The Overnight Report: Not That Bad

Array
(
    [0] => Array
        (
        )

    [1] => Array
        (
        )

)

By Greg Peel

Just Sell

Wall Street tanked on Wednesday night so yesterday the ASX200 tanked too. That’s typically the way it works. The exuberance of Wednesday’s lower than expected CPI print was wiped out, and some.

The selling fed on itself through the morning, before a stoic attempt to bounce in the afternoon amounted to nought, although we didn’t quite close on the low of the day. Given that CPI print took the index through its previous all-time high to establish a new mark was reason enough to take profits. The index had risen 4.5% since January 18.

I suggested yesterday the response to the Fed seemed a bit excessive on Wednesday night and whaddya know, the S&P500 bounced back 1.3% last night. But while we always follow Wall Street down without question, we’re never quite as quick on the bounce-back. Our futures are up only 0.4% this morning.

If profit-taking was a primary driver yesterday, it was a case of sell the sectors that have been performing the best. In falling -1.8%, financials was the worst performing sector by percentage alone, followed by real estate (-1.7%), despite bond yields not moving.

Healthcare, industrials, technology and utilities all saw falls in excess of -1%.

Materials fell -0.8%, despite a bounce-back in the iron ore price, with the top five index losers on the day all miners of various minerals.

The “outperformers” on the day were communication services (-0.6%), discretionary (-0.7%) and energy (-0.5%), while staples was a clear “winner” on -0.1%.

In other news, Australia’s average capital city house price rose 0.4% in January, following gains of 0.3% in November and December.

Westpac’s economists point out price rises averaged 0.8% per month in July-October and 1.2% over March-June. Prices are up 10% in the twelve months to January, but only 4% in the past three months.

Yet, dwelling approvals fell by a net -9.5% in December, and estate agents are already noting buyers looking to get in ahead of RBA rate cuts this year, which are likely still months off.

There was a twist in the tale yesterday, with Caixin’s independent measure of China’s manufacturing PMI coming in at 50.8 for January, unchanged from December, contradicting Beijing’s contractionary result released on Wednesday.

Overdone

After-the-bell earnings responses: Meta up 13% (announces buyback and maiden dividend); Amazon up 5.5%; Apple -1.5% (all at the time of writing).

The most telling factor regarding Wednesday night’s Wall Street rout, since dubbed “March Madness”, was that the US ten-year yield fell -9 points in response to Jerome Powell pushing back on the possibility of a Fed rate cut at the next meeting in March.

The stock market screamed “oh no, no cut!”, while the bond market simply took on board the fact the Fed will cut, just not right now. Through 2023, the Fed’s mantra was “likely more work to do” to reel in inflation, meaning maybe more hikes to come. Since December, and into this year, it’s been a case of yes, we will be cutting, but not just yet.

Last night the US ten-year fell another -10 points to 3.86% and the stock market had a rethink. Either that, or the smart money that stays right away from post Fed decision trading, waiting to make its move the day after, decided a buying opportunity had been presented.

And that is the simple story of last night. I said yesterday that with the Fed out of the way, the focus is firmly back on earnings results. Notably, all three of the above stocks, and the techs in general, were bought back up last night ahead of these critical result releases.

Commodities

If the Caixin PMI was behind a bounce-back in iron ore, base metals didn’t get the memo.

Gold is enjoying tumbling US yields.

The oil market is still linking the prospect of Evergrande setting off a domino effect among property developers in threatening weaker demand out of China.

The US dollar didn’t much move on Wednesday night but is now down -0.5% on US yields, sending the Aussie up 0.3% to US$0.6573.

Today

The SPI Overnight closed up 30 points or 0.4%.

We’ll see the December quarter PPI numbers today.

For the US it's January jobs.

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