The Overnight Report: Banks Versus Tech

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

By Greg Peel

Pause for Effect

While the media focussed on the March quarter headline CPI falling to 7.0% from 7.8%, that fall was still short of 6.9% forecasts. And inflation still rose, by 1.4%, despite cycling last year’s surge.

The important number was the core CPI, which fell to 6.6% from 6.9% when 6.7% was forecast. Along with a March month headline number of 6.3%, suggesting inflation is continuing on a downward path, economists for the most part now expect the RBA to pause again in May. They still assume more hikes down the track.

Goods inflation may be coming down, including energy prices over the period, but services inflation remains as sticky as ever, indeed rising more than forecast in the quarter.

The data were nevertheless enough to turn the ASX200 around yesterday from an initial -37 drop on more US banks fear, in line with the futures’ assessment, to a mild -5 points.

The banks (flat) have been rabbits in the headlights these past two sessions while consumer staples (flat) and discretionary (dead flat) saw no joy from the CPI.

The sector winner on the day was actually energy (+0.9%), despite lower oil prices, which are lower still overnight. Industrials backed up with +0.8%.

Real estate would have enjoyed a -14 point plunge in the Aussie ten-year yield and -17 points in the twos, following the US, but on the other hand commercial real estate fears would be heightened again following the US banks situation. Stockland ((SGP)) helped by rising 2.6% on its quarterly update and the sector gained 0.1%.

Healthcare was also flat, leaving utilities to be the worst performer (-1.1%). Materials provided weakness (-0.7%) on falling metal prices, along with a quarterly from Mineral Resources ((MIN)) outlining delays at its lithium mine. It fell -7.8%.

Lithium miners are continuing to play on both sides of the field now, some up on the day, some down.

Technology is a lot less volatile these days, and fell -0.4%.

They say you shouldn’t cry, but a profit warning from Synlait Milk ((SM1)) had that stock down -26% and a2 Milk ((A2M)) down -5.1% in sympathy despite the latter expressing great surprise at the Synlait downgrade.

Wall Street has battled bank fears and solid tech earnings overnight to post a mixed session which has our futures down -16 points this morning.

Second Casualty

The question now is as to whether the powers that be will step in to save First Republic Bank depositors as they did with those of SVB. First Republic fell another -30% last night before being halted to be down -95% since SVB. Janet Yellen had at the time implied SVB didn’t have to be a one-off.

All indications are that First Republic is itself a one-off. SVB’s demise sparked a sector-wide sell-off of all US regional banks and weakness in the big banks and threatened to create a new financial crisis were the run on banks to continue. The Treasury, FDIC and Fed had no choice but to act.

First Republic’s result release that set its demise in train followed releases from other US regionals showing no such issue, and when First Republic’s share price started to tumble, this time other banks did not much join in. A clear case in point is PacWest Bancorp.

As noted yesterday, PacWest reported in Tuesday night’s aftermarket and shot up 14% on news deposits actually increased in the month of March. While last night saw PacWest up a more modest 7.5%, the point is the bank-run situation is not systemic.

US bond yields, which plunged on Tuesday night, clawed back 4 points each in the tens and twos.

Would the authorities thus see First Republic as the Lehman to the Bear Stearns that was SVB?

The other problem is that if depositors are guaranteed by the regulators, US$30bn of that belongs to America’s biggest banks. Taxpayers bailing out JPMorgan?

First Republic was last night’s bad news, and enough to still have Wall Street anxious. The Dow fell again, as did all sectors in the S&P500 bar one – information technology.

That was thanks to Microsoft, which having reported earlier rose 7.2% last night. It couldn’t save the Dow, but it could turn around the Nasdaq single-handed.

Google didn’t much move the dial last night but after the bell, Meta reported and is currently up 12% in the aftermarket, bearing in mind it was already up 75% year to date.

All the Mega Techs have surged this year to lead the S&P500 back towards prior highs, and so far that bet is proving correct. We still have Amazon tonight and Apple next week nevertheless.

And a lot of real world reports to flow, with next week being the biggest in the season by number of reporting stocks.

Commodities

Lost in the wash last night were US economic data showing core durable goods orders fell -0.4% in March to mark the fifth decline in seven months. Add in the weak US consumer confidence number on Tuesday night and recession fears continue to overwhelm oil markets.

Last night data showed a bigger than expected drawdown of US crude inventories, which under normal circumstances would have oil prices rallying. Not currently.

General weakness across the metal spectrum also continues and on that, and a possible second pause from the RBA, the Aussie is down -0.4% to US$0.6606 despite the US dollar also being down -0.4%.

Today

The SPI Overnight closed down -16 points or -0.2%.

The US will see a first estimate of March quarter GDP tonight.

There is a wealth of local companies providing quarterly updates today, including gold miners such as Newcrest Mining ((NCM)) along with exotics miners and a few non-miners.

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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