The Overnight Report: Another High

Array
(
    [0] => Array
        (
        )

    [1] => Array
        (
        )

)

By Greg Peel

Nothing In, Nothing Out

The RBA statement released following the February RBA meeting noted “a further increase in interest rates cannot be ruled out”. The market did not like this news at the time. Later in her press conference, Michele Bullock suggested the board is “not ruling anything in or out”.

She clearly liked this phrase, as she decided to put it in yesterday’s statement:

“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out”.

Conclusion? A slight shift in bias away from hawkish to neutral.

At 2pm yesterday the ASX200 was little changed ahead of the release. Thereafter it closed up 27 points. A positive, but fairly modest response to the subtle change, and if we take out increases in crude prices overnight and iron ore yesterday, really not a positive response at all.

While economist forecasts for the timing of the first rate cut remain diverse, yesterday did not spark any movement. The ten-year bond yield fell -3 points.

Sector moves told the story. Materials jumped 2.1% on a bounce in iron ore prices, while energy rose 2.0% on a third night of crude price increases. Utilities enjoyed another 0.8%.

Real estate was otherwise next-best on 1.0%, and has become unusually volatile this week. All other sectors closed in the red.

The banks were down -0.5%.

Sectors which would normally benefit from lower rates all fell (other than real estate), led by staples (-0.8%) and discretionary (-0.4%).

If anything, it appears traders were disappointed in the RBA, hoping for a swing to a dovish bias – the RBA suggesting the next move will be down, as the Fed has suggested – rather than simply neutral.

If aforementioned commodity prices had not done their bit, the ASX200 would have closed lower on the day.

In other news, the Bank of Japan, as expected, shifted away from a negative cash rate for the first time in seventeen years, hiking from -0.10% all the way to zero. The Nikkei rose 0.7%, as the hike was well anticipated.

Overnight the S&P500 has hit another all-time high. The ASX200 is -5 points short, on yesterday’s close. The futures are up 13 points this morning.

Will we see a break-out or will a new high trigger profit-taking?

Rotation

The S&P500 closed at 5178 last night, surpassing tis prior all-time high of 5175 posted a week ago. In between, hot PPI data sparked a pullback, which yet again proved modest and short-lived.

Rotation was once again on display last night, evident in the Dow outperforming with 0.8%, and the Russell small cap index with 0.5%, compared to the Nasdaq’s 0.4%.

There was still some buying among the Mega Techs nonetheless, with Nvidia up 1.1% and Apple up 1.4%.

The much-anticipated keynote address from Nvidia’s GTC Conference (GTC stands for GPU technology conference, thus making it a GPU Technology Conference Conference, while GPU stands from graphic processing unit, aka AI chip) did not exactly light a fire, but investors are showing reluctance to keep piling into tech stocks that have run up hundreds of percent.

At the conference, the CEO unveiled a new Blackwell chip, which he touted as a significantly more powerful successor to its chips that power a multitude of AI operations. The new chips will be available later in the year, and demand is expected to initially outpace supply.

Apple is back in favour after a slow start to the year on signs it is moving closer to adapting AI into iPhones.

Outside of cyberspace, moves up in metal and oil prices had materials and energy rising last night, while the banks have also been quiet achievers of late, and industrials have been a star of 2024.

Just like old times.

Small caps are highly correlated to bond rates, given they are the most sensitive to financing costs. Last night the US ten-year yield fell -4 points ahead of tonight’s Fed statement. When rates rise, small caps go the other way.

No change in the cash rate is expected tonight, nor in May, and June is an each-way bet. At the beginning of 2024, Wall Street had priced in the first cut in March, and then a cut almost every meeting after that.

Wall Street is back at a new high.

Commodities

The iron ore price had been falling as demand from steelmakers was weak and inventories were piling up at ports. But it seems steelmakers were just waiting for a better entry point, and some incentive.

After falling steadily, iron prices stalled on Monday. This, and the 4.2% growth in fixed asset investment (infrastructure) reported on Monday when 3.2% was forecast, was a trigger for buying to return.

Transaction volumes of iron ore at major Chinese ports climbed 66% from Monday to Tuesday.

The Aussie is down -0.4% on a combination of the RBA’s subtle shift and a stronger US dollar, to US$0.6533.

Today

The SPI Overnight closed up 13 points or 0.2%.

Japan is closed today to celebrate a zero interest rate.

Tonight brings the Fed statement and press conference.

FNArena's Corporate Results Monitor: https://fnarena.com/index.php/reporting_season/ (with calendar).

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.

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.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms