Daily Market Reports | Mar 17 2023
This story features IPH LIMITED, and other companies. For more info SHARE ANALYSIS: IPH
|SPI Overnight||7012.00||+ 27.00||0.39%|
|S&P ASX 200||6965.50||– 103.40||– 1.46%|
|Nasdaq Comp||11717.28||+ 283.22||2.48%|
|S&P500 VIX||22.99||– 3.15||– 12.05%|
|US 10-year yield||3.59||+ 0.09||2.66%|
|USD Index||104.43||– 0.30||– 0.29%|
By Greg Peel
Two Steps Back
The good news is the ASX200 managed to recover from its early low of down -157 yesterday to close at only down -103, and Wall Street has bounced back again last night. The bad news is our futures are up only 27 points this morning.
Part of the problem, which was to some degree relegated to the background yesterday, is the unemployment rate dropped back to 3.5% in February from 3.7% on increased participation. The jump up to 3.7% in January was welcomed by the market at the time.
The RBA had already hinted at pausing soon at the March meeting, although at least one more hike was expected. We’ve subsequently had the US/European bank crises and hence there was talk of the RBA maybe pausing straight away under the circumstances.
The February unemployment report rather kills off that notion, and given the ECB hiked by 50 points last night and the Fed is widely expected to go 25 next week, a 25 point hike from the RBA in April is firmly back on the cards and maybe another in May, which some economists are forecasting.
While banks were again in focus yesterday, the -1.4% fall for the financials sector rather paled in comparison to the -3.2% drop for materials and -4.8% for energy. It’s as if the camel’s back was finally broken, and global recession assumptions became cemented. It took some solid falls in commodity prices overnight to tip resources over.
So if banks and resources are both on the nose, where can you turn? Healthcare was the only sector to close in the green, and by an impressive 1.5% against the tide.
Meanwhile, the Aussie ten-year yield fell -10 points to 3.33% and the two-year -25 to 2.86%, following down US rates and ignoring the unemployment numbers.
This helped keep the defensives of real estate and staples at bay, which both lost only -0.2% (although whether you can call real estate defensive anymore is questionable). Remaining sectors fell -0.5-0.8%.
Cyberattacks were another story of the day, hitting IPH Ltd ((IPH)), which fell -10.7%, and Latitude Financial ((LFS)), which went into a trading halt. IPH was the worst performer in the ASX200, while Latitude is outside the ASX300.
The -4.8% plunge for BHP Group ((BHP)) was exacerbated by a class action being undertaken in the UK with regard the Samarco dam break in Brazil, which occurred in 2015.
As noted, the futures (new June contract) are not suggesting much of a rebound today.
Here Comes the Cavalry
If you want a job done properly you might as well do it yourself.
Last night major US money-centre banks JPMorgan, Citigroup, Wells Fargo and Bank of America each chipped in US$5bn and investment banks Goldman Sachs and Morgan Stanley US$2.5bn, plus six other larger US banks joined in for a total of US$30bn to make a deposit into First Republic Bank – the closest replicant of Silicon Valley Bank.
First Republic was in itself in no apparent difficulty when SVB went down, and there was even talk of it buying SVB, until its share price was trashed and fears of a run on the bank sparked week-long bank sector turmoil and forced the big bank consortium into action.
While the depositors might be saved, and the bank’s shares jumped 10% during the session, in the aftermarket they are currently down -22% having been down -70% up to that point. Seems shareholders are just not prepared to take the risk.
Ahead of the US session, Credit Suisse confirmed it would borrow 50bn Swiss francs, or about US$54bn, from the Swiss National Bank.
Then the ECB went and hiked 50 points. The move was widely expected as it had been largely confirmed at the prior meeting, and was still expected despite the Credit Suisse issue given the SNB’s intervention.
That threw attention back to the Fed. I noted yesterday the odds implied by the Fed funds futures market had swung to 50/50 for a 25 point hike or a pause. After last night, those odds have shifted back to an over 80% assumption of 25 points.
Many would like to see a pause, but expect the Fed will have to go the 25 to indicate all is in control, nothing to see here. The Fed had already signalled, some time ago, the last thing it wants to do is pause too early and then have to start tightening again. This week’s inflation data have been promising, and the expectation is the Fed may dampen down the rhetoric next week and hint at a pause in May (no April meeting).
The snag is the US labour market. Last night showed yet another week of less than 200,000 Americans filing for unemployment, suggesting the labour market remains as strong as ever despite thousands upon thousands of lay-offs having been announced, particularly in the tech sector. But when lay-offs are announced, you don’t just clear your desk that day. Presumably the true impact is yet to be felt.
Unless they all find another job immediately.
It were the major tech layer-offers that drove the rebound on Wall Street last night, more so than any bank sector relief. As we rapidly rebounded from the covid crash of 2020, Big Tech – what used to be known as FANG and friends – led the charge. Contrary to history, these “growth” stocks had become defensives, as they were simply cash machines.
That all fell apart last year on rising rates, but following PE de-rating and aforementioned lay-offs, last night, at least, Big Tech was back wearing its defensive hat.
If you can keep making cash while all about are losing theirs…
|Spot Metals,Minerals & Energy Futures|
|Gold (oz)||1919.10||+ 0.90||0.05%|
|Silver (oz)||21.68||– 0.10||– 0.46%|
|Copper (lb)||3.90||+ 0.03||0.81%|
|Aluminium (lb)||1.12||– 0.00||– 0.28%|
|Lead (lb)||0.94||+ 0.00||0.03%|
|Nickel (lb)||10.47||+ 0.23||2.26%|
|Zinc (lb)||1.30||+ 0.01||0.64%|
|West Texas Crude||68.33||+ 0.72||1.06%|
|Brent Crude||74.71||+ 0.14||0.19%|
|Iron Ore (t)||128.91||– 1.18||– 0.91%|
Rescues here and there brought about some stability in commodities market, and the ECB hike was already expected.
Interestingly, when the Biden Administration started selling from its Strategic Oil Reserve back when oil shot up over US$100/bbl, there was concern the reserve would be run down to dangerous levels for purely political purposes. But Biden told us not to worry, it would be bought back under US$70/bbl.
US$70/bbl seemed pie in the sky at the time. WTI’s now at US$68/bbl.
The Aussie is up 0.6% at US$0.6657 as the US dollar fell despite another bounce in US bond yields (tens up 9 points, twos up 20) on a balance against the ECB.
The SPI Overnight closed up 27 points or 0.4%. If that comes to pass, the ASX200 will close down -4.4% beginning last Friday.
The eurozone reports February CPI tonight. Too late she cried.
The US will see industrial production and consumer sentiment.
Carsales ((CAR)) goes ex today.
The Australian share market over the past thirty days…
|BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS|
|CLV||Clover||Downgrade to Neutral from Buy||UBS|
|GNC||GrainCorp||Upgrade to Hold from Lighten||Ord Minnett|
|NHC||New Hope||Upgrade to Accumulate from Hold||Ord Minnett|
|NWS||News Corp||Upgrade to Accumulate from Hold||Ord Minnett|
|PPT||Perpetual||Upgrade to Buy from Accumulate||Ord Minnett|
|QBE||QBE Insurance||Upgrade to Hold from Lighten||Ord Minnett|
|SKT||SKY Network Television||Upgrade to Accumulate from Hold||Ord Minnett|
|SUL||Super Retail||Upgrade to Lighten from Sell||Ord Minnett|
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