article 3 months old

The Overnight Report: Holding The Fort?

Daily Market Reports | Jan 28 2022

This story features EVOLUTION MINING LIMITED, and other companies. For more info SHARE ANALYSIS: EVN

World Overnight
SPI Overnight 6810.00 + 101.00 1.51%
S&P ASX 200 6838.30 – 123.30 – 1.77%
S&P500 4326.51 – 23.42 – 0.54%
Nasdaq Comp 13352.78 – 189.34 – 1.40%
DJIA 34160.78 – 7.31 – 0.02%
S&P500 VIX 30.49 – 1.47 – 4.60%
US 10-year yield 1.81 – 0.04 – 2.22%
USD Index 97.25 + 0.79 0.82%
FTSE100 7554.31 + 84.53 1.13%
DAX30 15524.27 + 64.88 0.42%

By Greg Peel

Nice Try 1

While the Dow may have lost a 500 point gain to be down -130 post the Fed press conference on Wednesday night, Australian investors decided from the opening bell yesterday enough was enough after Tuesday’s huge sell-off, and the nice round number of 7000 should by rights provide support. The ASX200 opened up 80 points in the first half hour to 7042.

Careful sticking your head up – you might get it knocked off. By lunchtime the index was down -200.

Buyers then had another shot at it but ultimately made little headway in the afternoon. This time it was not a uniform Sell Australia trade, as sector moves were more mixed. It was more likely capitulation from investors that have been slow to move, hoping for the rebound that hadn’t come.

A big shift up in Australian bond yields was a likely trigger, with the two-year up 7 points to 0.97% and the ten-year up 8 points to 2.02%, but the Dow futures also started to plunge again after the Wall Street close.

The close yesterday had the ASX200 down an official -10%. During the session the S&P500 futures also hit the -10% mark. When Wall Street opened last night, the Dow rallied 600 points, before giving it all back. But the S&P500 failed to break down past -10%.

Put it together and our futures are up 101 this morning.

For the record, most sectors were pretty well slapped again yesterday but there were anomalies. Energy, which fell an outsized -4% on Tuesday rallied back 2.1%. Utilities joined in with a 1.2% gain.

Technology was hardest hit, of course (-5.0%), but the big-cap sectors of banks and materials only fell -0.9% each. Outside of utilities, the defensive sectors were anything but. Staples down -2.5%, healthcare -3.5%, telcos down -3.1%, property down -2.8%. This really smacks of throwing the baby out with the bathwater.

Investors also laid into gold miners, taking the opportunity of quarterly production reports to fuel their frenzy. Gold has lost a bit of inflation lustre now the Fed’s turned hawkish but large-cap Evolution Mining ((EVN)) was clobbered -11.3% and Silver Lake Resources ((SLR)) lost -11.0%.

The flipside was a post-report rally for Beach Energy ((BPT)) of 8.8%, with mega-cap peer Santos ((STO)) gaining 3.6%.

You know it’s a “just get me out” session when the second most shorted stock on the market (10%) – Zip Co ((Z1P)) – falls -9.7%.

But today’s another day, and the futures are up a hundred points. While Fridays are often a day for pre-weekend sell-offs, they can also bring exuberance, particularly in the afternoon “claret run”.

Nice Try 2

On first estimate, the US economy grew by 6.9% annualised in the December quarter after a delta-impacted 2.3% in the September quarter. Economists had forecast 5.5%.

Consumer spending was a major contributor, ahead of omicron, but the bulk of the “beat” was down to solid inventory building. The suggestion is this is evidence of supply shortages easing. I’d suggest businesses were trying to combat supply shortages by hoarding what they could when they could get it. Besides, omicron had yet to hit the supply-side.

Looks like “just-in-time” inventory management is now consigned to history, but the problem with inventories is you have to sell them. Meanwhile, 6.9% GDP growth does nothing to suggest the Fed’s panic policy reversal is misguided.

In the wake of the Fed statement/conference and the GDP result, the US yield curve did not shift up uniformly as did the Australian curve, but rather flattened notably last night. The two-year yield rose 5 points to 1.20% while the ten-year fell -4 points to 1.81%. Note that the two-year was at 1.04% just ahead of the release of the Fed statement.

Given the GDP result only supports the Fed’s stance, the 600 point opening rally in the Dow was likely more of an “oversold” response from buyers than anything else. But it was again to no avail, once the yield curve flattened.

The concern now is that Wall Street has lost its much beloved “Fed put” – the safe knowledge that if things turn ugly, the Fed will always step in with policy support. This time the Fed has watched Wall Street undergo its biggest correction since the pandemic kicked off, but has gone in even harder on the policy change that triggered it.

It appears the Fed is not fussed if Wall Street drops -20% (S&P500) from what were by all accounts overvalued levels driven by largely “free” money.

But as noted, the S&P500 lost its initial gains last night but in closing down a net -0.5%, spent the afternoon hanging on to the -10% level. Is this enough for Wall Street to call the correction completed? There’s little more the Fed could now say to further spook the market.

Apple reported an earnings beat in the aftermarket and is initially up 3%.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1793.70 – 24.70 – 1.36%
Silver (oz) 22.65 – 0.86 – 3.66%
Copper (lb) 4.44 – 0.07 – 1.54%
Aluminium (lb) 1.40 + 0.00 0.24%
Lead (lb) 1.06 – 0.01 – 0.84%
Nickel (lb) 10.44 – 0.14 – 1.32%
Zinc (lb) 1.64 – 0.02 – 1.22%
West Texas Crude 86.41 – 0.29 – 0.33%
Brent Crude 89.19 – 0.15 – 0.17%
Iron Ore (t) 138.75 + 0.65 0.47%

The US dollar index rallied 0.6% on the Fed on Wednesday night and following the GDP result was up another 0.8% last night. Subsequent falls in base metal prices were nevertheless not too dramatic.

Ditto the oils, leaving gold and particularly silver to cop it.

And the Aussie. It’s down -1.2% at US$0.7028.

What will the RBA do next week?

Today

Apropos of that question, Australia’s December quarter producer price index is out today.

The US will see December PCE inflation and consumer sentiment.

On the stock market, ResMed ((RMD)) and HRL Holdings ((HRL)) report earnings.

Newcrest Mining ((NCM)) and PointsBet Holdings ((PBH)) provide quarterly updates.

Megaport ((MP1)) holds its AGM.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
29M 29metals Downgrade to Neutral from Outperform Credit Suisse
ABP Abacus Property Downgrade to Lighten from Hold Ord Minnett
ADH Adairs Downgrade to Hold from Accumulate Ord Minnett
CHC Charter Hall Upgrade to Buy from Accumulate Ord Minnett
Downgrade to Equal-weight from Overweight Morgan Stanley
CNI Centuria Capital Upgrade to Buy from Accumulate Ord Minnett
COH Cochlear Upgrade to Outperform from Neutral Credit Suisse
DXS Dexus Upgrade to Buy from Hold Ord Minnett
FMG Fortescue Metals Downgrade to Underperform from Neutral Credit Suisse
GPT GPT Group Downgrade to Hold from Accumulate Ord Minnett
HPI Hotel Property Investments Upgrade to Buy from Accumulate Ord Minnett
MIN Mineral Resources Downgrade to Neutral from Buy Citi
Downgrade to Sell from Hold Ord Minnett
NEA Nearmap Upgrade to Buy from Neutral Citi
REA REA Group Downgrade to Neutral from Outperform Macquarie
RMD ResMed Upgrade to Buy from Hold Ord Minnett
RRL Regis Resources 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

Share on FacebookTweet about this on TwitterShare on LinkedIn

Click to view our Glossary of Financial Terms

CHARTS

BPT EVN HRL MP1 NCM PBH RMD SLR STO Z1P

For more info SHARE ANALYSIS: BPT - BEACH ENERGY LIMITED

For more info SHARE ANALYSIS: EVN - EVOLUTION MINING LIMITED

For more info SHARE ANALYSIS: HRL - HRL HOLDINGS LIMITED

For more info SHARE ANALYSIS: MP1 - MEGAPORT LIMITED

For more info SHARE ANALYSIS: NCM - NEWCREST MINING LIMITED

For more info SHARE ANALYSIS: PBH - POINTSBET HOLDINGS LIMITED

For more info SHARE ANALYSIS: RMD - RESMED INC

For more info SHARE ANALYSIS: SLR - SILVER LAKE RESOURCES LIMITED

For more info SHARE ANALYSIS: STO - SANTOS LIMITED

For more info SHARE ANALYSIS: Z1P - ZIP CO LIMITED