The Overnight Report: Data Dependent

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By Greg Peel

Light My Fire

I don’t know what was in the hot-cross buns but with the S&P500 up 0.4% on Thursday night and 0.1% on Monday night, and our futures up 9 points on Friday morning and closed on Monday night, a 1.3% leap for the ASX200 yesterday was not undeniably predictable.

We could point to thin school holiday trading, but this was not a session of rolling momentum. The index shot up in the first 20 minutes and that was that for the day.

The standout headline was that of an increased offer from (former parent) Newmont mining for Newcrest Mining ((NCM)), sending Newcrest up 5.2%, but this only put the miner fourth on the ASX200 winners’ list and ninth on the ASX300. All of the ASX300 top ten winners were resource stocks, covering everything from lithium and cobalt to nickel, copper, gold and uranium.

The materials sector rose 2.2%, supported by gains for the big miners with iron ore prices higher, along with just about every other commodity. Note that the London Metals Exchange was closed on Monday night.

Energy rose 1.1% and the banks rose 1.2%. That has little to do with a gold miner takeover.

Westpac’s consumer confidence survey showed a significant 9.4% jump for April, courtesy of the March rate pause, to its highest level since June last year. That would have helped the banks, as well as consumer staples (+1.2%) and discretionary (+1.3%), and even real estate (+1.1%).

Despite the lift, consumer confidence remains in the well-pessimistic range – not much better than the nadirs of the GFC and covid crash.

In other news, China’s CPI rose only 0.7% in March while the PPI fell -2.5%. The PPI implies a flow-on to lower export inflation (or import inflation for us), but Aussie bond yields were 5-6 points higher yesterday.

The Korean central bank kept its rate on hold.

It’s a bit hard to write yesterday off as some sort of thin market brain explosion given the S&P500 closed dead flat last night, yet our futures are up another 25 points this morning. From a technical perspective, the index has broken up through what was (briefly) solid resistance at 7200 to run away another hundred points.

Such optimism is bold ahead of tonight’s US CPI release, which had Wall Street in a cautious mood last night.

Squared up and ready

The jury is still out on whether the Fed will go again with another 25 point hike in May or pause, with a decision taking into account just what impact tightening credit conditions post-SVB will have in terms of doing the Fed’s work for it. Suggestions are that impact could be anywhere between a 25 point and 75 point rate hike equivalent.

A lot will come down to tonight’s CPI data. Forecasts are mixed. Economists are forecasting a big drop in annual headline CPI to 5.1% in March from 6.0% in February, thanks to lower food and energy costs, but an increase in the core rate to 5.6% from 5.5%. Such a result will be difficult for Wall Street to interpret.

Last night’s trade on Wall Street began much the same as Monday night’s trade – falling early, then rallying back towards a stronger close. But this time all momentum was lost in the final half hour as traders squared up. The Dow gave up a near 200 point gain to close up 98, the S&P fell back to be flat, and the Nasdaq was flat before closing down -0.4%.

Cyclicals such as industrials and materials balanced out selling in Big Tech, as was the case on Monday night. Microsoft fell another -2.3% to put a dampener on all three indices.

The CPI is not the only data release between now and the May 3 Fed meeting. This week also brings the PPI and retail sales numbers. On Friday the big banks kick off earnings.

Last week’s jobs report was heartening but not enough to tip the balance for the Fed. The meeting will be held just ahead of the April jobs report, but just after the March PCE. By that stage half of S&P500 companies will have reported earnings.

Forecasts are for a -6.8% annual decline in S&P500 March quarter earnings, which combined with the December quarter’s fall would mark an “earnings recession”.

Yet while the banks unofficially kick off earnings season, there have been some early reporters this week.

Guess who’s Mum’s got a Whirlpool. The ancient US whitegoods manufacturer was among the winners last night on earnings, in rising 3.8%, and as a consumer discretionary business drew a lot of attention.

Ditto used car dealer CarMax, which rose 9.6%.

Commodities

The LME reopened last night to a mixed response. Iron ore is pressing higher, and gold made a comeback despite a further slight tick-up in US bond yields.

The US dollar was down -0.4%.

Reports suggest a bump-up in oil prices reflects traders backing a Fed pause in May, ahead of tonight’s CPI release, which one would think is counterproductive.

The Aussie is up 0.2% at US$0.6656.

Today

The SPI Overnight closed up 25 points or 0.3%.

US CPI tonight, along with the minutes of the March Fed meeting.

The Australian share market over the past thirty days…

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