The Overnight Report: Narrow Comeback

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This story features NETWEALTH GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: NWL
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

Resilient

On Wall Street’s CPI-driven tumble on Wednesday night, our futures suggested down -65 points for the ASX200 yesterday. I thought that might be a bit underdone, as we do have the habit of throwing tantrums in such situations.

As it was the index opened down -96. But for those buyers that had been trying hard all week to make their mark, it was an opportunity. In the blink of an eye the index started climbing back, and moved steadily upward from late morning to halve even the futures’ expectation.

One might have expected cheering among those buyers this morning, as Wall Street has rebounded overnight. But the sellers haven’t given up. The futures are down -29 points this morning.

Despite the solid comeback, only three sectors closed in the green yesterday. One was staples (+0.3%), playing the defensive game. The others were energy (+1.2%) and materials (+0.6%).

Strength in oil prices overnight, and most metals prices, supported the resource sectors, but so too did Chinese inflation data.

China’s CPI rose a mere 0.1% year on year in March, down from 0.7% in February, and below 0.4% forecasts. The PPI fell -2.8% year on year as expected, having been down -2.7% in February.

Numbers so low provide Beijing with plenty of cover to ramp up much needed stimulus without sparking an inflationary bubble.

For all other sectors, a 14 point jump in the Aussie ten-year yield to 4.25%, following a big jump in US yields, told the story. The two-year rose 13 to 3.88%, which effectively represents two expected RBA rate cuts ahead. Most economists expect at least one, if not two.

Real estate copped the brunt (-1.8%), but the banks fell -0.9%, and so did healthcare.

Discretionary was down -1.0% and even utilities finally had a bad day (-0.8%). Falls in other sectors ranged from -0.4-0.8%.

There weren’t any train crashes of note among individual stocks – selling was market-wide. Netwealth Group ((NWL)) nevertheless topped the losers’ table in falling -5.0% after providing a quarterly update.

The fact our futures are down -0.4% when the S&P500 rallied back 0.7% suggests there are still some pretty keen sellers out there.

Oil prices fell back last night, as did nickel, but gold is once again surging.

Despite the US stock market comeback, US bonds were little changed last night. So we may not see much reprieve on that front.

Magnificent Rally

The US headline PPI rose 0.2% in March when 0.3% was forecast, down from a 0.6% increase in February, to an annual rate of 2.1% when 2.2% was forecast.

Basically the opposite of the headline CPI in terms of expectation.

The core PPI rose 0.2%, down from 0.3% in February, in line with forecasts. The annual rate was 2.4% when 2.3% was forecast.

So not all a mirror of the CPI, but enough for Wall Street to breathe a sigh when it comes to Fed policy. There followed a comeback rally.

What we didn’t see however was a comeback for bonds. Having shot up on the CPI result, last night the ten-year was unmoved at 4.57% and the two-year fell back only -3 points.

The bond market is not so convinced. But nor, can we say, was the stock market.

The underperformance of the Dow and outperformance of the Nasdaq tell the tale. Traders last night went diving back into the Mag7, for which higher rates are of little consequence, and not a lot else.

Amazon (which is now in the Dow) rose 1.7% to a new all-time high. Microsoft rose 4.7%, and Apple 4.3%. Both are in the Dow.

Apple’s revival is all about its pending launch of AI capability for Macs, but little else is known at this stage.

Nvidia rose 4.1%. Nvidia was up slightly on Wednesday night as well when all about were crashing.

Google was up 2.1%, Meta 0.6%, and even Tesla rose 1.7%.

Financials have been another strong performer this year, but last night Morgan Stanley dropped -5.3% on news regulators are investigating a possible money laundering breach in its wealth division. Sounds familiar.

JPMorgan, Citigroup and Wells Fargo report March quarter earnings tonight. The rest of the Big Banks, including Morgan Stanley, report from early next week.

With inflation data out of the way, and Wall Street remaining nervous, earnings reports will determine whether or not current valuations, at current rates, are justified.

The banks feature over the next few days, and then things really begin to ramp up in the following two weeks.

Commodities

On Wednesday night it looked like the gold price might finally be topping out. Apparently not.

Having risen on Wednesday night on geopolitical fears, the oils fell back again last night. The weaker than expected PPI was one driver, but so too the fact this imminent Iranian missile attack has not yet happened.

After Wednesday night’s precipitous fall, the Aussie has regained 0.4% to US$0.6541.

Today

The SPI Overnight closed down -29 points or -0.4%.

China will report March trade numbers today.

The US will see consumer sentiment tonight.

AMP Ltd ((AMP)) holds its AGM.

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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