The Overnight Report: Out Of Puff

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This story features AGL ENERGY LIMITED, and other companies.
For more info SHARE ANALYSIS: AGL
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Oh Blessed Relief

“Recent data indicate that, while inflation is easing, it is doing so more slowly than previously expected and it remains high. The Board expects that it will be some time yet before inflation is sustainably in the target range and will remain vigilant to upside risks. The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.” [My emphasis]

The highlighted line in yesterday’s RBA statement is an addition to the otherwise exact phrasing of the March statement. And with that, the RBA increased its year-end inflation forecast to 3.8%. March came in at 3.6%.

Clearly the RBA has become more hawkish since the last meeting, other than noting the easing in the labour market is no longer described as “gradual”, which is a slightly more dovish tilt.

ANZ Bank economists have not changed their expectation of the first cut coming in November, but admit the risk is now skewed to 2025. The market’s response yesterday was yes – this is more hawkish — but not as hawkish as feared.

While the risk of another rate hike was considered low, we didn’t get one, and that, clearly, was a relief.

That said, the ASX200 was already up 60 points before the statement release, so we can’t credit the RBA with 110 points, just 50. Strength on Wall Street overnight, where the market is now more relaxed about the path of rates, was the initial driver.

Sector-wise, yesterday’s rally was very uniform – very much a Buy Everything affair. The one standout was utilities, which rose 2.8% on a 7.4% jump from AGL Energy ((AGL)) after it upgraded guidance.

Consumer discretionary was another outperformer (+1.9%), otherwise everything else rallied in the 1.0-1.5% range.

The Aussie ten-year yield fell -7 points to 4.30%. The twos fell -10 points to 3.98% — that’s halfway between one rate cut and two.

Retail spending ex-inflation (ie volumes) fell -0.4% in the March quarter to be down -1.3% year on year. Per capita, taking population growth from immigration into account, sales have been down for seven consecutive quarters – the worst run on record.

ANZ Bank ((ANZ)) reported earnings and announced a buyback, on the heels of Westpac’s ((WBC)) buyback increase, but was down ahead of the RBA. The shares managed to close up 0.07%, and National Bank ((NAB)) shares rose 1.0% despite going ex-dividend. This led the sector up 1.3%.

Ongoing incremental strength in iron ore had materials up 1.5%.

Wall Street had a rest last night after a strong comeback rally, and one might have expected a bit of selling in our futures after such a strong session yesterday, but no – they’re up 14 points this morning.

Have a Rest

When Jerome Powell last week largely dismissed any fear of another Fed rate hike ahead, and scoffed at the notion of “stagflation”, Wall Street also breathed a sigh of relief. The S&P500 had pulled back -5% on incrementally hotter inflation data, but has since recovered the bulk of those losses in a hurry.

The US ten-year yield is now down over -25 points from its recent peak, and was down another -3 points last night to 4.46%, but Wall Street needed a breather.

The earnings result season rolls on, but most of the big names have now reported. Disney had reported in yesterday’s aftermarket, and last night its shares fell -9.5% to weigh on the Dow.

Some minor profit-taking in the Big Tech names had the Nasdaq underperforming.

The one big – and I mean really big – name yet to report is Nvidia, but we have to wait until May 22 for that report. There will be a great deal of speculation between now and then.

The adage “sell in May and go away” is not playing out, but then times have changed since this was coined. It basically means take the summer off. The S&P500 has rallied eight out of the last ten Mays.

History suggests that where goes the market in the beginning of May will determine where it will be through July. If there is a rally to start in May, an above-average performance will be posted by July.

Still, last night’s stall suggests there is some concern the snap-back has been a bit over-enthusiastic, albeit driven by actual Mega Tech earnings. Once again, valuations are looking a bit rich.

The next data point in focus will be next week’s April CPI result.

Commodities

Not a lot going on as the LME returns.

Gold has again slipped despite lower bond yields.

The oils will likely do little until we see what will play out in the Middle East, despite Israel making a targeted move into Rafah last night.

The Aussie is down -0.4% at US$0.6603.

Today

The SPI Overnight closed up 14 points.

FleetPartners ((FPR)) and Virgin Money UK ((VUK)) report earnings today.

Goodman Group ((GMG)) provides a quarterly update.

GPT Group ((GPT)) and Smartgroup Corp ((SIQ)) hold their AGMs.

ResMed ((RMD)) goes ex a quarterly dividend.

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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