The Overnight Report: As You Were

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This story features BHP GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: BHP
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Failure to Launch

Wall Street had rallied strongly on Tuesday night despite a hotter CPI, which one might have thought would provide some incentive for buyers in the local market yesterday after Monday’s demolition. The futures weren’t keen (up 5) but mid-session the ASX200 was up 29 points.

And then it came down again, dragged down by another fall in the iron ore price, now off to over a five-month low. Shares in BHP Group ((BHP)), which fell -1.3% yesterday, are nearing a nine-month low.

We cannot avoid the fact the Australian market cannot go up if BHP goes down.

Lithium is going the other way nevertheless, with the lithium carbonate price pushing towards a four-month high. Liontown Resources ((LTR)) topped the boards yesterday with a 6.1% gain, but Core Lithium ((CXO)) topped the other board in falling -9.1%, after reporting earnings and losing its CEO.

Gold miners were weak, on a pullback in the gold price due to higher US bond yields, which, despite higher-still yields, has turned around overnight.

Energy was also weak yesterday (-0.4%), but oil prices have popped overnight, so that should also change today.

Out in the rest of the market, we had a rather strange session. The Aussie ten-year yield rose 7 points to 4.01%, following the US, but most every interest rate-sensitive sector closed in the green. Healthcare didn’t (-0.3%), nor industrials (-0.4%), but in the latter case, Brambles ((BXB)) went ex.

Consumer discretionary won the day (+1.3%) without any one component standing out, suggesting breadth in buying. Real estate rose 1.0%, which you don’t see every day when bond yields pop.

These moves look more like the comeback from Monday that we might have expected, given most every sector was trashed in that session.

Wall Street drifted off again last night following the strong rally on Tuesday night. The PPI is pending, but given the response to the CPI, is probably not as critical as it might have been.

Oil and gold prices are up overnight, and copper has broken US$4/lb, which technicians consider a breakout point.

To that end our futures are up 0.3% this morning with the S&P500 down -0.2%. We’ll need to see what iron ore does this afternoon nonetheless.

Normal Service

After Wednesday night’s burst of enthusiasm, Wall Street went back to the same pattern that had preceded the CPI release – Mega Caps drifting off again, with buying evident elsewhere.

Nvidia was down again (-1.1%), and this time so was Apple (-1.2%), along with Meta (-0.9%), which has been another high-flyer. This despite the US House voting to ban TikTok.

Tesla was down again (-4.4%), and has now been written off, no longer magnificent.

The Dow, and the Russell small cap index, posted gains, confirming yet again Wall Street is not suffering wholesale selling but rather a quiet switch out of the big 2023-into-2024 winners in search of left behind names that have simply been overlooked, and offer value.

Fun fact: the US two-ten year inverted yield curve is now the longest running in history. We are reminded every US recession has been preceded by an inverted yield curve, but not every inverted yield curve has resulted in recession.

It is hard to find anyone on Wall Street at present still believing a recession is nigh. There’ll be one one day, but then a stopped clock is always right twice a day.

One might argue history is not a great guide these days given the impact of a once-in-a-century pandemic that no one alive had experienced before, which was followed by a similarly inexperienced Fed taking way too long to hike rates, and then hiking at the fastest pace in history.

In that scenario, a record inverted curve may simply be writing a new chapter.

The February PPI is out tonight, but no one is making any mention. Last month both the CPI and PPI prints were highly anticipated and both came in hot. On Tuesday night the latest CPI was also hot, but Wall Street rallied regardless. So it seems now the PPI is not that important.

What will be important is next week’s Fed meeting (which is actually a day after the RBA meeting), despite the fact no one expects a cut. Clues on the timing of the first cut will be hoped for.

The following week brings the more relevant PCE inflation data, but the US being the US (secular), that release will land on Good Friday.

Commodities

On Tuesday the news was of excessive shipments of iron ore to China meeting a lack of demand from Chinese steelmakers, dragging down the iron ore price.

Yesterday brought news China’s biggest copper smelters met in Beijing and agreed on a cut in loss-making production, without specifying volumes and timing. This is an OPEC-style response to low prices, but given no details, one wonders whether it’s a move out of Beijing’s playbook – just say it and the market will respond accordingly.

Either way, copper crossed the US$4/lb mark in London, which is seen as technically critical. The bulls are anticipating a breakout from here.

Oil prices jumped last night after Ukraine bombed Russian refineries. It’s a yay for Zelensky but a boo for petrol prices.

Gold returned to its unfettered rally last night, despite another 4 point move up in the US ten-year.

The US dollar was nevertheless a tad lower, and the Aussie is up 0.2% at US$0.6622.

Today

The SPI Overnight closed up 22 points or 0.3%.

The US will see all of the PPI, retail sales and industrial production numbers tonight.

There are a handful of small miner earnings reports due today.

Eagers Automotive ((APE)) and Breville Group ((BRG)) are the bigger stocks among those going ex 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.

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