The Overnight Report: Counting The Minutes

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By Greg Peel

Hard Grind

The ASX200 has spent the last three sessions trying to grind higher without much success, having initially bounced back last Friday following the US Target-inspired plunge on Thursday. Early rallies have been knocked down by willing sellers so the index has not made any real ground.

Yesterday the index shot out of the blocks to be up 60 points in the first hour, after Wall Street staged a late recovery from earlier Snap-driven falls. Our technology sector remains in lockstep with the Nasdaq, but for the rest of the market it’s an assessment as to just how connected we are to US market drivers.

The rally faded through the day and market-on-close orders knocked -20 points off the closing price.

The technology sector was duly down -3% yesterday but we should see a bounce today in line with the Nasdaq overnight. Play that sector at your own peril.

Consumer discretionary fell -0.6% as investors continue to weigh up consumer prospects amid rising rates. Healthcare was down -0.3% as CSL ((CSL)) now has to grapple with flu vaccine demand.

All other sectors closed in the green, except for real estate, which had a rest.

The banks provided the greatest support in rising 0.8%, despite the Aussie ten-year bond yield falling -7 points, in line with the US, to 3.25%.

Consumer staples won the session in rising 1.5%, as investors decided Walmart’s problems do not necessarily translate to our own supermarkets, and fruit & veg grower Costa Group ((CGC)) jumped 8.6% on an update to top the index winners.

BHP Group ((BHP)) topped the index losers in falling -10%, except it didn’t. BHP was adjusted for the merger of its petroleum division with the old Woodside Petroleum, now known as Woodside Energy Group ((WDS)). As was the case with Tabcorp this week, put the two together and there was a net gain on the day.

The materials sector rose 0.6%, with three of the top five winners behind Costa all sector members.

The losers were a mixed bag, with the standout being a -5.8% pullback for Elders ((ELD)) after its big jump on Monday in the wake of its result.

It appears the pattern of the week will continue today, with the S&P500 up 1% and our futures managing only 0.2% this morning. We don’t trust Wall Street.

At least the tech-heads might have a better day.

Firetrucks and Intersections

Most FOMC members "judged" that 50 basis point increases in the Fed funds rate would "likely be appropriate at the next couple of meetings,” according to the minutes of the May meeting released last night. "A number of participants" also suggested price pressures "may no longer be worsening," but they acknowledged it was too early to be confident. The war in Ukraine and lockdowns in China could exacerbate inflation in the short run, they noted.

So nothing to see here, as Wall Street has already locked in 50 point hikes in June and July. But a growing groundswell of commentators believes the Fed will either go hard early and then pause to assess the impact, or go too hard and be forced to back off at a later date, noting that the combination of double rate rises and quantitative tightening (selling bonds) will have a drastic impact on market liquidity.

Atlanta Fed president – a non-voting member – wrote last night that “Uncertainties shroud the economic outlook on virtually every front, from the pandemic to war in Ukraine to supply constraints. Monetary policy makers must be mindful of those uncertainties and proceed carefully in tightening policy”.

“Given the very high level of inflation, some might be surprised by my injecting some caution here. But remember this: even firetrucks with sirens blaring slow down at intersections lest they cause further preventable trouble.”

With two 50-pointers assumed, focus turns to the September Fed meeting (there is no August). Another 50 or back to 25? Or stop for now?

We have a while to wait.

The Dow opened up last night, kicking on from Tuesday’s night’s late momentum, before falling back to the flatline, before rallying 300 points into the last hour, before giving back -100 of those. The pattern of the last few sessions continues – largely a bang along the bottom with the -20% correction mark for the S&P500 providing support.

The Nasdaq outperformed, reassessing after the knee-jerk response to the Snap result, with Snap itself bouncing 11%.

Leading chip-maker Nvidia reported after the bell this morning and is down -6% in the aftermarket.

Commodities

Commodity prices appear to currently be hanging in the balance of next month’s winding back of the Shanghai lockdown, and the potential for Beijing to go into lockdown.

The war appears to be bogging down.

The Aussie is off -0.2% at US$0.7089.

Today

The SPI Overnight closed up 19 points or 0.2%.

Following on from yesterday’s release of March quarter construction work done, which unsurprisingly showed a fall due to lack of building materials and soaring prices, today we’ll see private sector capex data.

The US will see March quarter PCE inflation numbers, but then tomorrow night brings the more relevant April PCE.

The US will also revise its March quarter GDP result.

Champion Iron ((CIA)) reports earnings today.

Coronado Resources ((CRN)) holds its AGM and Fisher & Paykel Healthcare ((FPH)) an investor day.

Aristocrat Leisure ((ALL)), James Hardie ((JHX)) and Nufarm ((NUF)) go ex.

The Australian share market over the past thirty days…

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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