The Overnight Report: Geopolitics Rear

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This story features TELIX PHARMACEUTICALS LIMITED.
For more info SHARE ANALYSIS: TLX
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Unfortunate

The local market decided yesterday Wednesday’s sell-off was overdone, sending the ASX200 up 50 points early on. Wall Street had also been mildly supportive. But in a quiet session, the index faded through the day.

It was all to no avail, as Wall Street has run scared again overnight and our futures are down -63 points this morning.

All sectors closed in the green yesterday, with the bigger gains seen in those sectors which copped the biggest losses on Wednesday.

Technology rose 1.2%, real estate 0.7% and discretionary 0.5%. The banks added back 0.4%, more than they fell on Wednesday.

Energy was again strong (+0.7%) on oil prices while utilities gained 0.9%; this is proving a popular trade at present.

Healthcare made only a modest comeback (+0.2%) while materials plugged on higher (+0.3%).

Aussie bond yields rose once more, with the ten-year up 4 points, despite some disappointing building approvals data.

Approvals fell -1.9% in February when a 3.0% gain was forecasts, to be down -5.8% year on year. House approvals actually rose 10.7% but apartments fell -25% to a 12-year low.

Not all that helpful in a housing crisis.

No point in dwelling further, we’re in for a weak Friday.

Growing Fears

Wall Street was tracking higher last until around 2pm, when it suddenly fell in a hole and kept falling, closing on its lows.

The exact trigger for the sell-off is unclear, but fingers are pointed towards Biden telling Netanyahu, in the wake of the bombing of humanitarian aid workers in Gaza, that he must now implement a ceasefire.

How Netanyahu responds is another matter, but the US can always withhold aid.

At the same time, Israel warned its embassies to be prepared for retaliation from Iran for the bombing of the consulate in Damascus.

Brent crude crossed the US$90/bbl mark, which is seen as a line in the sand.

Meanwhile, Minneapolis Fed President Neel Kashkari commented in the afternoon that he wondered if the central bank should cut rates at all if inflation remained sticky, adding to a recent chorus of Fed speakers talking conservatively about policy.

There were several speaking individually last night, and all were leaning towards fewer rate cuts this year than the three Jerome Powell has been suggesting, and/or the first cut coming later than July, which is the current market expectation.

Given 2024 begun with March seen as bringing the first cut, which then moved to May, then June, and now July, there seems to be a trend.

Despite the hawkish Fedspeak, the US ten-year yield fell -5 points to 4.31%. It was below 4.30% when Kashkari spoke and came back a bit, but the fall suggests a flight to safety, as does selling in stocks, hence rising geopolitical risk is finally beginning to make its mark.

Wall Street has ignored the Middle East situation, heading straight up from the October low and through the March quarter without a pullback. Last night the S&P500 closed down -2% from its recent high, which is the first such move since that low.

When the S&P broke its 20-day moving average last night, selling accelerated. It pulled up on or near to its 50-day MA.

It’s all seen as healthy, of course. Wall Street had become overbought, all agree, with PE multiples becoming overly stretched to the upside, and a pullback was well due. Nothing to worry about, and indeed a decent pullback would present a buying opportunity.

The trend is still bullish, most agree.

We would nevertheless not want to see escalation in the Middle East.

Commodities

Investors continue to move into the commodity space – more a refection of demand for metals in the new age of electrification and renewable energy, particularly in China, than any hopes for relief in the Chinese property market.

Iron ore futures have now slipped below US$100/t.

Gold did not join in on the flight to safety last night, but then it has run very hard.

As for the oils, talk is now just what a return to US$100/bbl might bring about.

The Aussie is up 0.4% at US$0.6587, and for now at least is only heading one way.

Today

The SPI Overnight closed down -63 points or -0.8%.

We’ll see February trade numbers today.

The US will see non-farm payrolls tonight.

Telix Pharmaceuticals ((TLX)) holds its AGM.

Note that summer time ends in relevant states this weekend. On Tuesday morning the NYSE will close at 6am Sydney time. The SPI Overnight will continue to close at 7am.

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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