The Overnight Report: Hold Back The Bears

Daily Market Reports | May 13 2022

This story features XERO LIMITED, and other companies. For more info SHARE ANALYSIS: XRO

World Overnight
SPI Overnight 6911.00 – 5.00 – 0.07%
S&P ASX 200 6941.00 – 123.70 – 1.75%
S&P500 3930.08 – 5.10 – 0.13%
Nasdaq Comp 11370.96 + 6.73 0.06%
DJIA 31730.30 – 103.81 – 0.33%
S&P500 VIX 31.77 – 0.79 – 2.43%
US 10-year yield 2.82 – 0.10 – 3.56%
USD Index 104.78 + 0.78 0.75%
FTSE100 7233.34 – 114.32 – 1.56%
DAX30 13739.64 – 89.00 – 0.64%

By Greg Peel

Nowhere to Hide

Following another weak session on Wall Street the ASX200 again opened down through 7000 yesterday morning but, again, the buyers were ready. The index recovered to 7026 at 11am.

It’s not clear what happened at that point, but from there the index tracked a steady path downward to the close – the first below 7000 since early March. We did see building approvals print an -18.5% fall in March, but only after rising 42% in February (apartment block lumpiness). And the iron ore price, which bounced on Wednesday, turned south once more.

But you know you’re starting to see capitulation selling when oil prices jump 6% and the energy sector closes down -2.3%. Both energy and materials were in the green in the morning, but materials closed down -1.8%. Consumer staples – the safe haven – fell -1.8%.

Communication services, consumer discretionary and real estate all fell around -2%. All sectors closed in the red. The standout among those was technology, down -8.7%.

Xero ((XRO)) reported earnings and fell -11.6%. Altium ((ALU)) reported nothing and fell -16.7%. Megaport ((MP1)) had nothing to say either and fell -9.7%. Block ((SQ2)), which is heavily invested in crypto, fell -17.6%.

CSR ((CSR)) reported on Wednesday to little fanfare but yesterday fell -9.6%. Industrial peer Orica ((ORI)) reported yesterday and jumped 4.7% to be one bright light on a dark day. Next best on the index was AGL Energy ((AGL)), with a mere 1.7% gain.

Another bright light was Commonwealth Bank ((CBA)), which rose 0.6% on its quarterly update and helped keep the financials sector to only a -0.8% fall on the day, second “best” after utilities (-0.6%).

Healthcare’s recent defensive status was hit by a -1.8% drop in CSL ((CSL)) after announcing the Vifor acquisition may take longer to complete. The healthcare sector fell -1.8%.

So, where are we left?

Well the good news, if you call it that, is that the ASX200 is down only -8.5% from its April high (when commodity prices were surging), and the same year to date. Our tech sector may have been taken to the cleaners but on Wall Street the tech impact is far more index-damaging.

It’s not looking good on the commodity price front this morning, with base metals, iron ore and gold all taking a turn for the worse again. But with Wall Street fighting back from another big loss last night, our futures are only down -5 points this morning.

End of the rubber band?

US wholesale inflation showed signs of having peaked last night when the headline PPI came in at only a 0.5% month on month gain for April, having jumped 1.6% in March on surging fuel costs. The annual rate fell to 11.0% from 11.5%.

But economists had forecast 10.7%. The core rate at least fell to 8.8% from 9.2% when 8.9% was expected.

The upshot of this week’s CPI and PPI releases is that yes, it looks like inflation has peaked, but on the incremental falls, when the numbers are cycling last year’s huge leaps, it is going to take a long time for inflation to settle back to more “normal” levels.

The Dow fell -600 points. The Dow, S&P500 and Nasdaq were down around -2% at the lows.

Then two things happened. Jerome Powell was approved by Congress to serve another four-year term as Fed chair. Despite the fact Wall Street has long believed the Fed to be way behind the curve (and still way behind), this was suggested as a positive. Better the devil you know.

The more likely trigger for a last-hour bounce was the fact the S&P500 confirmed a -20% fall from its high. As I noted yesterday, a -5% fall for Apple on Wednesday night brought all the original FANGs to a -20% fall or more (Facebook -50%, Netflix -75%), and another -5% fall last night through that level was rather ominous.

But Apple is seen as the Wall Street bellwether, and when it lost its status as world’s largest company to Saudi Aramco mid-session well something just had to be done. It is not unusual for the S&P500 to find a floor at -20% down, so on both counts the indices came rapidly back from that brink. Apple closed down -2.7%, and remains number one.

What was most notable about last night was that the falls to the lows on the day were yet again attributable to Big Tech – notably Apple, Microsoft and Nvidia – while the absolutely creamed not-yet-profitable stocks found some buyers (most likely short covering).

On that note, leading US BNPL lender Affirm reported earnings after the bell this morning and is currently up 32% in the aftermarket. That is, nonetheless, after a -90% fall from its November high.

Maybe some glimmer for our local Blockheads and Zippers today.

So again we might ask: are we there yet? Well, down -20% for the benchmark index may be the best chance yet, but then we have been looking for bottoms for a while.

The US ten-year yield fell another -10 points to 2.82% last night which is likely less a response to lower PPI numbers and more a case of what I noted yesterday – investors bailing out of stocks and into bonds.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1821.50 – 31.20 – 1.68%
Silver (oz) 20.66 – 0.90 – 4.17%
Copper (lb) 4.09 – 0.14 – 3.33%
Aluminium (lb) 1.34 – 0.02 – 1.75%
Lead (lb) 0.94 – 0.01 – 1.55%
Nickel (lb) 12.47 – 0.18 – 1.43%
Zinc (lb) 1.62 – 0.06 – 3.37%
West Texas Crude 106.13 + 0.42 0.40%
Brent Crude 107.87 + 0.39 0.36%
Iron Ore (t) 130.16 – 4.04 – 3.01%

There was no specific news to re-trigger big falls in metals and mineral prices last night. Traders suggest the market simply succumbed to volatility in global equities. We note the Hang Seng fell another -2.2% yesterday despite the PBoC “doing a Draghi” in pledging whatever it takes to save the Chinese economy.

Gold had been holding up as a safe haven this week but last night dropped suddenly. This may be another sign of capitulation being reached in equity markets, if underwater investors being margin-called are having to sell anything that has not been hammered.

From the point of view of Aussie gold, and other commodities, another -1.2% drop in the Aussie to US$0.6859 provides some saving grace.

But that holiday in Paris you were considering, and that Lamborghini you were looking to buy?

Today

The SPI Overnight closed down -5 points.

The US will see consumer sentiment data tonight.

Avita Holdings ((AVH)) reports quarterly earnings and West African Resources ((WAF)) holds its AGM.

Janus Henderson ((JGH)) goes ex.

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
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
JDO Judo Capital Upgrade to Outperform from Neutral Macquarie
PDL Pendal Group Downgrade to Neutral from Outperform Credit Suisse
Downgrade to Equal-weight from Overweight Morgan Stanley
REA REA Group Upgrade to Buy from Neutral UBS
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)

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

AGL ALU AVH CBA CSL CSR JGH MP1 ORI SQ2 WAF XRO

For more info SHARE ANALYSIS: AGL - AGL ENERGY LIMITED

For more info SHARE ANALYSIS: ALU - ALTIUM

For more info SHARE ANALYSIS: AVH - AVITA MEDICAL INC

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

For more info SHARE ANALYSIS: CSL - CSL LIMITED

For more info SHARE ANALYSIS: CSR - CSR LIMITED

For more info SHARE ANALYSIS: JGH - JADE GAS HOLDINGS LIMITED

For more info SHARE ANALYSIS: MP1 - MEGAPORT LIMITED

For more info SHARE ANALYSIS: ORI - ORICA LIMITED

For more info SHARE ANALYSIS: SQ2 - BLOCK INC

For more info SHARE ANALYSIS: WAF - WEST AFRICAN RESOURCES LIMITED

For more info SHARE ANALYSIS: XRO - XERO LIMITED