The Overnight Report: Just A Bit Hot

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            [3] => ((SLC))
            [4] => ((SFR))
            [5] => ((EVN))
            [6] => ((SLR))
            [7] => ((S32))
            [8] => ((ARU))
            [9] => ((CAR))
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            [8] => ARU
            [9] => CAR
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This story features EAGERS AUTOMOTIVE LIMITED, and other companies.
For more info SHARE ANALYSIS: APE
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Paradise Lost

Sentiment has turned in the local market, which a week ago hit a new all-time high. Monday’s sharp sell-off took the wind out the sails, and the ASX200 has failed to gain any traction since. Markets that won’t go up must come down.

The futures were showing an optimistic 22 points up yesterday morning but the index managed only up 15 from the open before, two minutes later, the selling began. There was a late bounce off 7700 support when the index was down -29.

That support will be broken today. The S&P500 closed down -0.3% and our futures are down -0.7% this morning.

The banks were the culprits yesterday, down -1.9% from lofty highs after brokers questioned the strength of the rally to date and the reasons for it.

Consumer discretionary fell -0.7%, including Eagers Automotive ((APE)) moving ex and falling -6.7%. Communication services fell -0.7%.

Within that sector, but outside the ASX200, Aussie Broadband ((ABB)) plunged -18.0% after losing its whitelabeling contract with Origin Energy ((ORG)) to Superloop ((SLC)), which, funnily enough, is under take-over interest from Aussie Broadband.

Technology fell -0.7% but those were the only other sectors to post losses of note. The banks did all the damage.

It was a day for resources to step up, after a weak few sessions. Energy managed only 0.2% despite a jump in oil prices, with coal still dragging, but materials shot up 1.9% to provide a counter to the banks.

It was not about iron ore, which continues to fall, but about base metals. Cuts to Chinese smelting have copper breaking out, and base metals in general looking a little more positive for once. Gold is still on the up as well.

Copper miner Sandfire Resources ((SFR)) topped the board yesterday with a 7.2% gain, followed by gold miner Evolution Mining ((EVN)), up 6.0%, gold-copper miner Silver Lake Resources ((SLR)), up 5.7%, and all-purpose miner South32 ((S32)), up 5.2%.

Outside the index, Arafura Rare Earths ((ARU)) had a pretty good day, jumping 76.9%, after it secured a new funding deal with government backing. Clue’s in the name.

Copper was up another 3% in London last night, and in the face of all adversity – US ten-year yield up 11 points overnight and the US dollar up 0.4% — gold is slightly higher.

The oils are up sharply again, with WTI crude surging back through the US$80/bbl mark.

All is not lost. But as noted, our futures are down hard this morning.

Caught Out

I noted yesterday Wall Street did not seem at all worried ahead of last night’s PPI data, in contrast to the month before, because Tuesday’s CPI had come in hot yet Wall Street rallied solidly in defiance. But when  the PPI numbers dropped before the open last night, suddenly Wall Street was worried.

February’s headline PPI rose 0.6% month in month when only 0.3% was forecast, taking the annual rate to 1.6% — the highest level since September. The core rate rose 0.3%, when 0.2% was forecast. Two-thirds of the jump in the headline rate was attributable to energy prices.

It would not have helped that WTI jumped 4% last night.

Nor did it help that February retail sales rose 0.6% when 0.8% was forecast.

All three main indices headed lower in unison. The US ten-year yield jumped up 11 points to 4.30%. Nvidia fell -3.2%.

Tesla fell another -4% and is now down -35% year to date. Troubled EV hopeful Fisker fell -52% after the WSJ reported the company has hired restructuring advisors to prepare for a potential bankruptcy filing.

All is not well in EV land. It is interesting that underscoring copper's revival, smelter cuts notwithstanding, is Beijing’s great technology push in which EVs play their part.

Yet as all three indices were down -0.7% heading into the final half hour, it looked for all the world that selling was accelerating into the close. A sudden burst of buying cut those falls in half.

Which only serves to confirm Wall Street cannot fall too far if buyers are lined up to pick up previous high-flyers at a lower level.

Not so the story for small caps though, with the Russell index falling -2.0%. This year has seen signs of rotation into long-maligned small caps, but small companies cannot cope with higher interest rates – particularly the regional banks that dominate the index.

It takes 14 Russells to make one S&P500 in market cap terms.

What is comforting for Wall Street is the recent push through new all-time highs has not been solely sentiment-driven – PE multiples have not expanded, and if anything they’ve come down following confirmation of solid earnings in the recent results season.

So in general, the mood remains buoyant, although last night’s PPI had the chance of a Fed rate cut in June now down to 60% from 70%, with July firming.

Commodities

Last night the International Energy Agency released an update on its global oil demand/supply forecast, which swung to suggesting a small deficit in 2024 when a surplus had been previously assumed.

Hence the pop in oil prices.

Meanwhile, copper’s going up and iron ore’s going down. China wants to go big in technology, which needs a lot of copper, and small in property, which needs a lot of steel.

The Aussie is down -0.4% at US$0.6583.

Today

The SPI Overnight closed down -56 points or -0.7%. Goodbye 7700.

A rebalance of S&P/ASX indices will occur today, becoming effective from the open on Monday.

The US will see consumer sentiment data.

More small miners are due to report earnings today.

Car Group ((CAR)) goes ex.

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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