The Overnight Report: Risk Off

This story features ALUMINA LIMITED, and other companies. For more info SHARE ANALYSIS: AWC

World Overnight
SPI Overnight	7725.00	– 63.00	– 0.81%
S&P ASX 200	7752.50	– 35.60	– 0.46%
S&P500	5061.82	– 61.59	– 1.20%
Nasdaq Comp	15885.02	– 290.08	– 1.79%
DJIA	37735.11	– 248.13	– 0.65%
S&P500 VIX	19.23	+ 1.92	11.09%
US 10-year yield	4.62	+ 0.10	2.21%
USD Index	106.21	+ 0.17	0.16%
FTSE100	7965.53	– 30.05	– 0.38%
DAX30	18026.58	+ 96.26	0.54%

By Greg Peel

To No Avail

The ASX200 put up a reasonable fight yesterday, thanks to the resource sectors, in a choppy session which saw the index down around -50 points three times before settling to the close. However, having sold the rumour on Friday night, Wall Street sold the fact last night and our futures are down -63 points this morning.

Energy (+0.4%) and materials (+0.4%) provided the resistance yesterday and staples held fast (flat) while all other sectors saw red. Utilities was the best of the rest (-0.4%).

Technology followed the Nasdaq down (-1.8%) while real estate (-1.0%), healthcare (-1.0%) and communication services (-1.1%) had a tough day, despite Aussie bond yields remaining unmoved. US yields had seen a flight to safety on Friday night.

The banks fell -0.7%.

Mining stocks featured on both the winners’ and losers’ board yesterday.

New US/UK sanctions on Russian imports of aluminium, copper and nickel had Alumina Ltd ((AWC)) up 6.0%, South32 ((S32)) up 4.6%, Nickel Industries ((NIC)) 4.1% and Rio Tinto ((RIO)) 3.6%.

Yet, Gold Road Resources ((GOR)) fell -6.6%, having announced a possible acquisition, De Grey Mining ((DEG)) fell -4.7% and Genesis Minerals ((GMD)) -4.5%. The gold price slipped back on Friday night but surged ahead again last night.

Base metal price rose solidly last night but that is in response to aforementioned sanctions.

For now, it’s simply a case of what will Israel do? Play endless tit-for-tat, and thus evoke the biggest war the Middle East has seen in our lifetimes? Or “take the win”, as Biden told Netanyahu, having successfully defended against the first ever direct Iranian attack on Israel.

It’s a risk-off scenario until that issue is resolved.

Today, China will release its March quarter GDP, along with monthly data. Whether or not that will make any difference.

Sell the Fact

On Friday night an Iranian attack on Israel was imminent, hence Wall Street sold off, and with the attack having come to pass on the weekend, Wall Street sold off again last night. The sticking point is that while the Iranians have declared their retaliation “concluded”, the Israeli defence minister is touting a response.

The day’s economic data were not particularly helpful either.

US retail sales rose 0.7% in March when 0.3% was forecast. Sales rose 0.9% in February. Those numbers are not adjusted for inflation, but still it appears the US consumer remains alive and well.

On Friday night the US ten-year yield fell -6 points in a flight to safety. Last night that yield rose 10 points to 4.62%, in response to the strong sales number.

Wall Street is thus dealing with both geopolitical and domestic (Fed) fears at present. It’s enough to bring about the first pullback of -2% or more since November. The S&P500 is currently down -3.5% from its high.

It’s all very healthy, according to most commentators. Wall Street was overdue a pullback, valuations had become stretched, and a decent drawdown will only provide a more realistic opportunity to buy into a bull market which has not yet ended.

That will nevertheless require March quarter earnings to play ball. Given earnings growth forecasts for the S&P500 have come down from around 10% at the beginning of the year to around 3% today, beating forecast should not be too difficult, it is assumed.

Last night Goldman Sachs reported a beat and its shares rose 2.9% against the tide.

All the Mag7 stocks were sold last night, but much faith is being placed in their earnings reports, which begin next week. Where goes the Mag7 will determine whether or not the bull market is still in train. Analysts are very confident.

Not so much for Tesla, which last night fell -5.6% after announcing layoffs in excess of -10% of its workforce, or more than -14,000 employees. Musk wants to strip down to provide greater efficiency and productivity. Two senior executives also announced their departure.

The turning point for Meta, and others, following the 2022 tech sell-off, driven by Fed rate hikes, came about when the company announced layoffs. Not so for Tesla. Meta laid off the fluff – such as in-house masseuses – not the revenue drivers.

Morgan Stanley and Bank of America report tonight, and there are some Dow names to report through the week.

The flood begins the following week.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	2382.00	+ 39.10	1.67%
Silver (oz)	28.81	+ 0.97	3.48%
Copper (lb)	4.31	+ 0.07	1.69%
Aluminium (lb)	1.15	+ 0.03	2.71%
Nickel (lb)	8.10	+ 0.12	1.50%
Zinc (lb)	1.25	– 0.01	– 0.89%
West Texas Crude	85.41	– 0.25	– 0.29%
Brent Crude	90.35	– 0.10	– 0.11%
Iron Ore (t)	106.05	0.00	0.00%

Base metal prices have responded to sanctions.

Gold appeared to see a sell-the-fact response on Friday night, having run so hard on geopolitical concerns to that point, but last night looked a lot more like a safe haven.

The oils are however not responding, again having already risen on the same concerns.

The other safe haven is the US dollar, hence the Aussie is down another -0.4% at US$0.6444.

Today

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

China reports GDP along with March retail sales, industrial production and fixed asset investment.

The US will see industrial production.

The Fed chair will have a “fireside chat” with his Canadian counterpart.

Rio Tinto and Cooper Energy ((COE)) provide production reports today and Hub24 ((HUB)) a quarterly update.

The Australian share market over the past thirty days…

Index	15 Apr 2024	Week To Date	Month To Date (Apr)	Quarter To Date (Apr-Jun)	Year To Date (2024)
S&P ASX 200 (ex-div)	7752.50	-0.46%	-1.83%	-1.83%	2.13%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AVH	Avita Medical	Upgrade to Accumulate from Hold	Ord Minnett
		Downgrade to Speculative Hold from Speculative Buy	Bell Potter
EDV	Endeavour Group	Upgrade to Overweight from Equal-weight	Morgan Stanley
JHX	James Hardie Industries	Downgrade to Neutral from Outperform	Macquarie
UNI	Universal Store	Downgrade to Neutral from Buy	UBS
WGX	Westgold Resources	Downgrade to Neutral from Outperform	Macquarie
WHC	Whitehaven Coal	Upgrade to Outperform from Neutral	Macquarie

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