The Overnight Report: AI In Focus

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This story features SOUTH32 LIMITED, and other companies.
For more info SHARE ANALYSIS: S32
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Another Comeback

While yesterday’s comeback for the ASX200 was not nearly of the magnitude of that seen on Friday, it was still another comeback, from down -28 points in the first forty-odd minutes, following Wall Street weakness, to up 6 at the close.

I suggested yesterday the session might be a quiet one ahead of today’s RBA meeting, and it was on the quieter side, but it took some positive data from China to give the morning’s turnaround a bit more juice.

China’s retail sales rose 5.5% year on year in January-February (which are counted together due to the New Year break), when 5.2% was forecast. Industrial production rose 7.0% when 5.0% was forecast, while fixed asset investment rose 4.2% ahead of an estimated 3.2%.

That was the good news. The not so good news was investment in real estate fell -9.0%, while infrastructure investment rose 6.3% and manufacturing 9.4%. When you build buildings you need a lot of steel, and thus iron ore, and iron ore inventories currently held at Chinese ports are at their highest level in more than a year.

The iron ore price nevertheless ticked up a bit yesterday.

Chinese manufacturing has a lot to do with EVs among other things, which require lots of the other stuff we can sell them. South32 ((S32)) covers several bases, and yesterday it rose 4.7% to be the second best performer in the index, despite Cyclone Megan wreaking havoc on the company’s port in the region.

Materials managed a 0.3% gain. The banks put in the best performance in rising 0.6%, after their little thumping last week. Aussie bond rates were only a tad lower yesterday.

Elsewhere sector moves were mixed and inconsequential. With one exception.

Real estate stood out with a -1.9% crunch, probably because yesterday I suggested traders were looking at REITs as being undervalued. The sector had had a positive session on Friday in the face of solid gains in bond yields.

Yes, well what would I know? Goodman Group ((GMG)) fell -3.6% yesterday.

Overnight, Wall Street has once again shown pullbacks are hard to come by at the moment, but our futures are only up 3 points this morning.

Looks like we will have a quiet one today, at least up to 2.30pm.

Aside from what the RBA decides, there’s much anticipation the Bank of Japan will lift its cash rate out of decades-long negative territory when it meets today. Given this is widely expected, it should not upset markets.

And Up Again

As I write, the CEO of Nvidia is giving the keynote speech (two hours!) at the first day of the company’s annual conference, which used to attract a few hundred people but currently there are 11,000 in attendance.

It is assumed he will say lots of positive things about AI and chip demand, but traders were cautious last night, with the stock rising only 0.7%.

In other tech news, Apple has apparently been in talks with Google about adopting the Gemini suite of AI tools into futures iPhones. Apple has also spoken to OpenAI, which created ChatGPT, but it looks like Gemini has the market’s backing.

Google rose 4.6% last night, and Apple 0.6%, while Microsoft only managed 0.2%.

It seems developments in tech world managed to fire the Nasdaq back up again, as there was not much more to go on last night. The US ten-year yield rose another 4 points to 4.34%.

The energy sector had another positive sector nevertheless, with oil prices rising another 2% last night, due to lower production from Iraq and Saudi Arabia, and likely a boost from the stronger Chinese data.

There is nonetheless growing concern Wall Street’s current inability to post a “healthy” pullback of any magnitude suggests the pullback which must eventually come will be more substantial. Deutsche Bank last night highlighted the speed of the rally to this point, and how history suggests it cannot last.

Inflation is the biggest risk at present – a rebound therein – and oil prices may just be a factor. While Wall Street has been happy to absorb expectations of fewer rate cuts than initially assumed this year, given the strong economy and corporate earnings, were the Fed to turn hawkish again, it would be a case of look out below.

Commodities

Iraq, OPEC’s second-largest producer, has said it would reduce crude exports to 3.3mbpd in the coming months to compensate for exceeding its OPEC quota since January, a pledge that would cut shipments by -130,000bpd from last month.

OPEC members have a history of pledging to stick to production quotas and never doing so. However, in Saudi Arabia, OPEC’s largest producer, crude exports fell for a second straight month, down to 6.297mbpd in January from 6.308mbpd in December.

That’s -11,000 barrels. Whacko.

The Aussie is steady at US$0.6559.

Today

The SPI Overnight closed up 3 points.

The RBA and BoJ meet today.

New Hope Corp ((NHC)) reports earnings.

Seek ((SEK)) 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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