The Overnight Report: Almost As Good As It Gets

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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

Risk Off

Wall Street was happy to rally on Tuesday night ahead of last night’s Fed statement and the ASX200 opened in a similar fashion, up 35 points in the first half hour, smashing through 7700. But it wasn’t to be. The index chopped its way back down during the rest of the session, closing on its low.

It seems Wall Street was prepared to take on the Fed but we were not. Never mind, Wall Street liked the Fed statement, a lot, and our futures are up 47 points this morning.

The most notable aspect of yesterday’s trade was there was nothing notable, by the close at least. Energy was the best performer (+0.6%) on stronger oil prices, while technology and utilities performed worst (-0.5%).

It was nonetheless notable the banks shot up 0.9% in the first half hour before closing the session down -0.2%.

Also losing -0.2% was materials, on the usual mix of commodity price ups and downs. Iron ore prices eased, gold miners were mostly lower, South32 ((S32)) lost -4.2% after withdrawing its 2024 manganese production guidance, and Paladin Energy ((PDN)) gained 5.6% to be the best index performer, on a turn in the uranium price.

Weakness continued in staples (-0.4%), amidst a lot of angry polly-speak. Moves in other sectors were negligible.

Bond yields fell -3 points.

Beyond that, there’s not much more to say. Jerome Powell has spoken, the S&P500 closed up 0.9%, and we’re set for a return to risk-on this morning.

Assisting today will be a solid session overnight for the gold price, offset by a fall back for oil prices.

No Change

The Fed left its funds rate unchanged last night, which was expected, but left everything else unchanged as well, which was not.

Despite rallying on Tuesday night ahead of the Fed statement release and press conference, Wall Street feared hotter than expected inflation numbers in January and February, as well as greater than forecast job additions, would lead the FOMC into shifting away from the dovish stance of the February meeting.

But there was no change to the “dot plots”, still suggesting three rate cuts this year.

The odds of June seeing the first rate cut had slipped to 55% prior to last night, with July favoured, but June is now back at over a 70% chance.

“The risks are really two-sided here,” said Jerome Powell at his press conference. "We’re in a situation where if we ease too much or too soon, we could see inflation come back. And if we ease too late, we could see unnecessary harm to employment.”

Inflation fears are not as strong as they used to be, he said, but the goal remains to get inflation down over time. Powell suggested the recent hot inflation data do not change the overall picture.

On the matter of jobs numbers, Powell said a strong labour market, in of itself, is not a reason to be worried about inflation. 

On a more technical matter, the Fed will soon start reducing the pace of its balance sheet roll-off – quantitative tightening, which sees the Fed not replacing government and mortgage bonds as they mature.

Wall Street could not believe its ears. Outside a shock rate cut announcement, this was about as good as it gets. The S&P500 soared to another new high.

The financials sector, beset a year ago with fears surrounding the collapse of small regional banks, hit a new high – its first since January 2022 – to join industrials and healthcare in that camp in 2024.

The US ten-year bond yield fell only -2 points to 4.27% but the two-year fell -9 points to 4.60%. And that just happens to be where the FOMC members see the funds rate at year-end, after three cuts.

Commodities

Gold is the standout mover here, on lower US yields.

The oils slipped back, which can only be attributed to some profit-taking after a solid run recently, as US weekly inventory data showed an unexpected drawdown.

The US dollar is -0.4% lower, sending a more excitable Aussie up 0.8% to US$0.6584.

Today

The SPI Overnight closed up 47 points or 0.6%.

Note that the SPI March contract will expire today, and we’ll roll over to the June contract. ASX options will also expire, and there could be a bit of action around the 7700 and 7750 strikes.

We’ll see February jobs numbers today.

New Zealand reports its December quarter GDP.

The Bank of England meets.

Flash estimates of March PMIs are due across the globe.

Brickworks ((BKW)), Soul Pattinson ((SOL)) and Sigma Healthcare ((SIG)) report earnings today.

Webjet ((WEB)) holds an investor briefing.

Cochlear ((COH)) goes ex a rather large dividend.

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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