The Overnight Report: Hitting The Roof

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World Overnight
SPI Overnight	7260.00	+ 40.00	0.55%
S&P ASX 200	7199.20	– 35.50	– 0.49%
S&P500	4158.77	+ 48.87	1.19%
Nasdaq Comp	12500.57	+ 157.51	1.28%
DJIA	33420.77	+ 408.63	1.24%
S&P500 VIX	16.87	– 1.12	– 6.23%
US 10-year yield	3.58	+ 0.03	0.90%
USD Index	102.86	+ 0.26	0.25%
FTSE100	7723.23	– 27.85	– 0.36%
DAX30	15951.30	+ 53.37	0.34%

By Greg Peel

Glass Half…Something

On weakness on Wall Street on Tuesday night, largely debt ceiling-driven, the ASX200 crashed through support at 7200 yesterday and triggered further selling, to be down -75 points in the first 45 minutes. Then the cavalry arrived. The index closed at 7199.

Signs of hope on the ceiling front last night had Wall Street rocketing on relief, hence our futures are up 40 points this morning, suggesting 7200 will hold yet again.

Relief locally came in the form of the March quarter wage price index.

Wages grew 0.8% quarter on quarter to be up 3.7% year on year. This compares with 0.8% growth in the December quarter for 3.4%. Forecasts were for 0.9% growth in March to 3.6%.

So how do we read this from an RBA perspective? Annual wage growth is now the highest since June 2012. The RBA is concerned about a wage-price spiral. Glass half empty.

But wage growth did not accelerate from quarter to quarter, corroborating a comment in the minutes of the May meeting that “indicators from liaison contacts and private sector surveys signalled that wages growth was stabilising”. Glass half full.

Consensus is nonetheless the lack of acceleration provides the RBA with no reason to panic and go again in June. The board can wait for more data – jobs, inflation – before making a final hike decision if necessary, which is what the bulk of economists assume.

It was enough, anyway, to turn around a plummeting market, likely driven by rampant computers showcasing their AI credentials.

While the net fall in the index was similar to Tuesday’s, sector moves were a little more divergent. Technology followed up the Nasdaq in rising 0.9%, while utilities (+0.4%), energy (+0.1%) and communication services (+0.2%) posted modest gains.

Materials led the index down (-1.0%), with a fall in the gold price a decisive factor but falls across metals in general didn’t help, in a kick-on response to China’s week April data.

Fertiliser producer with explosives Incitec Pivot ((IPL)) dropped -7.8% on its earnings result to be the worst index performer.

The banks chimed in with -0.6%, and that’s a difficult combination to beat.

Aussie bond yields rose on a couple of points but real estate fell -0.6%, while the consumer sectors were again weak – staples down -0.3% and discretionary -0.5% — perhaps because wages growth remains below inflation and did not improve.

Bucking the trend was online retailer Temple &Webster ((TPW)), which provided a trading update and jumped 19%, noting that as of last week the stock was over 7% shorted. It’s no longer in the index.

United Malt Group ((UMG)) is in the index, as a staple, and it rose 2.3% on its result. Craft beers all round.

So, we should be off to a solid start this morning, ahead of April jobs numbers.

False Hope?

“I’m confident that we’ll get the agreement on the budget, and America will not default,” Biden said last night.

“We’re going to continue these discussions with congressional leaders in the coming days until we reach an agreement, and I’ll have more to say about that on Sunday,” he added, before high-tailing off to the G7 in Japan.

On Tuesday night, Speaker McCarthy suggested it was possible to get a deal by the end of the week.

Put them together and Wall Street last night decided a debt ceiling resolution is in sight, and responded accordingly. The rally reversed a couple of weak sessions of debt ceiling worry.

But be careful what you wish for, say some commentators. If the debt ceiling is raised, the Treasury can once again start issuing bonds, which will suck more liquidity out of the system at the same time the Fed is selling the bonds it has on its balance sheet (QT). Conditions will tighten further.

While no one honestly expects either side will let the US default, McCarthy’s “deal by the end of the week” is straightforward. Biden just has to bow to the Republicans’ demands and then we can all get some sleep.

The supposedly positive signs nevertheless triggered relief rallies across the beaten-down US regional banks, as well as the biggies. Most recent target PacWest jumped 22%, from a low base.

What was nevertheless positive about last night’s rally on Wall Street was its breadth – it was not just Mega Techs leading the way. All of financials, consumer discretionary and energy rallied 2%, with solid gains coming from industrials, real estate, technology and communication services.

The defensives – healthcare, staples and utilities – missed out.

Whatever the outcome, Wall Street remains stuck in the same range it has been in all year. Neither debt ceiling concerns nor Fed hawkishness have led to a break-down, and the March quarter earnings season has not moved the market either way.

Could a debt ceiling resolution lead to a break to the upside? Maybe, but it could well prove a sell-the-fact. There’s a brick wall at 4200 on the S&P.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1981.90	– 7.20	– 0.36%
Silver (oz)	23.72	– 0.01	– 0.04%
Copper (lb)	3.70	+ 0.01	0.16%
Aluminium (lb)	1.03	+ 0.02	1.48%
Nickel (lb)	9.85	+ 0.22	2.24%
Zinc (lb)	1.15	+ 0.01	0.68%
West Texas Crude	72.83	+ 1.97	2.78%
Brent Crude	76.75	+ 1.97	2.63%
Iron Ore (t)	107.38	+ 0.54	0.51%

A possible debt ceiling resolution provided some hope in commodities markets as well, particularly oil, but yesterday’s Japanese March quarter GDP result – 0.4% growth when 0.1% was forecast – would not have hurt.

We tend to forget about Japan as a major commodities importer since the new kid on the block began to dominate.

The Aussie is, for once, steady, at US$0.6662.

Today

The SPI Overnight closed up 40 points or 0.6%.

April jobs data today.

New Zealand reveals its March quarter PPI.

Aristocrat Leisure ((ALL)), Nufarm ((NUF)) and Xero ((XRO)) report earnings.

Seven Group ((SVW)) holds an investor day, while Leo Lithium ((LLL)) and Waypoint REIT ((WPR)) hold AGMs.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
APE	Eagers Automotive	Downgrade to Neutral from Outperform	Macquarie
AVH	Avita Medical	Upgrade to Accumulate from Hold	Ord Minnett
CHC	Charter Hall	Upgrade to Buy from Neutral	Citi
ELD	Elders	Downgrade to Neutral from Outperform	Macquarie
NCM	Newcrest Mining	Downgrade to Neutral from Outperform	Macquarie
NST	Northern Star Resources	Downgrade to Accumulate from Buy	Ord Minnett
PBH	PointsBet Holdings	Upgrade to Buy from Hold	Ord Minnett
PMV	Premier Investments	Upgrade to Lighten from Sell	Ord Minnett
REA	REA Group	Downgrade to Hold from Add	Morgans
RGN	Region Group	Downgrade to Equal-weight from Overweight	Morgan Stanley
TNE	TechnologyOne	Upgrade to Buy from Hold	Bell Potter
TPG	TPG Telecom	Downgrade to Equal-weight from Overweight	Morgan Stanley
TYR	Tyro Payments	Upgrade to Outperform from Neutral	Macquarie

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

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