The Overnight Report: Lack Of Conviction

This story features WOODSIDE ENERGY GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: WDS

Australian shares are set to open lower following a choppy session on Wall Street, as President Trump repeated his intention for tariffs on Mexico and Canada and with Nvidia’s quarterly results due on Thursday.

President Trump, at a press conference, said tariffs on Mexico and Canada are going forward on schedule after the one-month delay.

US Treasuries settled with gains. The 10-yr yield dropped three basis points to 4.39% and the 2-yr yield dropped two basis points to 4.17%.

US equity indices moved lower heading into the close.

The corporate calendar today has Woodside Energy ((WDS)) ready to report, as well as Australian Clinical Labs ((ACL)), Domino’s Pizza ((DMP)), Nanosonics ((NAN)), Nine Entertainment ((NEC)), Zip Co ((ZIP)) and numerous more.

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

By Chris Weston, Head of Research, Pepperstone

Good morning.

The intraday price action seen in NAS100 and S&P500 futures speaks to a market that remains challenged, and unconvinced of buying into weakness and adding risk, and we see both futures markets at session lows.

S&P500 and NAS100 futures flatlined throughout EU trade, where once again we saw sellers layering into the US cash equity open, resulting in a -1.7% rip lower in the NAS100, and seeing S&P500 futures test 6000.

Talks on the floors of systematic funds (CTAs) cutting out of long equity and futures positions as price pushed below trigger levels.

The heavy pick up in traded futures volume seen through the move lower speaks to this rules-based liquidation of positioning.

US cash equity mega-cap names like Meta, Microsoft, Nvidia and Netflix were well offered on the cash open.

One could relate these flows to the focus from one broker of Microsoft cancelling data centre leases amid an oversupplied position, with some extrapolating that to mean peak and even future downside risk for the hyperscaler’s capex plans.

The fact we saw MSFT stabilise at US$399 and grind higher to US$404 through US trade suggests that calmer heads prevail and that many see that as just one take.

In fact, MSFT are pushing back on the broker research piece and while capex growth will slow in the years ahead from current rates (of around 55%), we consider that the run rate comes off a very high base.

The buyers did step up and played their hand, with 6000 (in S&P500 futures) the platform for a rally back to 6050, with the S&P500 cash trading back to the flat line.

However, a late session sell-off saw futures pull back to session lows, and again this speaks to a market that lacks any conviction to push risk higher.

S&P500 Financials and healthcare felt the love on the day, with modest signs of switching playing out.

The wash-up is some indecision in the S&P500 and NAS100 on the daily timeframe and that will need to rectify itself through the week.

A daily close for the S&P500 futures through the 100-day MA (5975) would increase the probability of a more extended drawdown, with the VIX then likely to push firmly above 20%, but for now, we see a continuation of the sideways chop, and tactically playing the range remains the play.

FX markets have been uneventful, and while headlines from the Trump/Macron meeting and the position on Ukraine have been a factor, the major FX rates see a relative benign net change on the day.

Turning to Asia, and all eyes fall on the HK50 and H-shares, with Alibaba trading -10% (the largest fall since 2022), with other Chinese AI/tech plays taken down hard.

Trump’s directive to limit Chinese spending and investment in strategic US sectors has been the trigger for a solid reduction in extended longs and this will spill over in the HK equity cash open, which we see opening -2.3% lower.

The ASX200 should open -0.4% lower.

By way of event risk, there is little in the way of data to trouble those trading intraday through Asia, and cross-asset moves will be driven by portfolio flows in reaction to Trump’s directive and how China AI plays fare.

US consumer confidence has the potential to move the dial, with US regional PMIs also due out.

Dallas Fed president Lorie Logan speaks through UK/EU trade with a focus on the Fed’s balance sheet, and that could be of interest for any increased intel on when the Fed could end its QT program.

On the calendar today:

-Japan Jan PPI

-US Feb Consumer confidence

-Australian Clinical Labs ((ACL)) earnings report

-AGL Energy ((AGL)) ex-div 23c (100%)

-Amcor ((AMC)) ex-div 20.40c

-Austin Engineering ((ANG)) earnings report

-AUB Group ((AUB)) earnings report

-Bega Cheese ((BGA)) ex-div 6c (100%)

-Challenger ((CGF)) ex-div 14.50c (100%)

-Centuria Industrial REIT ((CIP)) earnings report

-Capricorn Metals ((CMM)) earnings report

-Clinuvel Pharmaceuticals ((CUV)) earnings report

-Dalrymple Bay Infrastructure ((DBI)) earnings report

(and more)

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

Corporate news in Australia:

-A public conflict is brewing between Iress ((IRE)) and local stockbrokerages with the latter rejecting Iress’ tech upgrade fee, citing no legal basis, risking financial impact on the company

-Perpetual ((PPT)) has rejected renewed KKR bid over tax costs, plans business split

-APA Group ((APA)) brings in consultants as it prepares for cost-cutting and potential job cuts

By Samer Hasn, Senior Market Analyst at XS.com

Gold continues its rise today, regaining the level of US$2945 per ounce, thus approaching the record high it had recorded last week near US$2955.

The continuation of the general upward trend in gold recently coincided with the influx of a set of negative signs about the future of economic activities and the labour market in the US.

These sources of uncertainty are added to those prevailing globally with anticipation of developments in the trade war between the US and the world.

On Friday, we witnessed the preliminary S&P Global’s PMI report for February. Where services activities contracted unexpectedly, and business optimism fell to the lowest level since December 2022 amid the prevailing uncertainty since Donald Trump took office as president of the White House.

While this declining sentiment comes with concerns about the fate of the federal government, spending and tariffs, in addition to concerns about rising prices and geopolitical tensions, according to the report.

On the same day, we also saw the final results of the University of Michigan Consumer Sentiment survey, where the headline index was lower than reported earlier this month.

The survey results indicated a deterioration in consumers’ expectations about the economy in the short and long term, personal finances and a decline in purchases of durable goods.

On the other hand, inflation expectations for the coming year remain at 4.3% on an annual basis, in line with the preliminary reading and up from 3.3% in the January survey.

In addition, existing home sales unexpectedly declined in January, deepening concerns about the state of the US housing market, which is one of the most prominent weaknesses in the economy and continues to be negatively affected by relatively high financing costs.

The damage that may be inflicted on the labour market as a result of the reduction in the workforce in government agencies in the US will also get a growing focus and may contribute to fueling uncertainty, which is an additional factor supporting gold’s gains.

The number of jobs lost because of the reduction in the size of the federal government is expected to reach -475,000 jobs, representing -20% ??of the total federal workforce, according to a Wall Street Journal survey.

While the job losses at this level would be small compared to the total non-farm workforce of 159m, they could have indirect implications that are not yet known, according to The Journal.

This week, The Conference Board’s Consumer Confidence figures could help to provide a deeper insight into the uncertainty for individuals and households.

The Federal Reserve’s preferred measure of inflation, Personal Consumption Expenditures (PCE), will also help to bolster expectations about the Fed’s monetary policy path for the rest of this year.

While positive inflation surprises and growing signs of monetary tightening are only a temporary pressure on gold, they provide room to buy on a correction followed by a safe-haven-driven rally in light of the above factors.

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)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms