The Overnight Report: Crisis Over

Array
(
    [0] => Array
        (
            [0] => ((RMD))
            [1] => ((SYR))
            [2] => ((NAN))
            [3] => ((WOW))
            [4] => ((EDV))
        )

    [1] => Array
        (
            [0] => RMD
            [1] => SYR
            [2] => NAN
            [3] => WOW
            [4] => EDV
        )

)

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

By Greg Peel

Have a Break

The futures market has set the odds of another RBA pause today at 91%. Other than inflation on the slide (albeit still high, and don’t mention rents), one wonders how much of that relates to recent scrutiny of RBA policy scope and the subsequent shake-up in the face of an Australian housing crisis, never mind the general cost of living.

The ASX200 shot up 50 points from the open yesterday as the futures had suggested, on the back of Wall Street strength on Friday night and the likelihood of a First Republic Bank rescue anytime that morning. Not that there’s much of a connection to Australia’s well-capitalised banks — it’s a global sentiment thing.

And so it was America’s biggest bank, JPMorgan, has acquired First Republic, Just as it acquired Bear Stearns in 2008, although that was under duress.

While early index enthusiasm faded towards the close, likely reflecting some caution ahead of today’s RBA decision, the local financials sector closed up 0.8%.

Energy (+1.1%) and utilities (+1.3%) were the best performers on a jump in oil prices while healthcare turned around from last week’s weakness, rising 1.0%. That was thanks to a chart-topping 6.6% move up for ResMed ((RMD)) shares in the wake of its March quarter result.

Materials (-0.4%) balanced out the usual ups and downs among the lesser constituents. Syrah Resources ((SYR)) yet again topped the losers’ board with a -10.8% fall. The graphite miner has been in the wars lately on operational issues, weak demand from China, lowered production guidance and a capital placement, and has fallen -57% from its January peak.

Technology was the biggest loser (-1.4%) and really does seem now to have disconnected itself from daily Nasdaq moves. Nanosonics ((NAN)) made it into the top five losers with -2.8% but there were no particular train crashes elsewhere to drive the weakness.

Communication services slipped a bit (-0.1%) and all other sectors were modestly higher.

Remember when economists were sure Australian house prices would fall -10-20% this year in the wake of RBA rate hikes? Well they’re down -8.4% in 12 months but April saw the second consecutive monthly gain in the average, up 0.7%.

Now economists are starting to think the bottom is in. The force of record migration, catching up from the covid border closures, is just too powerful.

Which puts the RBA between a rock and a hard place.

We’ll know more at 2.30pm, and most likely nothing much will happen before then. The futures are down -5 points this morning.

Cavalry Arrives

The rate debate in the US is not dissimilar, with the Fed set to deliver its decision on Wednesday night, other than the odds of another hike well outweigh those of a pause. There is nevertheless a strong belief if there is another 25 point hike, it could be one and done.

There remains a belief that tightening in credit markets as a result of the banking crisis, and likely tighter regulation to follow, would do enough work for the Fed to alleviate the requirement of another hike. On that subject, JP Morgan CEO Jamie Dimon has declared “The banking system is very stable. This part of the crisis is over”.

Which begs the question, what’s the other part?

JPMorgan has acquired First Republic, believing it can generate more than US$500m of incremental net income per year from the acquisition. Unlike Bear Stearns, which by that point was a dog with fleas. JPMorgan (Dow) shares rose 2.1% last night.

Yet, despite Dimon’s confidence, US regional bank stocks were generally down around -3% last night. Maybe they fear the other part.

The US bond market nonetheless responded with a 12 point jump in the ten-year to 3.57%, although such moves up and down have become rather standard of late.

Wall Street opened with another burst of enthusiasm last night on the First Republic rescue but gave it all back to end on a flat note, likely reflecting caution ahead of the Fed and the fact there were no major earnings result releases on the day.

The S&P500 moved closer to 4200 and became frightened, as this has been the level the market has turned tail at twice over recent months.

The biggest company, Apple, reports on Thursday night post-Fed.

The economic data highlight of the day was the US manufacturing PMI, which rose to 47.1 in April from 46.3 in March, suggesting the pace of contraction is slowing after six months of sub-50 numbers.

While hardly knocking it out of the park, the PMI is another tick in the box for those believing any recession will be mild and the landing will be soft. Economists are still surprised by the strength of the US consumer in the face of 500 points of rate hikes, but is it just a slow moving process?

It could give one pause for thought.

The futures markets are still convinced the Fed will soon be cutting. One year out, the predicted rate is -200 points lower, or eight -25 point cuts.

History shows that when the Fed starts to cut after a run of hikes, Wall Street starts falling, for the simple reason that a rate cut can only signal an economy in trouble.

Commodities

The UK and China were closed for May Day so no action in metals beyond the precious variety.

The fall back in oil prices is attributed to China’s manufacturing PMI reported on Friday as falling to 49.2 from 51.9.

The US dollar is higher on bond yields but the Aussie is up 0.2% at US$0.6632 ahead of the RBA.

Today

The SPI Overnight closed down -5 points.

Philip Lowe will speak today post RBA meeting.

China is closed again today.

The US will see data for factory orders.

Woolworths ((WOW)) and its spin-off Endeavour Group ((EDV)) provide quarterly updates today.

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