##{"id":100743,"date":"2022-04-06T08:46:24","date_gmt":"2022-04-05T22:46:24","guid":{"rendered":"https:\/\/www.fnarena.com\/?p=100743"},"modified":"2022-04-06T10:16:20","modified_gmt":"2022-04-06T00:16:20","slug":"the-overnight-report-reality-bites-6","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2022\/04\/06\/the-overnight-report-reality-bites-6\/","title":{"rendered":"The Overnight Report: Reality Bites"},"content":{"rendered":"\n\n\n\n\n\n\n\n\n\n\n\n\n
World Overnight<\/strong><\/span><\/td>\n<\/tr>\n
SPI Overnight<\/strong><\/span><\/td>\n7449.00<\/strong><\/span><\/td>\n– 48.00<\/strong><\/span><\/td>\n– 0.64%<\/strong><\/span><\/td>\n<\/tr>\n
S&P ASX 200<\/strong><\/span><\/td>\n7527.90<\/strong><\/span><\/td>\n+ 14.20<\/strong><\/span><\/td>\n0.19%<\/strong><\/span><\/td>\n<\/tr>\n
S&P500<\/strong><\/span><\/td>\n4525.12<\/strong><\/span><\/td>\n– 57.52<\/strong><\/span><\/td>\n– 1.26%<\/strong><\/span><\/td>\n<\/tr>\n
Nasdaq Comp<\/strong><\/span><\/td>\n14204.17<\/strong><\/span><\/td>\n– 328.39<\/strong><\/span><\/td>\n– 2.26%<\/strong><\/span><\/td>\n<\/tr>\n
DJIA<\/strong><\/span><\/td>\n34641.18<\/strong><\/span><\/td>\n– 280.70<\/strong><\/span><\/td>\n– 0.80%<\/strong><\/span><\/td>\n<\/tr>\n
S&P500 VIX<\/strong><\/span><\/td>\n21.03<\/strong><\/span><\/td>\n+ 2.46<\/strong><\/span><\/td>\n13.25%<\/strong><\/span><\/td>\n<\/tr>\n
US 10-year yield<\/strong><\/span><\/td>\n2.56<\/strong><\/span><\/td>\n+ 0.14<\/strong><\/span><\/td>\n5.97%<\/strong><\/span><\/td>\n<\/tr>\n
USD Index<\/strong><\/span><\/td>\n99.48<\/strong><\/span><\/td>\n+ 0.49<\/strong><\/span><\/td>\n0.49%<\/strong><\/span><\/td>\n<\/tr>\n
FTSE100<\/strong><\/span><\/td>\n7613.72<\/strong><\/span><\/td>\n+ 54.80<\/strong><\/span><\/td>\n0.72%<\/strong><\/span><\/td>\n<\/tr>\n
DAX30<\/strong><\/span><\/td>\n14424.36<\/strong><\/span><\/td>\n– 93.80<\/strong><\/span><\/td>\n– 0.65%<\/strong><\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

By Greg Peel<\/p>\n

Patience Lost<\/u><\/p>\n

Let’s play spot the difference.<\/p>\n

The RBA in March:<\/p>\n

‘There are uncertainties about how persistent the pick-up in inflation will be given recent developments in global energy markets and ongoing supply-side problems. At the same time, wages growth remains modest and it is likely to be some time yet before growth in labour costs is at a rate consistent with inflation being sustainably at target. The Board is prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve.”<\/em><\/p>\n

The RBA yesterday:<\/p>\n

“Over coming months, important additional evidence will be available to the Board on both inflation and the evolution of labour costs. The Board will assess this and other incoming information as its sets policy to support full employment in Australia and inflation outcomes consistent with the target.”<\/em><\/p>\n

The ASX200 was going along swimmingly yesterday, up 60 points at lunchtime before some squaring up ahead of the RBA statement left the index up 40 at 2.30pm. On the release of the statement, the index plunged -30 points.<\/p>\n

The RBA is no longer “prepared to be patient” with regard inflation. Why the sudden change of heart? Well, for one, expectations of the level of aggression the Fed is set to unleash in its tightening cycle have only grown stronger. But when the RBA met in March, the Russian invasion was only one week old. The inflation picture has only become worse in the interim.<\/p>\n

Economists who had pencilled in September for the first RBA rate hike have now brought their expectations forward to June.<\/p>\n

Funnily enough, the sector that should be hit hardest by rising rates – technology – closed up 3.1% yesterday, because of overnight strength in the Nasdaq. The Nasdaq gave all of that back and more last night, so thanks for playing.<\/p>\n

Otherwise it was down to energy (+2.2%) and utilities (+1.7%) to drive the index, on higher oil prices and a 2.6% gain for AGL Energy ((AGL)) after Macquarie warned of a coming “electricity crisis”, and Morgans followed suit, upgrading the stock to Add on the back of higher coal and gas prices feeding into higher electricity price expectations.<\/p>\n

Energy’s partner in crime, materials, was nevertheless not on board yesterday, instead falling -0.8% to be the worst performing sector. Given nothing untoward happened amongst commodity prices overnight, this smacks of a bit of profit-taking after a solid run.<\/p>\n

Lithium miner Liontown Resources ((LTR)) topped the losers’ board with a -6.1% fall. Bear in mind Liontown is still up 330% in a year. Lynas Rare Earths is up 70% in that period, after falling -5.7% yesterday. Nufarm ((NUF)) is up 40% since late January. It fell -3.3% yesterday.<\/p>\n

Yet lithium, iron ore and mineral services company Mineral Resources ((MIN)) topped the index yesterday with a 5.7% gain.<\/p>\n

Another apparent reversal in form was that of consumer discretionary, which rose 0.5% despite the prospect of higher mortgage rates on top of inflation. That sector had been sold down for the past few sessions. The banks, which stand to benefit from higher rates as long as mortgage holders don’t blow themselves up, managed only a 0.4% gain.<\/p>\n

Enough about yesterday. On a similar monetary policy theme, the S&P500 fell -1.3% last night and the Nasdaq -2.3%. Our futures are down -0.6% this morning.<\/p>\n

Brains Trust<\/u><\/p>\n

“Currently, inflation is much too high and is subject to upside risks…It is of paramount importance to get inflation down…[the Fed will] continue tightening monetary policy methodically through a series of interest rate increases and by starting to reduce the balance sheet at a rapid pace as soon as our May meeting,” <\/em><\/p>\n

What surprised Wall Street the most about Fed board governor Lael Brainard’s comments last night is that up to now she has been known as a card-carrying dove. Thus for her to shift so rapidly and decisively to the dark side is not inconsequential.<\/p>\n

As the recent rebound from the lows suggest, Wall Street is not that worried about Fed rate hikes per se, even if they are aggressive, because they are well flagged, well understood and given the Nasdaq had fallen -22%, well priced in. However, it’s a different matter when it comes to the Fed balance sheet.<\/p>\n

GFC-driven QE took the Fed balance sheet to a peak of US$4trn up to 2017 before finally the Fed began to reduce its balance sheet, while tightening its cash rate up to 2.5%, before Wall Street threw a tantrum in December 2018 and the Fed “pivoted”.<\/p>\n

At that point the US CPI was 2.4%.<\/p>\n

Pandemic-driven QE has taken the Fed balance sheet to US$9trn. It is expected that in order to reduce the balance sheet sufficiently in the face of 7.9% inflation, a far more aggressive program of selling bonds and mortgage-backed securities must commence. The Fed, it seems, is most worried about housing inflation – soaring house prices and equally soaring rents.<\/p>\n

It is not so worried about the stock market.<\/p>\n

The stock market is worried Jerome Powell will “do a Volcker” and force the economy into recession as the only way to combat to stubbornly high inflation. Inflation back in the late seventies was running at double digits. Or we could make reference to then Treasurer Paul Keating’s “recession we had to have” in the early nineties.<\/p>\n

However, in the face of everything the world has copped lately, the US economy is strong by any measure. Hence the Fed believes it can be aggressive on policy without causing a recession.<\/p>\n

Wall Street is not so sure. There is much talk of the recent bounce from the lows being merely a “bear market rally”, and not a path to new highs.<\/p>\n

Last night the US ten-year yield jumped 14 basis points to 2.56%, just slightly above the two-year rate. The VIX volatility index on the S&P500 rose 13%, but only to 21, which suggests, at least for now, there is little fear.<\/p>\n

Commodities<\/u><\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Spot Metals,Minerals & Energy Futures<\/strong><\/span><\/td>\n<\/tr>\n
Gold (oz)<\/strong><\/span><\/td>\n1922.00<\/strong><\/span><\/td>\n– 11.20<\/strong><\/span><\/td>\n– 0.58%<\/strong><\/span><\/td>\n<\/tr>\n
Silver (oz)<\/strong><\/span><\/td>\n24.27<\/strong><\/span><\/td>\n– 0.25<\/strong><\/span><\/td>\n– 1.02%<\/strong><\/span><\/td>\n<\/tr>\n
Copper (lb)<\/strong><\/span><\/td>\n4.73<\/strong><\/span><\/td>\n+ 0.02<\/strong><\/span><\/td>\n0.47%<\/strong><\/span><\/td>\n<\/tr>\n
Aluminium (lb)<\/strong><\/span><\/td>\n1.67<\/strong><\/span><\/td>\n+ 0.03<\/strong><\/span><\/td>\n1.58%<\/strong><\/span><\/td>\n<\/tr>\n
Lead (lb)<\/strong><\/span><\/td>\n1.10<\/strong><\/span><\/td>\n– 0.00<\/strong><\/span><\/td>\n– 0.33%<\/strong><\/span><\/td>\n<\/tr>\n
Nickel (lb)<\/strong><\/span><\/td>\n15.30<\/strong><\/span><\/td>\n+ 0.36<\/strong><\/span><\/td>\n2.40%<\/strong><\/span><\/td>\n<\/tr>\n
Zinc (lb)<\/strong><\/span><\/td>\n1.98<\/strong><\/span><\/td>\n– 0.01<\/strong><\/span><\/td>\n– 0.62%<\/strong><\/span><\/td>\n<\/tr>\n
West Texas Crude <\/strong><\/span><\/td>\n101.96<\/strong><\/span><\/td>\n– 1.32<\/strong><\/span><\/td>\n– 1.28%<\/strong><\/span><\/td>\n<\/tr>\n
Brent Crude<\/strong><\/span><\/td>\n105.70<\/strong><\/span><\/td>\n– 2.14<\/strong><\/span><\/td>\n– 1.98%<\/strong><\/span><\/td>\n<\/tr>\n
Iron Ore (t)<\/strong><\/span><\/td>\n162.27<\/strong><\/span><\/td>\n+ 0.27<\/strong><\/span><\/td>\n0.17%<\/strong><\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Not much one can add to the above table.<\/p>\n

The Aussie, on the other hand, leapt up to over US$76c yesterday thanks to the RBA, but has settled back to be up 0.5% to US$0.7582 because the US dollar is also up 0.5%.<\/p>\n

Today<\/u><\/p>\n

The SPI Overnight closed down -48 points or -0.6%.<\/p>\n

The minutes of the March Fed meeting are out tonight, whether or not they are still relevant.<\/p>\n

March services PMIs are due across the globe.<\/p>\n

Cimic Group ((CIM)) holds its AGM.<\/p>\n

The Australian share market over the past thirty days…<\/strong><\/p>\n

<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS<\/span><\/td>\n<\/tr>\n
A2M<\/td>\na2 Milk Co<\/td>\nDowngrade to Sell from Buy<\/td>\nCiti<\/td>\n<\/tr>\n
ABP<\/td>\nAbacus Property<\/td>\nUpgrade to Outperform from Neutral<\/td>\nMacquarie<\/td>\n<\/tr>\n
AGL<\/td>\nAGL Energy<\/td>\nUpgrade to Add from Hold<\/td>\nMorgans<\/td>\n<\/tr>\n
BOQ<\/td>\nBank of Queensland<\/td>\nDowngrade to Neutral from Outperform<\/td>\nMacquarie<\/td>\n<\/tr>\n
<\/td>\n<\/td>\nDowngrade to Hold from Accumulate<\/td>\nOrd Minnett<\/td>\n<\/tr>\n
DHG<\/td>\nDomain Australia<\/td>\nUpgrade to Buy from Hold<\/td>\nOrd Minnett<\/td>\n<\/tr>\n
GOR<\/td>\nGold Road Resources<\/td>\nUpgrade to Outperform from Neutral<\/td>\nMacquarie<\/td>\n<\/tr>\n
ILU<\/td>\nIluka Resources<\/td>\nUpgrade to Neutral from Underperform<\/td>\nCredit Suisse<\/td>\n<\/tr>\n
MIN<\/td>\nMineral Resources<\/td>\nUpgrade to Hold from Sell<\/td>\nOrd Minnett<\/td>\n<\/tr>\n
NWL<\/td>\nNetwealth Group<\/td>\nDowngrade to Neutral from Buy<\/td>\nCiti<\/td>\n<\/tr>\n
PDL<\/td>\nPendal Group<\/td>\nDowngrade to Hold from Add<\/td>\nMorgans<\/td>\n<\/tr>\n
PLS<\/td>\nPilbara Minerals<\/td>\nUpgrade to Buy from Hold<\/td>\nOrd Minnett<\/td>\n<\/tr>\n
SGM<\/td>\nSims<\/td>\nDowngrade to Neutral from Buy<\/td>\nUBS<\/td>\n<\/tr>\n
TAH<\/td>\nTabcorp<\/td>\nUpgrade to Outperform from Neutral<\/td>\nCredit Suisse<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

For more detail go to FNArena's Australian Broker Call Report<\/a>, which is updated each morning, Mon-Fri.<\/p>\n

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<\/a>. (Subscribers can access prices on the website.)<\/em><\/p>\n

(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)<\/strong><\/em><\/p>\n

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FNArena is proud about its track record and past achievements: Ten Years On<\/a><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Indications last night are that the Fed is going to be even more aggressive in its tightening policy than feared. Dow down -280. (Available for non-subscribers after 10am)<\/p>\n","protected":false},"author":8,"featured_media":100750,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[84],"tags":[],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/100743"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=100743"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/100743\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media\/100750"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=100743"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=100743"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=100743"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}