The Monday Report – 20 March 2023

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This story features NEW HOPE CORPORATION LIMITED, and other companies.
For more info SHARE ANALYSIS: NHC
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

Risk Off

On Thursday night the S&P500 rebounded 1.8% but our futures suggested only a 27 point, or 0.4%, rebound on Friday. That was achieved in the first ten minutes and then it was all downhill. The ASX200 was down -10 points at lunchtime when Asia opened and some strength returned.

On Friday night the S&P500 fell -1.1% and our futures closed down -98 points, or -1.4% on Saturday morning. So on net basis that would be +0.7% for the S&P over two days and -1.0% for us. And I thought it was their bank that went under.

Investors went piling back into energy on Friday (+2.3%), for some strange reason. There was a slight rebound in crude prices but stand back as they all go piling back out today.

A 0.9% gain for financials made more sense in terms of following Wall Street, which also had our ten-year yield up 6 points and the two-year up 17. All three will be savagely down today.

Whether or not that will bring any solace for real estate, which fell -1.5% on Friday on those yield moves, is debatable. More likely all sectors will be down today perhaps except for materials. It will be a battle of the metals but it’s not often you see gold up 3.7%.

The Aussie is up 0.8%, so it’s a net gain.

No point in going any further.

The S&P500 closed the week up 1.4% and we fell -1.9%, and that’s before today.

Deja Vu

Speculation has it that First Republic Bank may need to raise capital, or sell parts of its loan portfolio, or sell itself – do something – because despite the US$30bn deposit injection from a consortium of the largest US banks, it’s not out of the woods. First Republic shares fell -33% on Friday night to take the week-long fall to -72%.

SVB Capital, parent company of Silicon Valley Bank, filed for bankruptcy on Friday night. It had been put into receivership by the regulator the week before after a run on the bank triggered by a plan to raise capital.

Data released showed US banks borrowed US$165bn from the Fed last week to shore up their liquidity. The week before they borrowed US$4.4bn.

Put it together, and Wall Street lost faith in banks once more.

Yet after another sell-off on Friday night, the Dow only closed down -0.1% for the week, dragged down by JPMorgan and Goldman Sachs. The S&P500 gained 1.4% and the Nasdaq 4.4%, led by defensive Big Tech.

On Friday night US bond yields once again collapsed, with the ten-year down -15 points to 3.44% and the two-year -28 points to 3.85%. A bit over a week ago, the two-year hit 5.07%.

The two-ten inversion reached to over -100 points previously, now it’s at -41. The bond market is sending the Fed a simple message: “Turn back, you’re going the wrong way”. Yet everyone still expects the Fed to hike by 25 points on Wednesday, if only to save face.

Debate over a recession has become a case of “when” and not “if”.

Yet at 3900, the S&P500 is smack bang in the middle of its range of the past several months. Struggling to go up, but failing to go down. If the Fed does nothing remarkable this week, then we may have to wait for March earnings reports, which will begin to flow in April, to get a feel for how the US economy is really faring.

The Michigan Uni consumer sentiment index has fallen for the first time in four months, to 63.4 from 67.0 at the end of February. Forecasts were for no change. It was not about Silicon Valley Bank, as 85% of the survey was completed before that news hit.

On the other side of the globe, freshly received news is the Swiss regulator and UBS have agreed on a deal for the latter to buy troubled Credit Suisse. The deal reportedly includes 100bn Swiss francs in liquidity assistance from the Swiss central bank.

Commodities

Gold rather comes leaping out of the table.

For oils it was back to (recession) business as usual. Still waiting for Biden to turn up with his jerry can.

The fall in US yields had the US dollar down -0.7%, and the Aussie is up 0.8% at US$0.6710.

The SPI Overnight closed down -98 points or -1.4% on Saturday morning.

No point in arguing.

The Week Ahead

The Fed will deliver its statement on Wednesday night and if consensus is on the money, will hike by another 25 points to (top-end) 5.00%.

The Bank of England meets the following night.

The US will otherwise see numbers for new and existing home sales and durable goods orders across the week.

Japan is closed tomorrow.

The minutes of the March RBA meeting are due tomorrow, but the world has somewhat changed in the interim.

Ex-dividends continue this week but daily numbers are now increasingly smaller.

New Hope Corp ((NHC)), Brickworks ((BKW)), Soul Pattinson ((SOL)) and Premier Investments ((PMV)) report earnings this week.

The Australian share market over the past thirty days…

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