The Overnight Report: Much Ado

Daily Market Reports | May 17 2022

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

World Overnight
SPI Overnight 7100.00 + 23.00 0.32%
S&P ASX 200 7093.00 + 17.90 0.25%
S&P500 4008.01 – 15.88 – 0.39%
Nasdaq Comp 11662.79 – 142.21 – 1.20%
DJIA 32223.42 + 26.76 0.08%
S&P500 VIX 27.47 – 1.40 – 4.85%
US 10-year yield 2.88 – 0.06 – 1.98%
USD Index 104.23 – 0.33 – 0.32%
FTSE100 7464.80 + 46.65 0.63%
DAX30 13964.38 – 63.55 – 0.45%

By Greg Peel

Chop Suey

In a volatile start to trading yesterday the ASX200 peaked up 74 points at 11am following Wall Street’s strong Friday night rebound (which, arguably, we had first on Friday). An hour later it was up only 18 points, and then stopped dead for the day.

The turnaround coincided with the release of Chinese data for April.

Industrial production fell -2.9% year on year when a 0.4% gain was forecast. Retail sales fell -11.1% when a -6.5% fall was forecast. Growth in year-to-date fixed asset investment slowed to 6.8% from 9.3% in March. The unemployment rate rose to 6.1%.

The PBoC did not cut its benchmark one-year rate from 2.85%, despite the assumption it would even before the data came in. Standard & Poor’s cut its Chinese GDP growth rate forecast for 2022 to 4.2% from 4.9%.

But, every cloud…

Shanghai will begin a staged reopening starting June 1 and continuing through the month. Meanwhile, despite a growing case-count each day Beijing has not enforced a city-wide lockdown but it has been tightening curbs to the point that road traffic levels in Beijing slid last week to levels comparable to Shanghai’s, according to GPS data tracked by Chinese internet company Baidu.

No surprise the materials sector was the second worst performer in the ASX200 yesterday, falling -0.5%. Energy nonetheless gained 0.3%, as the possibility of EU bans of Russian exports continues to push up oil prices in defiance of Chinese lockdowns.

Worst was healthcare (-0.6%), reflecting some give-back after a big jump for CSL ((CSL)) on Friday.

Technology saw a 2.1% gain on Nasdaq strength but boring old industrials starred on the day with a 2.4% jump, after private equity made a bid for Brambles ((BXB)). That stock rose 11.2%. Coming in second in the index was Qube Holdings ((QUB)) after completing its buyback, although we can likely draw a connection between the two goods-handling companies.

Consumer discretionary was down -0.1% but all other sectors closed in the green by less than 1%, with the banks (+0.5%) providing index support.

Following a mixed session on Wall Street, in which the S&P500 closed down -0.4%, our futures are up 23 points this morning.

Electric Shock

It would have been reasonable to assume Wall Street would have kicked on last night following Friday night’s sharp rebound which was called by many as a bottom (for now). To some extent it did, but not before falling from the open on the Chinese data.

The Empire State index, which gauges economic activity in the New York Fed region, has fallen -36.2 points to minus 11.6 this month when economists had forecast plus 16.5. These regional Fed indices can be volatile at the best of times, but this one was a bit of a standout.

Yet having opened down -270 points, the Dow thereafter rallied through the day to be up over 300 points mid-afternoon, but then slipped to close up only 26.

Commentary from one market analyst, speaking to Dow Jones, rather sums up the mood:

“Today’s market ructions are driven by China, covid, and the threat of recession. Add to this cocktail a rising rate environment, and investors are a bit concussed wondering where to shelter from the whirlwind of bad news.”

And Fed chair Jerome Powell has a speaking engagement tonight, thus it is suggested traders wanted to square up ahead of whatever bombshell might be forthcoming.

Goldman Sachs last night cut its 2022 US GDP growth forecast to 2.4% from 2.6% previously, and to 1.6% from 2.2% for 2023, on fears over an uncertain growth path and tightening financial conditions. The bank also cut its S&P 500 target again, to 4,300 (last close 4008).

One respected billionaire investor has a year-end target of 3400-3500, but is expecting a bear market rally in between, perhaps as much as 10%. Goldman Sachs chairman Lloyd Blankfein suggested on the weekend the risk of heading into recession is “very, very high”.

Meanwhile, former Fed chairman Ben Bernanke told one media service the US could be heading into a period of stagflation for the first time since the 1970s.

But despite all the doom and gloom, around a third of last night’s loss for the S&P500 was down to one stock – Tesla. It fell -6% after the company announced the return to full capacity at its Shanghai giga-factory will be delayed by a week.

Telsa had popped on Friday night on news Elon Musk had issues with his Twitter takeover proposal. Analysts now suspect Elon is preparing to walk away. Twitter fell -8%.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1823.90 + 11.70 0.65%
Silver (oz) 21.60 + 0.49 2.32%
Copper (lb) 4.09 0.00 0.00%
Aluminium (lb) 1.35 0.00 0.00%
Lead (lb) 0.93 0.00 0.00%
Nickel (lb) 12.42 0.00 0.00%
Zinc (lb) 1.61 0.00 0.00%
West Texas Crude 114.20 + 3.71 3.36%
Brent Crude 114.24 + 2.69 2.41%
Iron Ore (t) 132.50 + 1.57 1.20%

Apologies, but there appears to be a problem with our LME price feed this morning. Do not assume base metal prices were all unchanged.

Oil prices just keep pushing up, which is not good news on the global inflation front. Last night wheat futures spiked up New York after India announced yesterday it was suspending all exports of wheat from the country as a matter of food security, given a drought that has impacted planting.

The US ten-year yield slipped back -6 points to 2.88% last night, and is becoming about as volatile as the stock market.

The US dollar is down -0.3%, and the Aussie is up another 0.6% at US$0.6973.

Today

The SPI Overnight closed up 23 points or 0.3%.

The minutes of the May RBA meeting, which brought the surprise 25 point hike, are out today.

The US will see April industrial production and retail sales numbers.

Jay Powell will speak.

United Malt Group ((UMG)) posts its first half result today while James Hardie ((JHX)) provides a quarterly.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ATA Atturra Downgrade to Hold from Add Morgans
CSR CSR Downgrade to Neutral from Outperform Macquarie
GNC GrainCorp Downgrade to Equal-weight from Overweight Morgan Stanley
JDO Judo Capital Upgrade to Outperform from Neutral Macquarie
PMV Premier Investments Upgrade to Buy from Neutral Citi
WES Wesfarmers Downgrade to Sell from Neutral Citi
XRO Xero Upgrade to Buy from Accumulate Ord Minnett

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

BXB CSL JHX QUB UMG

For more info SHARE ANALYSIS: BXB - BRAMBLES LIMITED

For more info SHARE ANALYSIS: CSL - CSL LIMITED

For more info SHARE ANALYSIS: JHX - JAMES HARDIE INDUSTRIES PLC

For more info SHARE ANALYSIS: QUB - QUBE HOLDINGS LIMITED

For more info SHARE ANALYSIS: UMG - UNITED MALT GROUP LIMITED