The Overnight Report: Stuck In The Middle With You

Daily Market Reports | Mar 24 2023

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World Overnight
SPI Overnight 6950.00 – 39.00 – 0.56%
S&P ASX 200 6968.60 – 47.00 – 0.67%
S&P500 3948.72 + 11.75 0.30%
Nasdaq Comp 11787.40 + 117.44 1.01%
DJIA 32105.25 + 75.14 0.23%
S&P500 VIX 22.61 + 0.35 1.57%
US 10-year yield 3.41 – 0.09 – 2.69%
USD Index 102.59 + 0.03 0.03%
FTSE100 7499.60 – 67.24 – 0.89%
DAX30 15210.39 – 5.80 – 0.04%

By Greg Peel

Not Over Yet

The good news is the ASX200 only fell -47 points yesterday or -0.7% when the S&P500 fell -1.7% in the wake of the Fed decision and press conference. We might otherwise have expected another overwrought -100 point fall as we witnessed a couple of times during the offshore bank crisis, underperforming Wall Street.

The bad news is Wall Street stabilised overnight and the S&P500 rose 0.3%, but our futures are showing down -39 points this morning or -0.6%.

What sort of Friday will it be?

The reason for defiant local weakness is not obvious. Metals prices are mostly higher, including another rally for gold, and oil prices are only slightly weaker. There is a slight problem with Block ((SQ2)), which fell -15% last night in the US after a renowned short fund accused it of fraud, among other things.

Maybe the futures market is spooked by the Bank of England joining the chorus and raising by 25 points to 4.25%, despite being close to the action amidst European banking woes. That makes 50 for the ECB and 25 for each of the Fed and BoE, which might have local investors wondering whether it would be premature to expect a pause from the RBA next month.

Mind you, UK inflation was 10.4% in February.

Switzerland’s inflation was a mere 3.4% in February, yet last night the Swiss National Bank hiked by 50 points. The SNB’s target inflation rate is 0-3%.

Falls in Australian bond yields were also more muted than the US yesterday, with the tens and twos each down -7 points compared to falls of -16 and -22 points on Wall Street. Financials fell -0.8% yesterday.

Recession fears continued for materials (-1.4%) and energy (-0.8%), with the big miners sold down, exotic miners creamed once more and gold miners failing to hold back the tide. Energy’s fall came despite small gains in oil prices, but following Wednesday’s 4% surge.

All other sectors closed down modestly other than the defensives of staples and communication services, which each rose 0.1%.

There was no clear reason why Megaport ((MP1)) topped the index loser’s list yesterday (-8.5%) but it was followed by three lithium miners and an iron ore junior.

United Malt ((UMG)) topped the winners with a 5.5% gain following the commencement of production at its Inverness facility plus an upgrade to Buy from UBS, to make four Buys from five covering FNArena database brokers.

Brickworks ((BKW)) rallied 3.1% on its earnings result and a couple of gold miners did manage to scrape into the top five.

They probably will again today.

Get-me-out Friday, or go-to-lunch Friday?

Confusion Persists

It is pretty much a given that Wall Street will endure wild swings up and down in the one and a half hour immediately following a Fed statement release and during the press conference, as computers and the odd human leap in and try to interpret every nuanced word. It is typically the following day that, having had time to absorb the details, investors make a decision either way and stick to it.

And so it appeared to be the case last night when the Dow rallied 480 points through the morning, all but wiping out Wednesday night’s fall and suggesting the market got it wrong post-Fed. But Wall Street rolled over in the afternoon and the Dow was down -170 heading into the final hour, before up, down, up to a close of plus 75.

So what’s the interpretation? Probably that Wall Street has no idea.

The S&P500 closed at 3948 and 3950 has been the pivot point around which Wall Street has recently been trading, without really moving out of its range either way. While the Fed is insisting there will be at least one more rate hike and there will definitely be no cuts coming this year, the market is telling the Fed there will be a flurry of cuts in the second half as the US enters recession.

Last night the US ten-year yield fell -9 points to 3.40% and the two-year -16 points to 3.83%. Since the two-year peaked over 5% pre-SVB, when the Fed was stubbornly at its most hawkish, the two-year yield has fallen about -140 points. The two-ten inversion has contracted from over -100 points to -43.

If the signal is that a recession is coming, why hasn’t the US stock market returned to last year’s lows (as many still predict it will)? It appears Wall Street is already trying to look through to beyond the recession, expecting the rate cuts the market is pricing in to provide the base from which the stock market can once more rally.

Not everyone’s convinced of course, which is why the S&P can’t break out of its range.

They say don’t fight the Fed but by gosh, there’s quite the scrap going on.

Despite a range-bound S&P, two sectors are being called “overstretched” in the wake of SVB, being the banks (particularly regionals) to the downside and defensive Big Tech (such as Microsoft) to the upside. Amidst the volatility, the Nasdaq still managed to recoup a full 1% last night.

Wednesday’s night’s tumble was as much about Yellen’s testimony to Congress as it was about the Fed, and last night she was at it again. Having previously assured the government would step in to insure deposits in other banks if they got into trouble, a la SVB, she then told Congress on Wednesday night there would be no blanket guarantee. Last night she said:

“We have used important tools to act quickly to prevent contagion. And they are tools we could use again.”

In other words, she really hasn’t said anything different from the outset but Wall Street has hung on to every word. Last night was seen as positive (again).

There were soothing words from inside the industry as well:

“This is not a credit crisis,” insisted Citigroup CEO Jane Fraser. “This is a situation where it’s a few banks that have some problems”.

Just as well.


Spot Metals,Minerals & Energy Futures
Gold (oz) 1995.20 + 27.40 1.39%
Silver (oz) 23.04 + 0.16 0.70%
Copper (lb) 4.07 + 0.02 0.57%
Aluminium (lb) 1.15 + 0.02 1.43%
Lead (lb) 0.97 + 0.01 0.78%
Nickel (lb) 10.09 – 0.15 – 1.48%
Zinc (lb) 1.32 + 0.01 0.58%
West Texas Crude 69.28 – 0.67 – 0.96%
Brent Crude 75.28 – 0.55 – 0.73%
Iron Ore (t) 126.66 – 1.07 – 0.84%

A little bit of strength in metals and only a mild fall for the oils.

Another reasonable leg-up for gold, which will have a tough time breaking through the US$2000/oz barrier, having failed at the level more than once before in the past.

The Aussie is up a tad at US$0.6688.


The SPI Overnight closed down -39 points or -0.6%.

The US will see durable goods orders tonight.

Flash estimates of March PMIs will be provided across the globe.

The Australian share market over the past thirty days…

A2M a2 Milk Co Upgrade to Accumulate from Hold Ord Minnett
APX Appen Downgrade to Sell from Hold Bell Potter
AUB AUB Group Upgrade to Accumulate from Hold Ord Minnett
CWY Cleanaway Waste Management Upgrade to Neutral from Underperform Credit Suisse
FCL Fineos Corp Downgrade to Neutral, High Risk from Neutral Citi
HLS Healius Downgrade to Hold from Add Morgans
IAG Insurance Australia Group Upgrade to Accumulate from Hold Ord Minnett
NEU Neuren Pharmaceuticals Upgrade to Buy from Hold Bell Potter
PME Pro Medicus Upgrade to Hold from Sell Bell Potter
PMV Premier Investments Downgrade to Neutral from Buy UBS
PTM Platinum Asset Management Upgrade to Hold from Sell Bell Potter
RIO Rio Tinto Upgrade to Hold from Lighten Ord Minnett
SGR Star Entertainment Upgrade to Outperform from Neutral Macquarie
UMG United Malt Upgrade to Buy from Neutral UBS

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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