The Overnight Report: Here We Go Again?

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This story features FORTESCUE LIMITED, and other companies.
For more info SHARE ANALYSIS: FMG
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Monday

In lacklustre trade, the ASX200 opened lower on Monday and drifted higher to close down -8 points.

It was a case of resources versus the rest, with energy and materials weak, the banks flat and all other sectors stronger.

Energy fell -0.6% despite slightly higher oil prices, likely reflecting economic slowdown concerns. Materials fell -1.7% following weak production reports from Fortescue Metals ((FMG)) and South32 ((S32)), following on from weak reports from the biggies last week.

Lithium miners were mildly up and down in the wake of the move by Chile to nationalise lithium mining. Albemarle has subsequently clarified that the move will not impact existing contracts.

Now we can all get some sleep.

Aussie bond rates were steady but real estate topped the board with a 1.1% gain, with Goodman Group ((GMG)) and Scentre Group ((SCG)) leading the way.

Healthcare was next best (+1.0%) while all other sectors saw uniform gains of 0.6-0.7%, suggesting money shifting out of resources and into anything else other than banks.

InvoCare ((IVC)) topped the index losers’ board in falling -7.8% after private equity formally pulled its takeover bid.

Monday Night

In yet another wait-and-see session on Monday night on Wall Street, following on from little movement last week, the Dow closed up 66 points, the S&P rose less than 0.1%, and the Nasdaq dipped -0.3%.

The only company reporting of note on Monday night was Coca-Cola (Dow), which posted a beat and fell -0.2%.

Otherwise, Wall Street was waiting for results from Google and Microsoft, due after the bell on Tuesday night, followed by Meta on Wednesday and Amazon on Thursday, the March PCE inflation numbers on Friday and, next week, the Fed meeting.

One would presume it would take something extraordinary in the PCE numbers to prevent a 25 point rate hike from the Fed, but Monday night also brought another issue to mull over.

Aside from Mega Tech, Wall Street waited on Monday night for the after-the-bell result from First Republic Bank.

We recall that having been voted at the time the bank most likely to be next following the collapse of SVB, First Republic lost -90% of its value before a consortium of America’s biggest banks jumped in with a collective US$30bn deposit.

A couple of regional bank reports ahead of First Republic had come in not as bad as feared, so with that in mind investors pushed First Republic shares up 12% on Monday night ahead of its result. Having reported, the stock fell -22% in the aftermarket.

The problem was not earnings or revenues – they comfortably beat. The focus was on deposits, and they fell -41% in the March quarter, inclusive of the US$30bn injection.

The bank subsequently announced a -20-25% layoff of staff, a reduction in executive compensation, and a reduction in office space.

The Mega Caps in question have all had solid runs from their bottoms largely due to headcount reduction, seen as trimming a lot of unnecessary fat from bulging workforces. It is a different story for First Republic, which clearly needs to slash costs under dire circumstances.

Could this signal the credit tightening the Fed, and Wall Street, had been expecting, reducing the need for another rate hike?

US bond yields had been ticking back up steadily post the SVB collapse, but on Monday night the ten- and two-years drifted down once more, possibly reflecting a bit of square-up. The bond market closed before First Republic reported.

Tuesday Night

First Republic Bank ultimately fell -43% last night. The company is considering “strategic options to expedite” progress and reinforce its capital position, which may include selling -US$50-100bn of assets, such as long-dated mortgages and securities, to offset the deposit drain.

We recall that Silicon Valley Bank’s collapse began with the bank selling assets to cover deposit withdrawals.

First Republic’s woes had all US regional banks trading lower, but not by worrying amounts. US big banks also traded marginally lower.

They did nevertheless rather spook Wall Street in general, leading to the biggest sell-off in a month. Investors once again bailed out of stocks and into bonds. The US ten-year fell -12 points to 3.40% and the two-year -19 points to 3.95%.

This provided no comfort for the Nasdaq, as investors decided to play it safe and take some profits on outperforming Mega Tech stocks ahead of their results.

Not helping the mood was a fall in the Conference Board’s monthly consumer confidence index to 101.3 from 104.0 to mark a nine month low.

That result helped oil prices down once more on slowdown fears.

Then followed the earnings result from UPS, considered an economic bellwether. Its shares fell -10%, bemoaning the switch in consumption from goods to services.

Also likely not helping is the number of commentators who have been warning valuations are simply too high if a recession is looming.

Then the bell rang.

After the bell, Microsoft (Dow) reported and is up 8.5% in the aftermarket. Google reported and is up 1.4%.

Ditto Visa (Dow), considered a bellwether for consumer mood, up 1%.

Also considered such a bellwether is fast food giant Chipotle Mexican, which jumped 10% after reporting no impact from price hikes in the period. McDonalds (Dow) had a similar tale to tell during the day session, although it dipped -0.5%.

Despite all the focus on the Mega Techs, perhaps the most telling result after the bell was that of another US regional bank called PacWest Bancorp. It reported a net -16% fall in deposits in the period, which is not only comparatively much better than First Republic, deposits were down -27% at one point during the period.

PacWest is up 14% in the aftermarket, on the implication the problems for First Republic, and for SVB and others in March, are not necessarily systemic across regional banks.

Commodities

Note that all commodity price moves above represent two sessions – Friday and Monday nights.

For metals and oil, the issue is fears of a global slowdown outweighing hopes of a rejuvenated China.

Yesterday Xi Jinping and other top leaders highlighted several risks the economy still faces. According to a vice commerce minister, China will take steps to boost trade with major nations amid a slowdown in the global economy.

The Aussie is down -1.0% over two sessions to US$0.6630.

Today

The SPI Overnight closed down -38 points or -0.5%.

It’s a big day for Australia today as March quarter CPI data are released. Keep pausing, or hike again?

The US will see durable goods orders and Meta will report after the bell.

Mineral Resources ((MIN)) and Stockland ((SGP)) provide quarterly updates.

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.

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