The Overnight Report: Not Committed

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            [3] => ((TPG))
            [4] => ((IRE))
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This story features TELSTRA GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: TLS
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Rinse & Repeat

On Tuesday the ASX200 fell -67 points on a “surprise” RBA rate hike. Yesterday it fell -70 points on a combination of rekindled US bank fears and tumbling oil prices. Last night the Fed hiked by 25 points and our futures are down -35 this morning.

A quick turn of the tide.

It doesn’t matter how disconnected our banking system is with the US regional banking system, it’s just a sentiment thing, which led the financials sector down -1.5% yesterday.

A combination of growing US recession/lack of Chinese growth fears and evidence OPEC members are not, blow me down, sticking to production cuts had oil prices tanking on Tuesday night and again last night, and the energy sector down -2.1% yesterday.

On Tuesday the consumer sectors were hit by the RBA rate hike, but yesterday discretionary only fell -0.3% and staples closed just slightly higher, perhaps comforted by the March retail sales report.

Sales rose 0.4% in the month despite the howling headwinds of the cost of living. But it was all about food. Food sales in general rose 1.0% and within that, dining out/takeaway leapt 10.8%. In a month. Non-food sales fell -0.5%, as sales in household goods, clothing and department stores all went backwards.

Eating out of home is a service, and as the RBA pointed out on Tuesday, service inflation is just not coming down. But the numbers reflect dollar sales not foot traffic, and we’re all paying a lot more at a restaurant. Food prices remain elevated.

Indeed in nominal terms (ex-inflation), retail sales grew by 0.0% in the March quarter.

It looked like Telstra ((TLS)) was the only place to hide yesterday as its 0.7% gain against the tide led communication services up 0.3%, despite oOh!media crashing -23.9% on an update.

The other place to hide was in gold, as the gold price pushes above US$2000/oz, and the leaders’ board was littered with gold miners. They couldn’t stop materials falling -0.9%, as anything China buys continues to fall in price.

Real estate fell -1.0% while all of healthcare, industrials, utilities and technology fell a uniform -0.7%.

The Fed did nothing to save the day last night, and tonight we see an earnings result from Apple.

Are We There Yet?

“We getting closer, maybe we’re there,” said Jerome Powell in his post-meeting press conference last night. What he didn’t say was “That’s all folks,” which is what Wall Street wanted to hear.

Wall Street had fully expected another 25 point hike, to 5.00-5.25%, but strongly believed that in lieu of the regional banking crisis, which has not gone away, that the Fed would now be ready to stop and let the impact of 525 basis points of rate increases in a little over a year play out.

Instead, Powell waved away the banking situation as nothing to worry about. Rather, he noted the process of getting inflation back down to 2% “has a long way to go” and that the labour market remains “very tight”.

In fact, “a decision on a pause was not made today”.

There may have been no decision, but surely it was discussed, and it was notable that missing from the May statement compared to the prior March statement that the FOMC expects “some additional policy firming.”

The odds of a pause at the June meeting have risen to 89%.

It’s typically a wild ride on Wall Street in the final hour and a half after the Fed statement release and during the press conference so the dust has to settle by tonight to see what Wall Street really thinks. The US bond market has little doubt.

The ten-year fell -8 points to 3.36% and the two-year -11 to 3.87%. Given the two-year is a proxy for the Fed funds rate, that’s now a 113 point spread to even the bottom of the new range. The bond market is pricing in a recession, and the Fed funds futures, after a pause in June, is pricing in four -25 point cuts before year-end, or -100 points, consistent with the two-year yield.

The Fed does not see any cuts ahead.

Mind you if it did, and said so, that would be to admit it got it wrong (again).

Yet the Fed was right about one thing – the US labour market remains tight. Last night’s private sector jobs report for April showed 296,000 new jobs – a nine-month high. It’s meant to be going the other way. The non-farm payrolls report is out tomorrow night.

Meanwhile, no more is a coming recession evident than in oil market sentiment. Last night oil prices fell another -4% on top of Tuesday night’s -5%.

In last night’s earnings results, chipmaker Advanced Micro Devices fell -9% warning of ongoing low PC demand, Starbucks fell -9% because it didn’t raise guidance after an earnings beat, and Estee Lauder fell -17%, rather blowing the lipstick gauge out of the water.

Commodities

Base metal markets closed as the Fed statement was released.

Gold is up again as bond yields fall.

The Aussie is up a tad at US$0.6674, with the US dollar index down -0.6% despite the rate hike, given the bond market went the other way.

Today

The SPI Overnight closed down -35 points or -0.5%.

We’ll see March trade numbers today as will the US tonight.

China is back in business today but Japan is closed again.

The ECB holds a policy meeting.

National Bank ((NAB)) reports earnings today, while Rio Tinto ((RIO)), TPG Telecom ((TPG)) and Iress ((IRE)) hold AGMs.

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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