The Overnight Report: Not There Yet

Daily Market Reports | May 12 2022

This story features RESMED INC, and other companies. For more info SHARE ANALYSIS: RMD

World Overnight
SPI Overnight 7010.00 – 35.00 – 0.50%
S&P ASX 200 7064.70 + 13.50 0.19%
S&P500 3935.18 – 65.87 – 1.65%
Nasdaq Comp 11364.24 – 373.44 – 3.18%
DJIA 31834.11 – 326.63 – 1.02%
S&P500 VIX 32.56 – 0.43 – 1.30%
US 10-year yield 2.92 – 0.07 – 2.41%
USD Index 104.00 + 0.07 0.07%
FTSE100 7347.66 + 104.44 1.44%
DAX30 13828.64 + 293.90 2.17%

By Greg Peel

Fighting Back

In a quieter session, the ASX200 managed to close slightly higher yesterday, but not before a little foray down to -60 points in the first hour. That was mostly recovered by lunchtime, and a last-hour kick took the index into the green.

A turnaround for the iron ore price certainly did its bit, but while Johnny-come-lately sellers have featured at the open of the past two sessions, the buyers have been poised and ready under 7000.

Materials managed a 0.9% gain by the close, while healthcare stood out as a defensive, up 1.7% despite ResMed ((RMD)) going ex-div. Real estate also caught a bid (+1.3%) after its multi-day thumping, with the Aussie 10-year yield falling back -6 points to 3.50%.

The consumer sectors, industrials and utilities also saw a bit of buying while technology closed down -0.6% and energy fell -0.1%, but that will flip today.

The biggest drag was financials (-1.1%), and while that included National Bank ((NAB)) going ex-div, banks and insurers were generally weak.

Westpac’s consumer confidence survey for May showed a fall in the index to 90.4 points from 95.8 to mark the lowest level since August 2020.

The day’s earnings reporters underwhelmed, CSR ((CSR)) rising 0.5% on its result but GrainCorp ((GNC)) falling -1.0%. The latter has nonetheless rallied 240% post-drought, including 25% since early April.

Lifestyle Communities ((LIC)) provided a positive update on Tuesday but the market did not much respond until brokers did yesterday, and upgrades were worth 15.1% taking the share price to the top of the winners’ board.

Topping the losers’ board was Link Administration ((LNK)), which told the ASX yesterday it had no idea why its share price fell -15.1%. Link is under a takeover proposal so there may have been a rumour about cold feet, but it’s news to management.

The good news overnight is metals prices finally found a bottom and have rebounded slightly, while the oils are up 6%.

The bad news is Wall Street selling resumed in earnest, and thus our futures are down -35 points this morning.

Parsing the Numbers

The US headline CPI rose 0.3% in April to mark the lowest monthly gain in eight months. The annual rate fell to 8.3% from 8.5% in March.

Woohoo! The Dow was up over 400 points in the morning.

But hang on. Economists had forecast 8.1% at the headline, and while the core rate (ex-food & energy) fell to 6.2% annual from 6.5%, it rose 0.6% month-on-month when 0.4% was forecast.

And let’s face it, the difference between 8.3% and 8.5% might suggest a peak, but it in no way suggests inflation relief. And the ongoing signs are not good.

The main drivers of the headline CPI were price rises in energy, new and used cars, and food. Energy prices came down in April when China went into lockdown but are stubbornly higher again as the war presses on. Car prices have been elevated for some time on lingering covid disruption and now that parts of China are in endless lockdown, the situation has not improved.

Food price rises are due to the war and soaring transport costs (see: energy).

The Dow closed down over -300 points.

But it was selling in the tech sectors that once again did the damage. Another -3% fall in the Nasdaq has dragged the index -30% from its high, and the S&P500 down -20%. A -5% fall in Apple last night has taken its retreat to -20% – the last of the original FANG’s to hit “bear market” territory.

Interestingly, the Nasdaq fell even as the US 10-year treasury bond yield dropped -7 points to 2.92%, and the 10-year fell even as inflation was higher than forecast and talk of a possible 75 point Fed rate hike is back in vogue.

But with US stocks clearly in a bear market, whether you want to be pedantic about -20% or not, a 10-year yield around 3% is beginning to look attractive as an alternative – and safe – investment.

Alas poor Tina, I knew her well.

One alternative at such a time might be gold, which was up last night, but not the other supposed “store of value”, being bitcoin, which fell under US$30,000 last night and is now down -56% since November.

So the debate is ongoing – when will it all end? The assumption is still that the market will find a bottom, and if history is any guide, could still rally to new highs in the second half of the year. For now, buying the likes of the Big Tech stocks after their major de-rating is at least a lower-risk proposition than it was a couple of weeks ago.

In 2021, investors jumped on any dip in Big Tech prices. In 2022, they jump on any rally. At some pint they will be exhausted. It’s just a matter of when.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1852.70 + 14.70 0.80%
Silver (oz) 21.56 + 0.34 1.60%
Copper (lb) 4.23 + 0.07 1.64%
Aluminium (lb) 1.36 + 0.02 1.69%
Lead (lb) 0.95 – 0.00 – 0.19%
Nickel (lb) 12.66 + 0.08 0.61%
Zinc (lb) 1.67 + 0.03 1.74%
West Texas Crude 105.71 + 5.95 5.96%
Brent Crude 107.48 + 5.67 5.57%
Iron Ore (t) 134.20 + 3.93 3.02%

Ukraine has suspended some of the flow of Russian gas to Europe via pipeline. The problem is the pipeline runs through areas in Ukraine under either Ukrainian or Russian control at present, and Russia has been diverting gas into other pipelines.

Ukraine’s controlling authority said that Russian interference, including the unauthorized diversion of gas, had "endangered the stability and safety" of the system.

Oil prices are up 6%, as gas export prices are linked to oil prices.

Otherwise, nice to finally see a bounce in metal/mineral prices.

The Aussie is having a rest at US$0.6940.

Today

The SPI Overnight closed down -35 points or -0.5%.

The UK reports March-quarter GDP tonight.

The US PPI numbers are out tonight.

Orica ((ORI)) and Xero ((XRO)) report earnings today and Commonwealth Bank ((CBA)) provides a quarterly update.

There are a handful of AGMs being held today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AGL AGL Energy Downgrade to Hold from Accumulate Ord Minnett
COF Centuria Office REIT Downgrade to Equal-weight from Overweight Morgan Stanley
CTD Corporate Travel Management Downgrade to Accumulate from Buy Ord Minnett
GPT GPT Group Downgrade to Lighten from Hold Ord Minnett
HLS Healius Downgrade to Neutral from Outperform Credit Suisse
HPI Hotel Property Investments Downgrade to Hold from Buy Ord Minnett
MQG Macquarie Group Upgrade to Add from Hold Morgans
Downgrade to Neutral from Buy Citi
Downgrade to Underperform from Neutral Credit Suisse
NAB National Australia Bank Downgrade to Neutral from Buy UBS
PDL Pendal Group Downgrade to Neutral from Outperform Credit Suisse
Downgrade to Equal-weight from Overweight Morgan Stanley
REA REA Group Upgrade to Outperform from Neutral Credit Suisse
Upgrade to Add from Hold Morgans
Upgrade to Buy from Accumulate Ord Minnett
Upgrade to Buy from Neutral UBS
Downgrade to Equal-weight from Overweight Morgan Stanley
SHL Sonic Healthcare Downgrade to Accumulate from Buy Ord Minnett
SUN Suncorp Group Upgrade to Buy from Hold Ord Minnett
WBC Westpac Upgrade to Overweight from Equal-weight Morgan Stanley

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)

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CHARTS

CBA CSR GNC LIC LNK NAB ORI RMD XRO

For more info SHARE ANALYSIS: CBA - COMMONWEALTH BANK OF AUSTRALIA

For more info SHARE ANALYSIS: CSR - CSR LIMITED

For more info SHARE ANALYSIS: GNC - GRAINCORP LIMITED

For more info SHARE ANALYSIS: LIC - LIFESTYLE COMMUNITIES LIMITED

For more info SHARE ANALYSIS: LNK - LINK ADMINISTRATION HOLDINGS LIMITED

For more info SHARE ANALYSIS: NAB - NATIONAL AUSTRALIA BANK LIMITED

For more info SHARE ANALYSIS: ORI - ORICA LIMITED

For more info SHARE ANALYSIS: RMD - RESMED INC

For more info SHARE ANALYSIS: XRO - XERO LIMITED