The Overnight Report: Nothing Yet

This story features UNIVERSAL STORE HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: UNI

By Greg Peel

Slip-Sliding Away

The ASX200 opened lower yesterday and continued to track lower still all session. The local market followed weakness on Wall Street on debt ceiling concerns that were still an issue last night, hence Wall Street is down again and our futures are down another -31 points this morning.

The worst performing sector yesterday was nevertheless materials (-1.8%), as metal prices fell overnight. While there may be some element of debt ceiling fears evident in the falls, it’s more about China’s failing rebound. Metal prices were down again last night, including gold.

Consumer discretionary is also now feeling the pinch, falling sharply for a second day (-1.0%). One horse brokers were prepared to back in a downturn was youth-oriented Universal Store ((UNI)) but yesterday, despite reporting record sales, the company offered a downbeat outlook and fell -24%.

The stock is not in the index but retail peer Lovisa Holdings ((LOV)) is, and it’s also been on the wane, falling -6.9% yesterday. Over in the car lot, Eagers Automotive’s ((APE)) AGM was worth -4.9%.

Yet, rebounding out of lockdowns, travel agent Webjet’s ((WEB)) earnings result sent it up 3.8%.

Investors tried to hide in staples (+0.3%), while energy was the standout to the upside in rising 0.7% on higher oil prices, ignoring China’s woes and focusing on possible OPEC-Plus production cuts instead. Utilities chimed in with 0.4%.

For once the banks had a quieter session (-0.1%) and while industrials stood still, other sectors were all weak by varying amounts, the worst being healthcare (-1.1%), which seems to be a defensive play one day and not the next.

Technology also fell -1.1% as the US Mega Caps lose some steam and send the Nasdaq lower.

It’s enough to send a chill down the spine – the RBNZ has yet again raised the Kiwi cash rate, to 5.50%, suggesting it would need to stay at a restrictive level for the foreseeable future. New Zealand’s inflation (on last read) is lower than ours, and our cash rate is 3.85%.

Perhaps not for long, although a pause is expected next month. It was expected in May too.

Some and Several

On the subject of pausing, the minutes of the May Fed meeting released last night revealed that while the vote for a May hike was unanimous, “some” FOMC members suggested another would be needed in June, given stubbornly high inflation, while “several” were in favour of pausing, to assess the impact to date and in view of the regional bank crisis and its implications for credit markets.

Before you assume “several” trumps “some”, the Fed has clarified “some” as being the greater of the two.

The next Fed meeting is June 14 and there is a bit of a hurdle to get over before that. What concessions on spending Biden will need to provide in order to reach a debt ceiling deal will have an impact on the fiscal side of inflationary stimulus.

Far right Republicans are now taking Janet Yellen to task over her June 1 deadline, suggesting the government will have more time than that to avoid default, but Yellen never set June 1 as a Y2K moment, just an estimate.

Yellen said last night it is “almost certain” the Treasury will run out of money in “early June”. “One of the concerns I have is that even in the run-up to an agreement, when one does occur, there can be substantial financial-market distress. We’re seeing just the beginnings of it.”

“If you go back to 2011, remember that US Treasuries were actually downgraded. The stock market fell almost -20%,” Yellen reminded.

But still the talks drag on, with McCarthy suggesting, despite all being “productive,” the two parties are still far apart.

The longer it takes, the more inclined is Wall Street to take risk off the table, selling both stocks and bonds. US bond yields continue to tick higher, which in itself weighs on stock valuations.

It was still a bit of a wild ride last night nonetheless with the Dow down around -300 points before rallying back to down -150 in the last hour, and looking as if it might return to a flat close, before another wave took it down -255.

The Mega Techs are still coming off the boil but last night all eyes were on a result release from Nvidia, which makes chips for AI and has rallied 100% this year.

Despite doubling in price on AI hype, Nvidia reported in last night’s aftermarket and as I write is up 25%. There may be a slightly more confident tone to Wall Street tonight.

A lot will ride on tonight’s release of April PCE inflation.

Rumours of the impending death of the US consumer were also watered down last night after specialty apparel and accessories retailer Abercrombie & Fitch reported earnings and jumped 31%.

Likewise department store chain Kohl’s, which rose 8%.

Commodities

Little joy, except for the oils.

Oil prices were up again last night in the wake of the Saudi energy minister’s warning for short-sellers and last night’s weekly US inventory data, which showed a greater than expected crude drawdown.

The Aussie has been whacked, down -1% to US$0.6546.

Today

The SPI Overnight closed down -31 points or -0.4%.

The US will see the first revision of its March quarter GDP result tonight.

Costa Group ((CGC)), Coronado Resources ((CRN)) and South32 ((S32)) all hold AGMs today.

Aristocrat Leisure ((ALL)), Nufarm ((NUF)) and Orica ((ORI)) all go ex-dividend.

The Australian share market over the past thirty days…

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