The Overnight Report: The Bulls Are Back

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

By Greg Peel

One Step Back

After scraping over the 7800 mark this week, yesterday the ASX200 came crashing back towards 7700, largely driven by banks and retail. The index opened lower and just kept going.

We could not get around the fact Westpac ((WBC)) went ex-div, and the stock fell -5.6%, while Commonwealth Bank’s ((CBA)) March quarter update saw that stock falling -2.2%. The bank sector fell -1.7%.

This was outdone only by consumer discretionary, which fell -2.6%.

Macquarie is in the midst of its annual equities conference and a presentation by JB Hi-Fi ((JBH)) was worth a -2.5% fall, Super Retail ((SUL)) -5.5% and Wesfarmers ((WES)) -3.5%.

Not in the index but not helping was Temple & Webster ((TPW)), which updated its sales numbers and tat share price fell -17.9%. This was only pipped by Baby Bunting ((BBN)) which is an All Ords member, which updated and its shares fell -23.4%.

Consumer staples once again played defensive and rose 0.1%.

There are increasing signs Australian consumers are reining in the spending, and the latest retail sales data corroborate, which cannot escape the attention of the RBA. The tax cuts coming in July may help a little, but really, we need to see the first RBA rate cut for consumers to regain any confidence.

That may not come until next year.

It was not a good session for real estate (-1.3%) and healthcare (-1.2%), both of which had been finding some buying of late.

The Aussie ten-year yield rose 5 points following a similar move in the US, which was more to do with a Treasury bond auction than Fed policy.

It’s a pity we couldn’t follow the dead flat close on the S&P500 as well.

Materials was also lower (-0.5%) on a dip in the iron ore price.

Energy (+0.6%) and utilities (+0.3%) were able to buck the trend following the government’s announced new gas policy, which has caught everyone off guard.

Wall Street has regained momentum overnight, and our futures are suggesting a bounce today, but only of 0.3% to the S&P500’s 0.5%.

Broadening Out

As US bond yields slipped back again last night, the S&P500 pushed on to over the 5200 mark for the first time in a month. The previous all-time high was 5264.

What has commentators excited at the moment is the latest run-up to that level has not been driven by the Mega Techs, but rather by the rest of the market.

This was evident last night in both the Dow and S&P500 outperforming the Nasdaq.

The Dow has now posted a seven-day winning streak – its longest since a nine-day run back in December.

As 2024 unfolded, there was evidence of greater breadth on Wall Street as bond yields began to retreat, only to stall and recover as Fed rate cut expectations started to diminish. The Mega Techs then took over once more, most recently with their March quarter results, and market breadth fell back again.

Since those results, the Mega Techs have stalled. The US ten-year yield has fallen back from 4.75% to under 4.50%, and breadth has picked up once again.

On the matter of Fed policy, last night’s data showed weekly new jobless claims rising by 22,000 from the week before to 231,000, to mark their highest level since August last year. The tight US labour market, and stubborn inflation, have been behind the Fed’s failure to as yet cut rates.

UBS, nonetheless, is forecasting inflation to begin to trend lower, beginning with next week’s April numbers, citing recent data indicating moderating housing costs, and lower consumer spending going forward.

“Our view is that inflation will start heading back to the Fed’s 2% target in the coming months,” declared UBS.

Commodities

China's exports and imports returned to growth in April after contracting in the previous month, signalling an encouraging improvement in demand.

Exports rose by 1.5% year on year in April After falling -7.5% in March, while imports increased by 8.4% — well above expectation – after falling -1.9%.

Good news for commodity markets.

With only a slight fall last night in US yields, gold has found its mojo again.

The Aussie is up 0.6% at US$0.6621.

Today

The SPI Overnight closed up 23 points or 0.3%.

The US will see consumer sentiment numbers tonight.

The UK reports March quarter GDP.

China reports April inflation numbers tomorrow.

GrainCorp ((GNC)) posts its earnings result and Life360 ((360)) provides an update.

QBE Insurance ((QBE)) holds its AGM.

Well, that’s it from me. After seventeen years of writing what became the Overnight Report, and getting up at the crack of dawn to do so, I’m hanging up the boots.

I hope over that period I have managed to help readers better understand the markets, particularly here and in the US, and to aid in informing investment decisions. That has been the aim.

I wish you all good luck.

The Australian share market over the past thirty days…

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