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The Overnight Report: Not Happy Jay

Daily Market Reports | Mar 23 2023

This story features WOODSIDE ENERGY GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: WDS

World Overnight
SPI Overnight 6990.00 – 52.00 – 0.74%
S&P ASX 200 7015.60 + 60.20 0.87%
S&P500 3936.97 – 65.90 – 1.65%
Nasdaq Comp 11669.96 – 190.15 – 1.60%
DJIA 32030.11 – 530.49 – 1.63%
S&P500 VIX 22.26 + 0.88 4.12%
US 10-year yield 3.50 – 0.11 – 2.94%
USD Index 102.56 – 0.68 – 0.66%
FTSE100 7566.84 + 30.62 0.41%
DAX30 15216.19 + 20.85 0.14%

By Greg Peel


The Fed has not exactly pivoted its monetary policy this morning in the wake of the banking crisis, disappointing Wall Street. Our futures are down -52 points this morning. Rather makes yesterday redundant.

It was a quiet day effectively, as the ASX200 shot up in the first ten minutes and basically stayed there. Yet on assurances overnight from Janet Yellen that all was under control among US regional banks, it was not our financial sector that led yesterday’s rally. It was energy.

Oil prices had tumbled as the banking crisis unfolded on the assumption global recession risk had grown. Yellen’s comments prompted a relief rally on Tuesday night, sending oil prices up around 2.5%, and our energy sector 4.2%.

Woodside Energy ((WDS)) is a very big company to top the percentage index movers yesterday, rising 5.2%, followed by Beach Energy ((BPT)) on 4.7%. Santos ((STO)) lagged on 3.3%.

Financials only managed a 0.6% gain, despite the Aussie ten-year rising 18 points to 3.36% and the two-year 17 points to 3.00%. Good for insurers, balancing act for banks. But US yields have been crunched again overnight so forget it.

The jump in yields did not bother the consumer sectors, with discretionary up 1.4% and staples 1.8%, but it was still too much for real estate, which got left behind (-0.4%).

Strength in materials was balanced out by falls for gold miners – four of the top five losers in fact – after a pullback in the gold price that has reversed overnight.

So much has reversed overnight there’s not much point going on.

Yin, Yang

The Fed has hiked by 25 points as expected to 4.75-5.00%. This implies the inflation problem is greater than the bank problem and really, the bank problem is contained. To not have hiked would have been to signal to Wall Street there is a big bank problem.

Jerome Powell did acknowledge the resultant credit contraction would be disinflationary and thus do some of the Fed’s work for it, but the FOMC did not alter its forecast (dot plot) peak rate from 5.00-5.25% as it was in December, and no members have a rate cut priced in for 2023.

Powell emphasised at the press conference there won’t be a case for rate cuts later this year contrary to what financial markets expect, while acknowledging the central bank will raise rates even higher if they “need to.”

It took Wall Street a few ups and downs post 2.30pm to finally figure out this was not what it wanted to hear. There was an accelerating rush out of stocks and into bonds to the close.

The US two-year yield fell -22 points to 3.96%. This is the proxy for the Fed funds rate. In essence the bond market is pricing in -100 points of cuts ahead. The ten-year yield, which is your recession indicator, fell -16 points to 3.45%.

The futures market is pricing in a greater than 50/50 chance of another Fed hike at the next meeting in May. Wall Street was hoping for signs of a pause.

It didn’t help that at the same time as Powell was answering questions, his old boss Janet Yellen was answering questions from a Congressional committee. On Tuesday night the Treasury Secretary had said:

“The steps we took were not focused on aiding specific banks or classes of banks. Our intervention was necessary to protect the broader US banking system, and similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”

Last night both Democrats and Republicans wanted to know whether uninsured deposits at banks that fail in the future will be covered the same way they were at SVB and Signature Bank. Yellen has said any blanket guarantee of uninsured deposits would require extraordinary circumstances, and likely an act of Congress.

(It did happen in March 2020, but circumstances then were indeed extraordinary.)

So while Treasury will consider any further run on a bank on its merits in terms of guarantees, it won’t just guarantee all banks off the bat. Meanwhile, regional banks have been queuing up at the Fed “discount window”, where they can borrow funds to help get them through (at a premium). Last week they borrowed US$153bn, having borrowed US$4.4bn the week before SVB.

Wall Street will be watching closely to see how much they borrow this week, for signs of further cracks. The Fed reports weekly.

In other news, Nike (Dow) reported earnings last night and disappointed on margins, leading to a -4.9% fall in a wobbly market.


Spot Metals,Minerals & Energy Futures
Gold (oz) 1967.80 + 27.60 1.42%
Silver (oz) 22.88 + 0.51 2.28%
Copper (lb) 4.04 + 0.10 2.43%
Aluminium (lb) 1.13 + 0.01 0.54%
Lead (lb) 0.97 + 0.01 1.38%
Nickel (lb) 10.24 + 0.00 0.03%
Zinc (lb) 1.31 + 0.00 0.24%
West Texas Crude 69.95 + 0.62 0.89%
Brent Crude 75.83 + 0.50 0.66%
Iron Ore (t) 127.73 – 0.28 – 0.22%

The copper price has been on the move back up due to dwindling inventories at the LME. The LME was closing just as the Fed statement was delivered, so the impact there is yet to be felt.

With bond yields back down, gold is back up again.

The Aussie is up only 0.1% at US$0.6681 despite the US dollar falling -0.7%.


The SPI Overnight closed down -52 points or -0.7%, which in recent experience seems pretty muted. If correct that would put the index at 6963.

The index started the year at 6946.

The Bank of England meets tonight.

The US will see new home sales.

Brickworks ((BKW)) and Soul Pattinson ((SOL)) report earnings today.

The Australian share market over the past thirty days…

A2M a2 Milk Co Upgrade to Accumulate from Hold Ord Minnett
AUB AUB Group Upgrade to Accumulate from Hold Ord Minnett
CWY Cleanaway Waste Management Upgrade to Neutral from Underperform Credit Suisse
FCL Fineos Corp Downgrade to Neutral, High Risk from Neutral Citi
HLS Healius Downgrade to Hold from Add Morgans
IAG Insurance Australia Group Upgrade to Accumulate from Hold Ord Minnett
NHC New Hope Downgrade to Hold from Accumulate Ord Minnett
RIO Rio Tinto Upgrade to Hold from Lighten Ord Minnett
SCG Scentre Group Upgrade to Accumulate from Hold Ord Minnett
SGR Star Entertainment Upgrade to Outperform from Neutral Macquarie
SM1 Synlait Milk Downgrade to Underperform 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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