The Monday Report – 18 March 2024

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            [4] => ((NHC))
            [5] => ((WEB))
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This story features SCENTRE GROUP, and other companies.
For more info SHARE ANALYSIS: SCG
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Buy the Dip

Following a sell-off in both stocks and bonds on Wall Street on Thursday night, driven by a hotter than expected PPI print, a nervous ASX200 plunged -122 points to late morning on Friday before the buyers arrived.

The breakdown was technical, given the 7700 had provided solid support previously, and then momentum took over. But at 7600, support was found, and the index rose steadily in a straight line to the close. The index nevertheless closed down -2.2% for the week, and moved back to end-February.

The Aussie ten-year yield rose 8 points to 4.13%. Clearly the word is out REITs are undervalued, as such a move up in bonds would not normally result in a 0.8% gain for real estate, to be one of only three winning sectors on the day, with the likes of Scentre Group ((SCG)) and Stockland ((SGP)) leading the way.

Energy was the big winner (+2.0%), along with utilities (+1.0%), as oil prices rose following Ukrainian attacks on Russian refineries.

Materials was the worst offender (-1.9%), as iron ore prices continued to slide and selling pressure was once again evident in lithium miners. Shares in graphite miner Syrah Resources ((SYR)) fell -21.4% after successfully completing a capital raise via placement at a -21% discount.

Discretionary was one of the worst performers (-1.0%), which included a -5.2% drop for Tabcorp Holdings ((TAH)) after the CEO fell on his sword having said nasty things.

The banks recovered from early selling to be one of the better performers in falling only -0.2%, despite the jump in yields.

Wall Street was down again on Friday night in a follow-through from Thursday night, but closed down only slightly for the week.

Despite another -0.7% fall for the S&P500, our futures were only down -13 points on Saturday morning.

The RBA meets tomorrow, so we may go a little quiet ahead of the statement and press conference.

China reports February retail sales, industrial production and fixed asset investment numbers today, so anything could happen there.

Fed Fear

The Fed will release a statement on Wednesday night and a set of quarterly “dot plots”. These are not hard data just expectations (guesses) from each FOMC member as to where they see rates ahead, i.e. how many cuts are coming and when?

Last week’s hot CPI and PPI had Wall Street running scared (although the CPI was initially shrugged off before the PPI provided a reality check). While the S&P500 was only down -0.13% for the week, it was the second week of losses.

As is the case for the ASX200, those losses have nevertheless only taken the S&P back to end-February.

All of the Mega Techs closed lower on Friday night, and there was no support from software stalwart Adobe, which fell -13.7% on its earnings result with disappointing guidance.

The S&P500 has notched 17 new highs already this year, the highest since 1998. Wall Street has been waiting for an inevitable pullback, yet so far no pullback has exceeded -2%.

The US ten-year yield rose 22 points over the week, or close to one rate cut being dismissed. The two-year yield, which is a proxy for the cash rate, is now back at 4.75%, which implies only two-and-a-half rate cuts if we take the midpoint of the current 5.25-5.50% Fed range.

2024 began with six rate cuts for the year being priced in.

Yet Wall Street continues to hang in there, buyers are always found on slight pullbacks, and the economy and earnings numbers remain resilient.

It will be up to the Fed not to provide the straw on Wednesday night.

Commodities

There appears no end in sight at present for iron ore’s slide.

Gold is only a little lower after only a small tick up in bond yields on Friday night.

The oils are steady, but there are fears Ukraine’s attacks on Russian infrastructure may move from refineries to oil export facilities, which would be more impactful on global supply and thus prices.

The Aussie is down another -0.3% at US$0.6563.

The SPI Overnight closed down -13 points or -0.2% on Saturday morning.

The Week Ahead

It will be a busy week this week for global monetary policy, beginning with the RBA meeting tomorrow, along with the Bank of Japan meeting, the Fed on Wednesday night and the Bank of England on Thursday night.

Locally, we’ll be keen to see if weaker economic data released since the February meeting might take the hawkish tone from Bullock’s statement, and press conference.

Despite hotter US inflation numbers last week, the Fed is not expected to change its tune given it has long warned of a bumpy last mile of inflation reduction in dousing any notion of early and multiple rate cuts.

The Japanese fear that, given that country is for the first time in decades actually experiencing inflation, rates may rise (from -0.1%).

China will report February retail sales, industrial production and fixed asset investment numbers today.

New Zealand will release its December quarter GDP result on Thursday.

Flash estimates of global March PMIs are due on Thursday.

Australia will see February jobs numbers on Thursday, which is also ASX derivatives expiry day for March quarter contracts.

A handful of companies will report earnings this week, including New Hope Corp ((NHC)). Webjet ((WEB)) hosts an investor day on Thursday.

The ex-dividend season rolls on, although the numbers are now diminishing, but there are still a couple of biggies to come this week.

The Australian share market over the past thirty days…

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