The Monday Report – 22 April 2024

This story features SOUTH32 LIMITED, and other companies. For more info SHARE ANALYSIS: S32

World Overnight
SPI Overnight	7621.00	+ 27.00	0.36%
S&P ASX 200	7567.30	– 74.80	– 0.98%
S&P500	4967.23	– 43.89	– 0.88%
Nasdaq Comp	15282.01	– 319.49	– 2.05%
DJIA	37986.40	+ 211.02	0.56%
S&P500 VIX	18.71	+ 0.71	3.94%
US 10-year yield	4.62	– 0.03	– 0.69%
USD Index	106.15	– 0.01	– 0.01%
FTSE100	7895.85	+ 18.80	0.24%
DAX30	17737.36	– 100.04	– 0.56%

By Greg Peel

Keep Calm and Carry On

It appeared there would likely be a big market-wide sell order hitting on Friday morning in the local market given the futures were down a disproportionate -55 points to only a small fall in the S&P500 overnight. That seems to have been the case.

But exacerbating the situation was news coming through Israel had attacked Iran, in retaliation for Iran’s attack which was retaliation for Israel’s initial attack on Iran’s consulate in Syria. It was looking dire, and at midday the ASX200 was down a full -150 points.

It then appeared Iran has granted Israel the last tit, which would not be met with a tat this time, and that neither side wanted further escalation. The index was able to recover half its losses by the close.

That still left an ugly session, which saw all sectors close in the red, and only energy outperforming with a -0.1% fall given oil price implications. Otherwise, falls ranged from utilities (-0.6%) to technology (-1.6%).

Standing out were a -1.1% drop for the banks and -1.1% for materials.

Among materials, gold miners took three of the top five index spots.

Bond yields had little to do with anything on the day. The ten-year fell -2 points to suggest there was no flight to safety of note.

As we headed into Friday night, US futures had been sharply down initially but also trimmed losses, there was a rush into US bonds but that eased through the night, and oil prices, and gold, closed only modestly higher.

Looking at Wall Street on Friday night, the signs were that the earlier war fears had subsided and indeed were it not for another scare among chipmakers, and tech in general, it could have been a positive session.

Once again noting Australia is not big in Big Tech or chips, our futures closed up 27 points on Saturday morning.

Tech Wreck

After posting an earnings beat, a big jump in profit due to its crackdown on password sharing, and a 16% increase in subscribers, Netflix shares fell -9% on Friday night.

The reason for the weak response was the announcement by the company it would cease disclosing subscriber numbers from next year, wanting investors to concentrate on profit.

Super Micro Computer is a company that builds the servers needed to run AI, and prior to Friday night its shares were up around 140% year to date. The company typically announces when its reporting date will be as the season begins, and in past quarters has taken the opportunity to comment on earnings growth, which has to date always been positive.

On Friday night, Super Micro announced its reporting date, and said nothing else. Reading between the lines, investors bailed, and the stock fell -23%.

The assumption of a weaker, or maybe not as hot, quarter followed weak earnings reports from ASML and TSMC earlier in the week. The chipmaking sector had already had one hiccup, but this was all too much. Chipmakers were slammed.

Nvidia fell -10%.

Suggesting the AI story might have gotten a little ahead of itself, all of the Big Tech stocks were sold, and the Nasdaq fell an outsized -2.1%.

The Dow rallied 0.6%.

The S&P500 fell -0.9% due to its heavy weighting towards tech but the S&P500 Equal-weight index closed flat, and the market saw more stocks higher on the day than lower.

In the Dow, the earnings report from American Express saw that stock jumping 6.5%. Signs are a younger generation now won’t leave home without it.

The S&P500 fell -3% for the week to be down -5% from its high. The Nasdaq fell -5.5% for the week.

It’s now incumbent upon the Big Tech names to save what could be a more extensive pullback when they begin reporting this week. Among the Mag7, Tesla kicks things off tomorrow night.

Part of the problem since Wall Street hit its highs, geopolitics aside, has been the growing fear there may be only one or even no Fed rate hike this year due to sticky inflation.

The issue with having only the blunt tool of rate setting at its disposal is the negative feedback loop that creates. The stickiest part of the CPI has been “shelter” – specifically rents – which reflect prevailing interest rates. Shelter costs had been contracting as the ten-year yield fell from 5% to under 4% at the beginning of the year, but with the yield now back up at 4.6%, rents are on the rise again.

Which implies inflation will remain stubborn or hotter, which means the Fed will remain on hold for longer.

This Friday night we’ll see the Fed’s preferred PCE measure of inflation for March.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	2391.20	+ 13.30	0.56%
Silver (oz)	28.65	+ 0.48	1.70%
Copper (lb)	4.45	+ 0.06	1.44%
Aluminium (lb)	1.20	+ 0.02	1.83%
Nickel (lb)	8.76	+ 0.29	3.46%
Zinc (lb)	1.29	+ 0.00	0.10%
West Texas Crude	83.14	+ 0.41	0.50%
Brent Crude	87.29	+ 0.32	0.37%
Iron Ore (t)	108.25	+ 0.30	0.28%

Ongoing rallies in base metal prices are being attributed to those new sanctions on Russian supply.

Oil prices were up 3% on Friday night on the initial news of Israel’s attach, before fears eased.

Both the US dollar and Aussie dollar remained steady. Aussie at US$0.6423.

The SPI Overnight closed up 27 points or 0.4% on Saturday morning.

The Week Ahead

Tesla, Microsoft, Google, Meta and Amazon report in the US this week.

The US will see data for new home sales, durable goods orders and the PCE, as well as the first estimate of March quarter GDP.

Flash estimates of global PMIs are due tomorrow.

The Bank of Japan holds a policy meeting on Friday.

Locally, we have the March quarter CPI numbers to be scared of on Wednesday, followed by the PPI on Friday.

The quarterly reporting season ramps up this week, with the big day being Wednesday. Reporters include South32 ((S32)) today, Northern Star ((NST)), Fortescue Metals ((FMG)), Mineral Resources ((MIN)) and Woodside Energy ((WDS)) to name some of the production updates.

Quarterlies are also due from Brambles ((BX)), Atlas Arteria ((ALX)) and Insignia Financial ((IFL)).

ResMed ((RMD)) and Newmont Corp ((NEM)) report earnings on Friday.

The Australian share market over the past thirty days…

Index	19 Apr 2024	Week To Date	Month To Date (Apr)	Quarter To Date (Apr-Jun)	Year To Date (2024)
S&P ASX 200 (ex-div)	7567.30	-2.84%	-4.17%	-4.17%	-0.31%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AOF	Australian Unity Office Fund	Upgrade to Buy from Hold	Ord Minnett
BGL	Bellevue Gold	Downgrade to Neutral from Outperform	Macquarie
BWP	BWP Trust	Upgrade to Buy from Sell	UBS
EVN	Evolution Mining	Downgrade to Neutral from Outperform	Macquarie
LGI	LGI	Upgrade to Add from Hold	Morgans
NWL	Netwealth Group	Downgrade to Sell from Neutral	Citi
SHV	Select Harvests	Downgrade to Hold from Buy	Bell Potter

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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