The Overnight Report: Not Yet

This story features PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: PNI

The company is included in ASX200, ASX300 and ALL-ORDS

World Overnight
SPI Overnight	7559.00	– 84.00	– 1.10%
S&P ASX 200	7680.70	+ 80.50	1.06%
S&P500	4845.65	– 79.32	– 1.61%
Nasdaq Comp	15164.01	– 345.88	– 2.23%
DJIA	38150.30	– 317.01	– 0.82%
S&P500 VIX	14.35	+ 1.04	7.81%
US 10-year yield	3.97	– 0.09	– 2.27%
USD Index	103.59	+ 0.17	0.16%
FTSE100	7630.57	– 35.74	– 0.47%
DAX30	16903.76	– 68.58	– 0.40%

By Greg Peel

Fun while it lasted

Yesterday the ASX200 opened as it had closed on Tuesday, with end-of-month selling after a strong run, triggered when the index almost reached its all-time high. We were down -30 points at 11am, before the CPI numbers sparked a turnaround, and we rallied 110 points from the low, smashing through the previous high.

Third time’s a charm.

The strange thing is the turnaround actually came half an hour before the CPI release, and the initial reaction to the release was selling, before order was restored. Perhaps someone took a big punt on a good CPI print, and sold the fact on release.

Either way, the Fed has this morning pushed back on the notion of a March rate cut, Wall Street has tanked, and our futures are down -84 points this morning. That would take the index back down through the prior all-time high, indeed, back to where we were on Tuesday.

Bummer.

The December quarter headline CPI fell to 4.1% from 5.4% in September, when 4.3% was forecast. The core (trimmed mean) fell to 4.1% from 4.2%.

The numbers do not, however, indicate that prices came down. Headline inflation rose 0.6% quarter-on-quarter and the core by 0.8%.

But it’s enough at least to assume the RBA is now done hiking, and we can start talking about just when the first cut will come. Economists for a while have been suggesting likely later this year, maybe August. The Fed’s policy path this year will probably provide some clues as well.

Excitement was evident in the bond market, where the Aussie ten-year fell -13 points to 4.01% and the two-year fell -15 points to 3.76%, which is -68 basis points below the cash rate.

In the stock market, all sectors rallied, by varying degrees.

Real estate unsurprisingly won the day (+2.0%), but the banks were the star performers (+1.5%). Staples, energy, healthcare, industrial and utilities all posted gains in excess of 1%.

Technology was uncharacteristically muted (0.5%), possibly because of the weak result overnight from Google, while discretionary (+0.6%) and communication services (+0.3%) also lagged.

Materials managed only 0.4% following a steep fall in the iron ore price (-2.7%). Base metals prices were down overnight as well, in response to China’s January PMIs.

The manufacturing PMI rose, but only to 49.2 from 49.0, so still contractionary. Services rose to 50.7 from 50.4.

No point in dwelling further. Today will bring the hangover.

Cold Water

Wall Street’s response to the Fed last night seems rather excessive, given the Fed futures had this year backed off the chance of a March rate cut to under 50%, a majority of commentators have been more inclined to back May or June, and a push-back against cutting as soon as the next meeting was somewhat anticipated.

But, sell first and ask questions later. Wall Street had moved up to dizzying heights, setting a string of new all-time highs, so the stage was set. Selling begets selling, and the algos would have been having a field day.

The Fed statement suggested there would be no move to cut rates until inflation was “moving sustainably towards” the 2% target. Given the last core PCE print was 2.9%, there’s no doubt inflation is at least doing the “moving towards” bit.

But is it sustainable? The Fed does not want to make the mistake of the 1970s and cut too soon, having only to hike once more. A few more months and a few more CPI/PCE prints are needed to give the FOMC enough confidence.

1970s inflation was rekindled by turmoil in the Middle East. No chance of that then.

In his press conference, Powell did not rule out a March cut, but said it was “unlikely” and not the Fed’s “base case”.

Interestingly, while the stock market may have thrown a wobbly, the bond market didn’t. The US ten-year yield dropped -9 points to 3.97%.

The bond market has long been known as where the smart people reside, and those people have brushed aside March excitement and taken on board the fact the Fed has said yes, it will be cutting this year, but just not right now.

The reality is the S&P500 last night wiped out only about one week of rallies. The earth did not cave in. With the Fed out of the way, it will be back to focusing on earnings results.

Apple, Amazon and Meta tonight.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	2032.00	– 4.20	– 0.21%
Silver (oz)	22.79	– 0.36	– 1.56%
Copper (lb)	3.88	– 0.01	– 0.29%
Aluminium (lb)	1.03	+ 0.01	0.57%
Nickel (lb)	7.32	– 0.11	– 1.49%
Zinc (lb)	1.14	– 0.02	– 1.59%
West Texas Crude	75.83	– 2.10	– 2.69%
Brent Crude	81.71	– 1.18	– 1.42%
Iron Ore (t)	130.57	– 3.64	– 2.71%

Ongoing contraction of the Chinese manufacturing sector had commodity price down across the board.

Falls in the oils were exacerbated by a big build in US weekly inventories, attributed to a ramp-up in production following freezing weather that had shut down some operations earlier in the month.

The Aussie is down -0.8% at US$0.6552 on the CPI result.

Today

The SPI Overnight closed down -84 points or -1.1%.

We’ll see December building approvals today.

The Bank of England meets.

January manufacturing PMIs are due across the globe.

Pinnacle Investments ((PNI)) reports earnings.

Nufarm ((NUF)) holds its AGM.

The Australian share market over the past thirty days…

Index	31 Jan 2024	Week To Date	Month To Date (Jan)	Quarter To Date (Jan-Mar)	Year To Date (2024)
S&P ASX 200 (ex-div)	7680.70	1.66%	1.18%	1.18%	1.18%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AD8	Audinate Group	Downgrade to Neutral from Outperform	Macquarie
ALU	Altium	Upgrade to Buy from Neutral	Citi
BAP	Bapcor	Upgrade to Add from Hold	Morgans
BOE	Boss Energy	Downgrade to Hold from Buy	Bell Potter
CHN	Chalice Mining	Upgrade to Buy from Neutral	UBS
IGO	IGO	Upgrade to Buy from Neutral	Citi
KED	Keypath Education International	Upgrade to Outperform from Neutral	Macquarie
MAD	Mader Group	Upgrade to Buy from Hold	Bell Potter
NWL	Netwealth Group	Downgrade to Underperform from Neutral	Macquarie
		Downgrade to Hold from Accumulate	Ord Minnett
PDN	Paladin Energy	Upgrade to Buy from Hold	Bell Potter
		Upgrade to Buy from Neutral	Citi
RRL	Regis Resources	Downgrade to Sell from Neutral	UBS
SFR	Sandfire Resources	Downgrade to Accumulate from Buy	Ord Minnett
SUL	Super Retail	Downgrade to Underweight from Equal-weight	Morgan Stanley

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