The Overnight Report: The Need For Speed

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

World Overnight
SPI Overnight	7272.00	– 60.00	– 0.82%
S&P ASX 200	7364.70	+ 36.10	0.49%
S&P500	3986.37	– 62.05	– 1.53%
Nasdaq Comp	11530.33	– 145.41	– 1.25%
DJIA	32856.46	– 574.98	– 1.72%
S&P500 VIX	19.59	+ 0.98	5.27%
US 10-year yield	3.98	– 0.01	– 0.20%
USD Index	105.58	+ 1.22	1.17%
FTSE100	7919.48	– 10.31	– 0.13%
DAX30	15559.53	– 94.05	– 0.60%

By Greg Peel

Release the Doves

Wall Street had closed flat on Monday night but the ASX200 opened down -26 points yesterday, which included ex-dividends, ahead of the afternoon’s RBA statement. At 2.30pm the index was back to square. At 2.31pm it was up 40.

“The Board expects that further tightening of monetary policy will be needed to ensure that inflation returns to target and that this period of high inflation is only temporary. In assessing when and how much further interest rates need to increase, the Board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market.” [My emphasis]

The words “tightening of monetary policy” replaced “further increases in interest rates” in the previous statement. The word “when” was not there last time. When it comes to assessing the RBA’s thinking, subtle changes in language are key.

So we got another 25, but “further tightening” could mean only one more, whereas “further increases” meant more than one more back in February. Yep, subtle. And “when” implies the board will be following the data. The statement made a nod to the recent CPI print, which suggested inflation had peaked.

So every sector rose yesterday, except materials. Gold prices fell overnight (and a lot more last night) and a couple of reports have surfaced from analysts suggesting lithium prices have hit their peak.

While energy and the consumer sectors posted gains of around 1%, the banks were again leading the charge in adding another 0.9%. More mortgage relief.

Having fallen sharply on Monday, yesterday the Aussie ten-year yield fell another -8 points to 3.68% and the two-year -13 points to 3.37%.

I could go on, but unfortunately we don’t live in isolation here downunder. Last night the Fed took a completely opposing view to the RBA, and our futures are down -60 points this morning.

It was fun while it lasted.

A couple of stock moves to note: InvoCare ((IVC)) investors nearly died when they learned of a takeover bid from private equity, which sent that stock up 35.0% (which would have inflated consumer discretionary’s 1.1% gain), while Megaport’s ((MP1)) CEO resigned and that stock fell -15.0%.

Bravura Solutions ((BVS)) fell -54% following a highly dilutive capital raise.

Release the Hawks

“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”

-Powell’s written testimony to Congress

Australian inflation has shown the first signs of peaking but US inflation peaked last year. The problem is US inflation has not since tracked a smooth trajectory downwards, rather the pace of CPI reduction has eased and the PCE actually went up in January.

Australia’s January jobs report was weaker than expected while the US report was far stronger. Australia’s December GDP was weaker than expected but the US result showed an economy still very much alive and kicking despite Fed rate hikes to date.

At the last meeting, the Fed hiked by only 25 points, having hiked by 50 points the meeting before and 75 at all four meetings before that. Wall Street assumed 25s were now the norm, ahead of a pause.

A few Fed presidents disagreed, wanting another 50 pointer, but Wall Street was not convinced and the presidents are not voting members anyway. The last Fed meeting was just before the strong jobs report, which preceded the latest inflation data.

Wall Street is now convinced the next hike, in two weeks’ time, will indeed be 50. The only possibility of upsetting that view is if Friday’s February jobs number is a lot weaker than forecast, and next week’s CPI and PPI data show substantial falls.

Last night Wall Street wasn’t waiting to find out. The indices closed on their lows, and the best we can say is the S&P500 is yet to return to its 200-day moving average, from which it bounced last week.

The US ten-year bond yield fell -1 point to 3.98% last night. The two-year yield jumped 12 points to 5.02%. The reason the ten-year did not match the two-year is it is pricing in recession.

The ten-two spread is now -104 basis points – the steepest yield curve inversion since 1981.

Hopes for a soft landing, let alone “no landing”, have further evaporated.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1814.80	– 31.20	– 1.69%
Silver (oz)	20.02	– 0.98	– 4.67%
Copper (lb)	3.97	– 0.07	– 1.65%
Aluminium (lb)	1.16	– 0.02	– 1.34%
Lead (lb)	0.94	– 0.02	– 1.73%
Nickel (lb)	10.77	– 0.24	– 2.16%
Zinc (lb)	1.36	– 0.02	– 1.61%
West Texas Crude	77.37	– 3.09	– 3.84%
Brent Crude	83.19	– 3.07	– 3.56%
Iron Ore (t)	127.33	+ 1.83	1.46%

…and a resilient US economy was part of the equation, along with China’s reopening, keeping commodities prices bid. Not last night.

Falls were exacerbated by a 1.2% surge in the US dollar index – a rarely seen move.

Gold was a clear victim.

As was the Aussie. With the RBA possibly set to back off its policy tightening as the Fed looks to ramp up, the Aussie is down a full -2% at US$0.6593.

Today

The SPI Overnight closed down -60 points or -0.8%.

Following on from yesterday’s statement, the RBA governor will speak today.

The US will see private sector jobs numbers for February.

Today’s big ex-div are that of Woodside Energy ((WDS)), followed by Super Retail ((SUL)) and a handful of others.

You don’t want to know what’s going to happen tomorrow.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ALG	Ardent Leisure	Upgrade to Hold from Lighten	Ord Minnett
AVH	Avita Medical	Initiation of coverage with Add	Morgans
MIN	Mineral Resources	Downgrade to Lighten from Hold	Ord Minnett
NHC	New Hope	Downgrade to Hold from Accumulate	Ord Minnett
PME	Pro Medicus	Upgrade to Neutral from Sell	Citi
RGN	Region Group	Upgrade to Neutral from Underperform	Macquarie
SHL	Sonic Healthcare	Upgrade to Buy from Neutral	Citi
UMG	United Malt	Upgrade to Accumulate from Hold	Ord Minnett
WTC	WiseTech Global	Upgrade to Neutral from Sell	Citi

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

Click to view our Glossary of Financial Terms