The Overnight Report: Confidence Building

This story features WESTPAC BANKING CORPORATION, and other companies. For more info SHARE ANALYSIS: WBC

By Greg Peel

Bank On It

The futures were not overly excited by Friday night’s rally on Wall Street and the ASX200 opened accordingly yesterday, before tracking a relatively steady path upward to close near the high of the day.

The kicker was Westpac ((WBC)), which reported earnings in line with expectation but surprised with both a special dividend and increased share buyback. Westpac shares rose 2.7% and the financials index rose 1.0% to be the major force on the day.

The Aussie ten-year yield fell -4 points, tracking US bonds, albeit not in the same magnitude.

This provided some comfort for rate-sensitive stocks. Real estate rose 1.7% to win the day, boosted by a 4.4% rise in Goodman Group ((GMG)) after Morgan Stanely declared the market’s assumption of data centre demand is way short, and lifted its price target.

Utilities were back in favour (+1.2%) and discretionary enjoyed some love (+0.4%), but staples fell -0.1% as the supermarket giants fail to gain any traction post market updates.

Materials were also back in favour (+0.9%) as iron ore drifts quietly higher while most other metals were steady. The UK was closed last night so no movement in base metal prices.

Energy managed a 0.2% gain as oil prices ticked only modestly higher following the failure of the latest Israel-Hamas ceasefire deal. The latest news is Hamas has accepted a deal, but Israel has said it does not meet its “core demands”.

Healthcare stood still while industrials fell -0.2% to be the worst performer on the day. Transurban’s ((TCL)) investor day failed to inspire (-0.2%).

Technology followed the Nasdaq and gained 1.0%. Block ((SQ2)) shares nonetheless fell -9.3% having rallied strongly last week on its earnings result, having previously taken a dive on news of the regulator stepping in to investigate. There was no new news, so presumably traders took the risk to be greater than the reward.

Train wreck of the day came from Kiwi company and All Ords member Tourism Holdings ((THL)), which manufactures and rents/sells RVs. Its shares fell -36.8% after lowering full-year profit guidance to NZ$50-53m from a prior NZ$75m citing tough economic conditions.

Wall Street has continued its comeback overnight and our futures are up a healthy 38 points this morning ahead of today’s RBA statement.

Expectations are the RBA might raise its inflation forecasts, although the chance of a rate hike is considered very low. No cut expected for a while yet.

More Good News

The US manufacturing PMI fell to 49.2 in April from 50.3 in March when 50.0 was forecast.

For a market already buoyed by the weaker than expected jobs number on Friday night and the increase in the unemployment rate, this was more good news.

While the US economy appears to be slowing, it’s not crashing. While some argue the impact of higher rates has yet to fully flow through to the market, the perception is the Fed is successfully guiding the economy in for a soft landing, providing the impetus for a rate cut.

The Fed is said to be champing at the bit to cut rates, but just needs more “positive” data.

Major US bank economists are split on when the first cut might be, with confidence ticking up since the jobs data release. Most see one cut this year, either in September or December, while Goldman Sachs, for one, sees two cuts, beginning in July, and Morgan Stanley is forecasting three, also beginning in July.

Does the stock market need cuts? That is also the question. Wall Street posted a 20% rally from the October low and the recent -5% pullback, which many assumed could be the start of something more significant, has been largely clawed back. The S&P500 has recovered 4%.

Mega Tech earnings results have had a lot to do with that (the Nasdaq has recovered 6.8%) but, overall, earnings results have been positive, with the majority of stocks beating forecasts and many beating by a higher than typical magnitude.

Disney has reported this morning in the aftermarket. Its shares are up a mere 0.4% currently after rallying 2.5% through the session.

The going remains tough in EV land, with Lucid reporting a beat on revenues but a greater than expected loss, while confirming its first vehicle will be launched this year. Lucid shares are down -8.2% in the aftermarket but were up 9.5% during the session.

Tesla had also reported a miss on earnings as well as revenues but not as bad as feared, hence that stock rallied on the day. Telsa is the only Mag7 member to have reported a miss to date, with Nvidia’s result due later this month.

Commodities

No base metal price moves as the LME was closed last night.

Iron ore continues to tick higher.

Gold did not respond to the big drop in US yields on Friday night but found some buyers last night, with the US ten-year down only -1 point.

Minimal gains for the oils, but it’s a wait and see game for the market.

The Aussie is up 0.2% at US$0.6627.

Today

The SPI Overnight closed up 38 points or 0.5%.

Along with its rate decision, the RBA will deliver a Statement on Monetary Policy today.

We’ll see numbers for March quarter retail sales ex-inflation.

ANZ Bank ((ANZ)) releases its earnings result today at the same time National Bank ((NAB)) goes ex-dividend.

Coronado Resources ((CRN)) reports earnings and Iluka Resources ((ILU)) holds its AGM, while Origin Energy ((ORG)) holds an investor briefing.

The Australian share market over the past thirty days…

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