The Overnight Report: Cautiously Positive

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Too many global uncertainties are keeping a lid on further share market enthusiasm this week.

US equities took a day off as forward guidance from Walmart disappointed.

In Australia, corporate results are due today from Guzman y Gomez ((GYG)), Newmont Corp ((NEM)), TPG Telecom ((TPG)), and many more.

QBE Insurance’s ((QBE)) financials, out this morning, have surprised to the upside.

https://fnarena.com/index.php/financial-news/calendar/

SPI futures are suggesting the local market might have a cautiously positive opening on Friday.

By Chris Weston, Head of Research, Pepperstone

Good morning.

We see a modest “Sell US risk” flow expressed through markets, with traders compelled by the momentum seen in China/HK, with Alibaba delivering the goods (in earnings) and more than justifying the recent migration of capital from a concentrated US tech position towards the China AI plays.

One can loosely argue this is another quick jab to the jaw of the US exceptionalism theme.

A solid US jobless claims was a positive for US risk, but many have pointed to Walmart’s dour commentary on rising uncertainties around consumer behaviour as a signal, where these comments come at a time when we’ve see a few minor cracks emerging in US consumption trends.

Perhaps Walmart’s outlook has been just enough to promote covering of extended long positions in the more cyclical areas of the equity market, notably in US small caps, US financials and consumer discretionary.

My thinking is this is more about traders needing an excuse to take profits in the plays that have been hot.

The fact we saw traders re-engaging with equity longs through the latter part of US cash equity trade plays into this call.

We also see that UST yields are only modestly lower, the VIX index is unchanged and Bitcoin is +2.2%. So, while US cash equity closed lower, it was far from a true “risk off” day.

A recalibration on the probability of a near-term Russia-Ukraine ceasefire has also been a factor weighing on equity risk, with US representatives making it clear they have been frustrated with Zelensky failing to sign a deal for minerals.

While still hopeful, perhaps traders had become a little too optimistic about how this would play out.

What has been noticeable and well-traded on the day is the USD move, with the greenback sold liberally across G10 FX, with the JPY the outperformer on the day.

UST Secretary Bessent’s comments that the Treasury Department is not looking to increase the share of longer-term US Treasuries and away from US T-bills in future issuance is a factor here.

Bessent’s directive will certainly help contain the upside in US 10yr Treasury yields that would come if the market built expectations of increased longer-dated coupon issuance and supply.

AUDUSD is getting plenty of attention from clients and notably after the firm technical break and build of the 0.6330 to 0.6130 range it had held throughout the year.

I won’t fight this move higher and would be looking at pullbacks to get long.

Turning to Asia, we see upside risk for the ASX200 open.

On the calendar today:

-New Zealand Jan Trade Balance

-Japan Jan CPI

-UK Jan Retail sales

-Global PMIs

-AMA Group ((AMA)) earnings report

-Amotiv ((AOV)) ex-div 18.50c

-ASX ((ASX)) ex-div 111.20c (100%)

-Accent Group ((AX1)) earnings report

-Codan ((CDA)) earnings report

-Genesis Energy ((GNE)) earnings report

-Gold Road Resources ((GOR)) earnings report

-Guzman y Gomez ((GYG)) earnings report

-Iluka Resources ((ILU)) earnings report

(and more)

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

Corporate news in Australia:

-US property firm CoStar purchased 7.5% stake in Domain Holdings Australia ((DHG)), launching offer for full take-over

-HMC Capital ((HMC)) is exploring a private equity-led rescue plan for struggling hospital operator Healthscope, with Ramsay Health Care ((RHC)) and St John of God Health Care emerging as potential partners

-Clive Palmer is reportedly exploring a purchase of Star Entertainment’s ((SGR)) Queensland assets, following interest from Bruce Mathieson

– Having sold Plarium, Aristocrat Leisure ((ALL)) will repay debt, launch a share buyback, and explore acquisitions

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.

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)

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