials sector fell -0.4% even as the iron ore price rose 5% yesterday, although a loss of -0.4% made materials an outperformer.

Technology was the standout worst performer as usual, following the Nasdaq, and perpetuating its roll’n’roll volatility of 2022. Megaport ((MP1)) was the worst index performer in falling -6.0%.

Notably, Carsales ((CAR)) fell -5.6% a day after Macquarie upgraded the stock to Outperform amidst a general media sector downgrade to Underweight, highlighting its resilience.

It’s yet another case this morning of “I could go on”, but with hindsight the market got it very wrong yesterday – not to lay any blame – as Wall Street posted a solid rally last night after having looked wobbly on Wednesday night and our futures are up 77 points this morning.

Damn the Torpedoes

Hot on the heels of JPMorgan CEO Jamie Dimon’s warning there was a hurricane coming for the US economy, last night Goldman Sachs COO John Waldren chimed in:

"This is among if not the most complex, dynamic environment I've ever seen in my career. We've obviously been through lots of cycles, but the confluence of the number of shocks to the system to me is unprecedented," he told a banking conference.

In reference to Dimon’s prior remark, Waldron said he would not use any weather analogies, but stressed there is a series of concomitant unprecedented factors hurting the economy, ranging from a commodity shock to an unprecedented amount of monetary and fiscal stimulus.

The Fed has this week begun its balance sheet reduction (quantitative tightening) program.

Speaking of the Fed, last night newly appointed Fed vice chair Lael Brainard poured cold water on a consensus view the FOMC would pause in September after two consecutive 50 point rate hikes, telling CNBC she didn’t think the FOMC should given the inflation situation.

Data released last night showed US private sector jobs growth slowed substantially in May to only 128,000 additions, although it’s well understood there’s always been very little correlation between the private sector number and non-farm payrolls.

And just to further set up for another weak session, Microsoft lowered its fourth quarter guidance – slightly – ensuring that demand for its products remains robust but the strong US dollar is having an impact on its revenues.

Given the US dollar index has been steadily rising all year to historic levels, on the Fed’s aggression relative to the likes of central banks in Europe and Japan, commentators had been wondering why such forex-related warnings had not already emerged.

Put all of the above together, and the Dow was down -300 points early in the session. Microsoft (Dow) fell -4%.

Just when it looked like Wall Street might be headed for another retest of the lows, the opposite proved true. The Dow turned around and was back at the flatline late morning and continued to rise in the afternoon, and in contrast to Wednesday night, accelerated into the close.

There was no specific trigger.

We might note Bank of America released data last night indicating US fund manager allocations to equities are down to a low 55%, which history shows is a 90%-plus reliable contrarian indicator of a bounce to come.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1868.50	+ 22.00	1.19%
Silver (oz)	22.26	+ 0.45	2.06%
Copper (lb)	4.27	0.00	0.00%
Aluminium (lb)	1.36	0.00	0.00%
Lead (lb)	0.98	0.00	0.00%
Nickel (lb)	12.36	0.00	0.00%
Zinc (lb)	1.78	0.00	0.00%
West Texas Crude	116.87	+ 2.08	1.81%
Brent Crude	118.22	+ 1.93	1.66%
Iron Ore (t)	142.20	+ 6.86	5.07%

London was closed last night and will be again tonight so no LME base metals trading.

The spike in the iron ore price is attributed to the start of Shanghai’s reopening.

Oil prices jumped earlier in the week when Saudi Arabia flagged a possible suspension of Russia from last night’s OPEC-Plus production meeting, as a suspension would free the Saudis and others to increase production quotas. Well, they didn’t suspend Russia. But they did increase the quota on July-August production to 650,000 barrels per day from a prior 400,000 barrels.

They cited the end of lockdowns as the impetus. No mention of the war.

While an increase in quota would typically be negative for oil prices, and initially prices did fall, the market has decided it’s still not enough to make a sufficient difference. So oil prices closed higher once more.

Note the gap to Brent for WTI closed when the former rolled forward to a new front-month futures contract.

Despite Lael Brainard’s hawkishness, and Microsoft’s warning, the US dollar index actually fell -0.8% last night. Hence the Aussie has shot up 1.2% to US$0.7267.

Today

The SPI Overnight closed up 77 points or 1.1%.

We’ll see numbers for housing finance today.

The official US jobs numbers for May are out tonight.

May services PMIs are due across the globe except in the UK and China, which are closed today/night.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AKE	Allkem	Downgrade to Neutral from Outperform	Credit Suisse
CAR	Carsales	Upgrade to Outperform from Neutral	Macquarie
HT1	HT&E	Downgrade to Neutral from Outperform	Macquarie
PLS	Pilbara Minerals	Downgrade to Neutral from Outperform	Credit Suisse
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
SLR	Silver Lake Resources	Upgrade to Outperform 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.

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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