The Overnight Report: Marching To Quarter-End

Array
(
    [0] => Array
        (
            [0] => ((PDN))
            [1] => ((AMP))
            [2] => ((HVN))
        )

    [1] => Array
        (
            [0] => PDN
            [1] => AMP
            [2] => HVN
        )

)

This story features PALADIN ENERGY LIMITED, and other companies.
For more info SHARE ANALYSIS: PDN
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

Never Mind the RBA

Australian job vacancies fell -1.5% in February from November, showing signs the labour market is tightening, but demand for labour remains high. Employers across Australia in all industries reported job vacancies in February are nearly double what they were three years ago before the start of the pandemic.

The number of unemployed persons per job vacancy remains around record lows, note National Bank’s economists, moving marginally higher to 1.16 unemployed persons per vacancy after three quarters at 1.1. That compares to above 3 prior to the pandemic.

These statistics are going to make any decision to pause from the RBA next Tuesday very difficult. And fiscal policy is not going to help either.

The new Labor government in NSW has pledged to remove the 3.0% public sector wage cap, while the Federal Workplace Relations Minister has essentially backed another inflation-linked increase in the minimum wage this year.

Wage-price spiral.

Not that anything bothered the local market yesterday, which shot up 1% from the open on Wall Street strength and basically stayed there.

The banking crisis is now well behind us, market strength implies, and despite UBS sounding warning bells on Wednesday, yesterday financials rose 1.5%.

All sectors rose bar real estate (-0.2%), with bond yields up 6-8 points. Technology clocked the highest percentage gain (1.7%) as it pretends to be the Nasdaq, while materials (+1.5%) combined with the banks to drive the index, rising on stronger metals prices, other than gold.

Uranium is back in vogue again. Paladin Energy ((PDN)) topped the index with 8.3% as it moves towards restarting its Langer Heinrich mine.

There are three schools of thought with regard next week’s policy meeting. The RBA will pause, as it has signalled it will do soon, or hike by 25 points given ongoing inflation pressure, or in another scenario, pause in April and hike again in May.

Get your tickets now – this one should be a cracker.

Today ends the March quarter and with Wall Street remaining positive, our futures are up 38 points. 7000 has been left in the dust, but it’s still a long way back to the early March peak of 7364, pre-SVB.

Fight the Fed

The S&P500 is, however, now back to where it was pre-SVB – 4050.

The same debate is raging on Wall Street – will the Fed pause in May? There’s a lot to get through before the early May meeting, not just economic data but next month’s US earnings result season.

Wall Street seems convinced the bank crisis is over, and is more convinced as each day passes without another blow-up. Investors are happy to clutch on to any positive (ie bad) economic data.

The US December GDP growth result was revised down to 2.6% last night from a prior 2.7%. New jobless claims rose last week to 198,000 from 191,000. Woohoo!

The Dow was up 200 points from the open before losing ground mid-session, then regaining most of it again. The dip was due to Fedspeak.

The Boston Fed President, who doesn’t normally say much, said last night the stress in the banking sector made it hard to know what was the appropriate interest rate policy, but another 25 point hike seemed reasonable.

But the Richmond Fed President sees a “pretty wide” range of possible outcomes for path of rates given the uncertainty facing the outlook. “Most forecasts of our policy path seem to average the risk of higher inflation with the risk of further contagion in banking.”

Thanks Scoop.

The notable feature of last night’s rally on Wall Street was increased breadth. Big Tech still led, and the Nasdaq outperformed, but there was also strength in cyclical sectors such as industrials and materials.

Banks were under pressure again, nevertheless, particularly the regionals, as the White House released proposals for tighter regulations, and a rollback of the rollback of post-GFC regulations made under Trump.

What commentators find hard to fathom is not just the fact Silicon Valley Bank was deemed too small to require the same balance sheet stress tests the Fed demands of the bigger banks, but those tests only consider stress if interest rates fall, ie like they did in the GFC. There is no test for rates going up.

Might need a rethink there, particularly if the Fed is considering yet another rate hike in May.

Wall Street’s argument is that even if there is no further bank crisis, the effect of the tighter lending conditions that will emanate from the SVB collapse, and likely stricter regulations to boot, is significantly disinflationary.

Wall Street will close out the March quarter tonight.

Commodities

Metals prices continue to mostly press higher. Ignore nickel – the market has lost all faith in the LME.

Oil producers have shut in or reduced output at several oilfields in the semi-autonomous Kurdistan region of northern Iraq following a halt to the northern export pipeline, company statements showed last night. More outages are on the horizon.

US inventories saw a drawdown last week, supporting higher oil prices.

US bond yields again did not move much last night, but the US dollar is down -0.5%. Hence the Aussie is up 0.4% at US$0.6713.

Today

The SPI Overnight closed up 38 points or 0.5%.

Australia will see February private sector credit numbers today.

China will release its March PMIs.

The US will see February PCE inflation and the latest consumer sentiment survey.

AMP ((AMP)) holds its AGM today, and Harvey Norman ((HVN)) goes ex.

Note that summer time ends in Australia this weekend, hence as of Tuesday morning, the NYSE will close at 6am Sydney time. The SPI Overnight will continue to trade until 7am.

The Australian share market over the past thirty days…

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