The Monday Report – 08 April 2024

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By Greg Peel

Rollercoaster

Friday’s trade on the ASX ended up being an all-out battle between sellers and buyers. The ASX200 opened down -73 points on Wall Street weakness for all of ten minutes but by late morning was only down -31.

The sellers regrouped, and the index hit its low of the day at 2pm, down -76 points, before the buyers again moved in to close the index down -44. The buyers, it seems, were looking for bargains and risking the US jobs report overnight.

All sectors nevertheless closed in the red, suggesting it was more of a market game than a sector-specific game, although energy only just tipped into the negative.

The stock market appears currently divorced from the bond market – and the same is true in the US. On weak trade data, the ten-year yield fell -8 points to 4.10% but technology led the sectors down with -1.4%, real estate lost -0.6% and discretionary -0.5%.

Staples were down -0.7% so nothing defensive there, although moves to curb the supermarket duopoly are underway.

Materials were down -0.8% even with China closed, as iron ore miners kicked on to the downside and were not offset by gold miners.

The banks lost -0.4%.

But, Wall Street bounced on Friday night and our futures closed up 38 points on Saturday morning, so as you were.

The ASX200 nonetheless fell -1.5% over the week, and the index is back where it was two weeks ago.

Trade data for February showed exports fell -2.2% while imports jumped 4.8%, sending the trade surplus down to $7.3bn from $10.1bn in January. Economist had forecast a rise to $10.5bn, so a bit of a surprise.

The silver lining may be more room for the RBA to cut, as reflected in lower bond yields.

Good News Good?

Wall Street can’t seem to make up its mind at present on whether good US economic news is good or bad.

Last week began with news the US manufacturing PMI had swung into expansion in March, sending bond yields higher and the stock market tumbling. That news overruled Good Friday’s data that showed the core PCE had continued to fall in February.

Last Friday night the news was 303,000 jobs added in March when only 200,000 were forecast. Bond yields jumped again – the ten-year rose 7 points to 4.38% — and the stock market took off.

There may have been some solace in that wages grew only 0.3% in the month, to a 4.1% annual rate, as expected, despite strong additions. This implies job vacancies are being filled without having to pay much higher wages, which suggests, maybe, the inflationary effect is not too ominous.

Wall Street did dip early on the release, but the buyers then moved in and indices rose steadily to the close. This suggests that after a tough week – the S&P500 closed down -1.0% for the week – buyers were yet again ready to pounce on lower valuations, and any excuse will do.

With bond yields rising further, the Nasdaq outperformed. Even the Russel small cap index rose 0.5%.

Wall Street appears to be coming to the conclusion the US economy will not come in for a hard landing, nor even a soft landing, but no landing at all. Traders have become more comfortable, in this scenario, with a Fed rate cut schedule that might only be three this year, or two, or as some suggest, none at all.

Which begs the question: How will Wall Street respond to this week’s CPI and PPI data? It’s a bit hard to tell. The February CPI was hotter than expected but Wall Street took that in its stride, until the PPI also came in hot and Wall Street lost its bottle.

We’ll see the March CPI on Wednesday night and the PPI on Thursday night, and on Friday night the first of the big banks reports earnings, signalling the beginning of the March quarter results season.

As to how that plays out will determine whether current valuations are justified or not.

Commodities

Not a lot of action in real commodities on Friday night with China closed, but gold, my word.

The US ten-year yield is at its highest level since October yet the gold price continues to soar.

We’ll see what happens tonight, given Netanyahu appeared over the weekend to be ceding to Biden’s demands, at least to some extent. Otherwise gold seems to have a mind of its own right now.

The Aussie is down -0.2% at US$0.6575.

The SPI Overnight closed up 38 points or 0.5% on Saturday morning.

The Week Ahead

Fed speakers are becoming increasingly hawkish, putting back their assumed timing of the first rate cut and lowering the number of expected cuts this year. So far, Jerome Powell continues to tout three cuts, but it is no promise. The Fed remains data-dependent, and following on from the strong jobs report, inflation data are due this week.

Wednesday will also bring the minutes of the March Fed meeting.

On Friday, the US March quarter earnings season kicks off with three of the big banks reporting. More report next week and then the season begins to build.

China will report March inflation and trade numbers this week.

The RBNZ holds a policy meeting on Wednesday.

Locally we’ll see the NAB business confidence survey for March and the Westpac consumer confidence survey for April tomorrow.

Note that as of tomorrow morning, the NYSE will close at 6am Sydney time. The SPI Overnight will continue to close at 7am.

The Australian share market over the past thirty days…

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