The Overnight Report: Day Two

Daily Market Reports | Apr 03 2024

This story features ORORA LIMITED, and other companies. For more info SHARE ANALYSIS: ORA

World Overnight
SPI Overnight 7907.00 – 30.00 – 0.38%
S&P ASX 200 7887.90 – 9.00 – 0.11%
S&P500 5205.81 – 37.96 – 0.72%
Nasdaq Comp 16240.45 – 156.38 – 0.95%
DJIA 39170.24 – 396.61 – 1.00%
S&P500 VIX 14.61 + 0.96 7.03%
US 10-year yield 4.37 + 0.04 0.83%
USD Index 104.79 – 0.18 – 0.17%
FTSE100 7935.09 – 17.53 – 0.22%
DAX30 18283.13 – 209.36 – 1.13%

By Greg Peel

Not Quite Neutral

The minutes of the March RBA meeting, released yesterday, did not outline the case for either a rate hike or remaining on hold. Rather it decided the risks to the economy were balanced.

The upside risks to rates are if “aggregate demand continued to exceed supply for longer than anticipated, productivity growth did not increase sustainably or if services price inflation proved stickier than assumed in the forecasts”.

The downside risk is “weakness in consumption could continue for longer than expected… perhaps because of a weakening in the labour market”.

Not as dovish as hoped.

The Aussie ten-year yield rose 9 points to 4.07%, but the two-year fell -5 points to 3.70%. The short end sees rate cuts ahead. The move in the ten-years has to be taken in context with the 12 point move up in US ten-years overnight.

Either way, were it not for resources, the ASX200 would have had a much worse day yesterday than a -9 point drop suggests.

Following a swing from contraction to expansion for both the Chinese and US manufacturing PMIs in March, commodities are the new black. Add in a yield-defying spurt in the gold price, and the materials sector rose 1.1% yesterday, while energy gained 0.6% and utilities 0.4%.

All other sectors closed in the red, led by communication services (-1.0%), healthcare (-0.9%), real estate (-0.9%) and discretionary (-0.8%).

The banks fell -0.2%.

Among ASX200 companies, gold miners led the charge among the winners, while packaging company Orora ((ORA)) downgraded guidance and fell -14.7%.

Among ASX300 companies, luxury goods company Cettire ((CTT)) fell -15.8% after Bell Potter pulled its rating back to Hold.

Shipbuilder Austal ((ASB)) jumped 10.5% on a takeover bid but was still outdone by biotech Mesoblast ((MSB)), which rose 71.2%.

It was last week when Mesoblast surged on news the US FDA were close to approving its stem cell product. Yesterday, the only news was a change in substantial shareholding.

The surge in commodity prices kicked up a gear overnight, with base metal prices all up 1-2%, gold up another US$30 and the oils up 1.5%. Yet our futures are down -30 points this morning, due to weakness on Wall Street.

Trigger Point

Selling in US bonds which began on Monday night, continued last night, taking the ten-year yield up past 4.35% and sending Wall Street into a tailspin. The trigger for Monday night’s 12 point jump in the ten-year was the US manufacturing PMI swinging into expansion, along with the Chinese PMI doing the same.

However, the initial surge in yields last night petered out, and the ten-year closed up 4 points at 4.36%. Wall Street recovered ground off its lows.

Still, it was the second day of pullback for US stock indices, and more pronounced than Monday night, following a strong March quarter. The fear is the Fed will have no need to cut rates anytime soon as was hoped.

The chance of a June cut has diminished to 63%, with July now at 75%.

This is despite the March core PCE falling to 2.8%, suggesting a slow move towards the Fed’s 2% target. Jerome Powell has said more than once there was no need to wait until that target was achieved – rates could be cut beforehand.

The question now is as to whether a long-anticipated correction for Wall Street is in train. The fact the indices bounced off their lows suggests there are still buyers at the ready.

There were also some extenuating circumstances in last night’s sell-off.

Health insurer UnitedHealth fell -6.4% after the government increased mandated Medicare charges by a lower amount than assumed, which was a big hit to the Dow.

Tesla reported March quarter new car shipments of 386,000, and fell -4.9%. Consensus was for 457,000.

Where Wall Street goes from here will depend upon Friday night’s jobs report, next week’s CPI data and the March quarter earnings season, which begins shortly.


Spot Metals,Minerals & Energy Futures
Gold (oz) 2278.70 + 30.70 1.37%
Silver (oz) 26.07 + 1.07 4.28%
Copper (lb) 4.06 + 0.06 1.61%
Aluminium (lb) 1.07 + 0.02 1.62%
Nickel (lb) 7.66 + 0.16 2.09%
Zinc (lb) 1.12 + 0.02 1.64%
West Texas Crude 85.27 + 1.38 1.65%
Brent Crude 89.11 + 1.51 1.72%
Iron Ore (t) 102.91 + 0.58 0.57%

US portfolio managers appearing on business television have one thing in common right now – they all like materials and energy. They also like industrials and financials, while tech is a must-have but don’t be overweight.

The AI and electrification stories are behind the preference for materials, supported in the near term by aforementioned PMIs, while a lack of new supply supports energy.

It’s been a while since we’ve seen such moves up in base metal prices, uniformly, while gold continues to confound in the face of rising yields.

Aside from a technical breakout, the argument is the rate of disinflation is slowing and Fed rate cuts are uncertain. Gold is the inflation hedge, except when it isn’t. When inflation surged in 2022-23, the gold price didn’t.

The 'why' is explained here:

The Aussie is up 0.5% at US$0.6519 on less dovish than hoped RBA minutes and strong commodity prices.


The SPI Overnight closed down -30 points or -0.4%.

The US will see the March services PMI tonight and private sector jobs.

The Australian share market over the past thirty days…

Index 02 Apr 2024 Week To Date Month To Date (Apr) Quarter To Date (Apr-Jun) Year To Date (2024)
S&P ASX 200 (ex-div) 7887.90 -0.11% -0.11% -0.11% 3.91%
ALQ ALS Ltd Downgrade to Hold from Add Morgans
AWC Alumina Ltd Downgrade to Equal-weight from Overweight Morgan Stanley
CTT Cettire Downgrade to Hold from Buy Bell Potter
IGO IGO Downgrade to Underweight from Equal-weight Morgan Stanley

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.)

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