The Overnight Report: Awaiting CPI

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World Overnight
SPI Overnight	7719.00	+ 5.00	0.06%
S&P ASX 200	7704.20	– 142.80	– 1.82%
S&P500	5117.94	– 5.75	– 0.11%
Nasdaq Comp	16019.27	– 65.84	– 0.41%
DJIA	38769.66	+ 46.97	0.12%
S&P500 VIX	15.22	+ 0.48	3.26%
US 10-year yield	4.10	+ 0.02	0.37%
USD Index	102.84	+ 0.13	0.13%
FTSE100	7669.23	+ 9.49	0.12%
DAX30	17746.27	– 68.24	– 0.38%

By Greg Peel

Who Blinked?

The S&P500 fell -0.6% on Friday night after the US February jobs reported came in hotter than expected, but given a rise in the unemployment rate and slower than expected wage growth the report was considered to be balanced.

The main issue on Friday night was a -5.5% pullback in Nvidia, the AI rock star that had been going nowhere but up, leading to expectations a pullback must be near. Nvidia’s fall set in train wider selling on Wall Street, in tech in particular.

The SPI Overnight closed down -0.6% on Saturday morning. So far this year the local market has not been carried away with moves on Wall Street that are attributable to the Mega Techs. So when the ASX200 plunged -100 in the first half hour yesterday, something more was at play.

We could blame excitable algos, but the index continued to fall steadily to the close. There was no bounce of any note. The Australian market had also moved into blue sky territory, and clearly someone decided it was time to take profits. When one blinked, everyone else followed.

The tell-tale are the banks. They have been surging over the past month, and yesterday fell -2.2%.

The next knife in the side of the local market yesterday was a big fall in the iron ore price. Materials fell -2.6%. Throw in a -2.1% fall in energy, on only a modest move down in oil prices, and there’s your index wipeout laid bare.

Next worst was healthcare (-1.6%), but then both CSL ((CSL)) and Ramsay Health Care ((RHC)) went ex, so the fall was not as bad as it looked.

Thereafter, falls of around -1% in other sectors smacked of simply joining in the sell-off. Another exogenous factor that may have helped fuel the panic was a -2.9% plunge in the Japanese stock market yesterday, following a stronger than expected GDP result that led to fears of a BoJ rate rise.

There was nothing going the market’s way yesterday, and selling begat selling. The 7800 level was left in the dust from the open and ultimately the index pulled up at 7700, which has provided a base for two sell-offs this past month.

The local market was arguably in need of a bit of a reality check, and yesterday it didn’t muck around.

With Wall Street again a little lower last night, as traders await tonight’s February CPI data, our futures are not signalling any sharp bounce this morning – up only 5 points.

To put things into perspective, the ASX200 yesterday fell all the way back to the low from last Wednesday.

More Rotation

Nvidia fell another -2.0% last night, after falling -5.5% on Friday night. They seem like negligible numbers for a stock that’s run up a few hundred percent lately, but when you have a market cap of over US$2trn, even the smallest moves are influential.

If your market cap is US$3trn, then a move up of 1.2% is also influential. Nvidia has been the star of 2024 among the Mega Techs while Apple has been the laggard. Last night saw a second session of rotation out of the AI stars and into the weaker performers – not just within the Big Techs, but elsewhere across the market.

No one was prepared to take any big bets nonetheless, ahead of tonight’s CPI.

For the record, Apple is said to be working on introducing AI which may come with the next iPhone iteration. Google, which has also been a laggard, simply messed up its AI launch. It was up 1.7% last night.

The question is being asked: Can this trickle of an AI correction turn into a flood? There is little disagreement that Nvidia and friends had run a bit far in a short space of time.

The general answer is there is no change to the AI story. It’s not hype. Overblown stock valuations are part and parcel of any market, as are oversold. There are likely plenty of investors who missed out on the way up, ready to pounce on any decent pullback in Nvidia, or other stocks, for that reason.

There is no sign of panic, but we recall that once upon a time, back before covid, it was typical for a Wall Street rally to feature one or two -5-7% pullbacks along the way in any given year – pullbacks that were always considered healthy and necessary for the rally to be sustained in the longer term.

The post-covid era has thrown that playbook out the door. Wall Street bounced hard out of covid in 2020, continued to rally throughout 2021, fell back all through 2022 and then rallied again in 2023. There have been very few pullbacks along the way, let alone -5-7%.

Perhaps it’s time for a bit of “normalisation”.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	2182.40	+ 3.80	0.17%
Silver (oz)	24.44	+ 0.18	0.74%
Copper (lb)	3.90	+ 0.04	1.00%
Aluminium (lb)	1.01	+ 0.01	0.54%
Nickel (lb)	8.23	+ 0.13	1.66%
Zinc (lb)	1.16	+ 0.02	1.70%
West Texas Crude	78.09	+ 0.08	0.10%
Brent Crude	82.41	+ 0.33	0.40%
Iron Ore (t)	113.00	– 4.05	– 3.46%

A temporary supply glut as a result of better-than-expected iron ore shipments so far in the first quarter of the year and a weaker than expected demand recovery has put intense downward pressure on prices, Mining.com reports.

Global ore shipments have climbed to a relatively high level. The recent ore price fall has not triggered a production reduction among non-mainstream suppliers. Some mills postponed again the timing of production resumption, curbing ore demand rise and destocking at ports.

Poor profitability among steelmakers has dented their interest in ramping up output, and the weakness in the steel market has permeated into the upstream raw materials market, weighing on ore prices.

The story in iron ore is in contrast to that in base metals, and battery minerals, which are enjoying a post New Year restocking phase. The “around 5%” GDP growth target set by Beijing is to be supported by investment in all things tech, from EVs to AI, and that will require copper, nickel, lithium, and so forth.

Meanwhile, there is a “who’ll blink first” going on between bitcoin and gold, which both have gone nowhere but up recently. There is a certain irony in recollection the gold price underwent a similar rally to that of bitcoin now when gold ETFs were first introduced earlier this century.

Money is pouring into bitcoin ETFs, with sizeable blocks implying institutional investment.

The Aussie is down -0.2% at US$0.6616.

Today

The SPI Overnight closed up 5 points.

The NAB business confidence survey for February is out today along with the Westpac consumer confidence survey for March.

US CPI tonight.

IGO Ltd ((IGO)) and News Corp ((NWS)) are among those stocks going ex today.

The Australian share market over the past thirty days…

Index	11 Mar 2024	Week To Date	Month To Date (Mar)	Quarter To Date (Jan-Mar)	Year To Date (2024)
S&P ASX 200 (ex-div)	7704.20	-1.82%	0.07%	1.49%	1.49%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AX1	Accent Group	Upgrade to Neutral from Sell	UBS
VUK	Virgin Money UK	Downgrade to Neutral from Outperform	Macquarie
ZIP	Zip Co	Upgrade to Buy from Neutral	UBS

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.)

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