The Overnight Report: Technology Takes Baton

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This story features A2 MILK COMPANY LIMITED, and other companies.
For more info SHARE ANALYSIS: A2M
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

US markets recovered from earlier falls, with strong buying in beaten-down technology and software stocks taking the Nasdaq up 1.2%, marking a ninth consecutive gain.

After selling off on Monday ahead of the Strait of Hormuz blockade deadline, ASX200 futures are indicating a very strong start to Tuesday's trade.

Good Morning,

The ASX200 fell -35 points, or -0.4%, to 8,926. Technology was the weakest sector, down -1.8%, while energy rose 2.1%.

The Nasdaq rose 1.2% to record a ninth consecutive daily gain, its longest winning streak since December 2023, with the rally driven by a sharp rebound in previously underperforming software stocks.

The S&P500 gained 1%, while the Dow added 301 points, lagging the broader market, partly due to weakness in Goldman Sachs ahead of upcoming bank earnings.

Markets opened cautiously following unsuccessful US–Iran talks and renewed tensions around a blockade of the Strait of Hormuz, but sentiment improved as gains broadened beyond technology. Strong trading volumes in software and AI-related stocks pointed to renewed investor positioning, supported in part by activity from quantitative and systematic traders.

Source: Barrons

Today’s Big Picture, J.L. Bernstein extract

Iran Talks Collapse, Blockade Begins

Iran refused to stop uranium enrichment or cut support for its regional proxies, ending talks in Pakistan without a deal. The Navy moved immediately to block all ships entering or leaving Iranian ports. I think the market is underestimating how long this drags out. Iran has roughly 160 million barrels of oil floating offshore right now, enough to keep China supplied until mid-July.

Goldman Kicks Off Bank Earnings

Goldman Sachs posted its second-highest quarterly profit ever, with US$5.6bn in net earnings and record equity trading revenue. Fixed income came in nearly -US$900m below what analysts expected, and the stock fell on the miss. The rest of the big banks report through Wednesday, and what the CEOs say about war risk will matter more than the headline numbers.

Tech Takes the Baton

The Nasdaq is on pace for its ninth straight winning day, its longest run since December 2023. Tech has led every sector since the March 30 low, while energy has given back ground. Tom Lee at Fundstrat called a market bottom today, and Yardeni Research held its 7,700 S&P500 year-end target. Oil near US$100 is the main threat to this rotation holding.

ANZ Bank Australian Morning Focus, extract

US equities reversed earlier losses, with the S&P500 up 1% and the Nasdaq up 1.23%. The Euro Stoxx50 ended down -0.4%, while the FTSE100 lost -0.2%.

The yield on the US 10y note fell around -5.4bp to 4.29%.

US existing home sales fell -3.6% m/m to 3.98m (seasonally adjusted) in March, a nine-month low, as higher mortgage rates weighed on activity. The median existing home price rose 1.4% y/y, up from 0.3% y/y in February, but is subdued relative to history.Structurally tight inventory, driven by mortgage lock-in effects, is keeping upward pressure on prices despite the soft demand backdrop.

We have changed our Official Cash Rate call for the RBNZ, and we now see three consecutive 25bp hikes in July, September, and October, taking the overnight cash rate to 3%.

The Reserve Bank faces a challenge, with the outlook for oil prices and fuel supply uncertain, and the impact on medium-term inflation ambiguous. CPI inflation will spike, but this is also a negative shock to confidence and real incomes.

Policy is therefore about balancing the risks of acting too soon or too late, too much or too little, in an environment where the range of possible outcomes is wider than the range of forecasts.
We now expect the cash rate to peak at 3%, rather than 3.5% previously, as persistent demand-side impacts from the negative income and confidence shock mean precautionary hikes are likely to be potent, reducing how far policy ultimately needs to tighten to contain medium-term inflation risks.

The Bank of Japan has signalled caution. Market expectations for the Bank of Japan to hike by 25bp at its 27-28 April meeting pared back following a speech by Governor Ueda.

Markets are now pricing in around a 33% chance of a hike, down from about 55% at the end of last week. Ueda struck a more cautious tone, highlighting uncertainty stemming from the conflict in the Middle East.

Recent economic developments had supported further policy normalisation: the Q1 Tankan survey showed solid business sentiment despite the energy price shock, long-run inflation expectations moved further above the 2% target, and firms’ selling price intentions increased.

The spring wage negotiations (Shunto) also delivered solid wage increases for a third consecutive year. However, Ueda’s speech suggests the BoJ is concerned about the balance of risks between higher inflation and weaker growth arising from the conflict.

Commodities

Crude oil futures rallied on the open after Trump announced a US blockade of the Strait. This raised concerns of further disruption to oil supplies.

With Iran’s oil export facilities still operational, it managed to export 1.63mb/d of oil during March, according to Bloomberg ship tracking data. The United Arab Emirates has also been able to get oil to the international market via its Fujairah export hub, which is outside the Strait.

So, a US blockade could curtail another -3 to -4mb/d of crude oil. The US naval action could test the fragile ceasefire and raise the prospect of a re-escalation of the Middle East conflict. Iran has already issued new threats to target vessels and ports in response.

The failed talks and possible US blockade had an immediate impact on the shipping industry. While 19 vessels managed to transit the key waterway on Sunday, the momentum reversed on Monday morning. Only four were observed getting through, a single LPG carrier and three small fuel tankers.

Crude oil gave up some of these gains late in the session after Trump claimed Iran wants to “work a deal” following the collapse of peace negotiations over the weekend. Iran has not confirmed any further discussions.

This suggests financial markets continue to look through the conflict to possible barrels being back on the market. However, the continued closure of the Strait raises the risk that the recovery of supplies will take much longer than it would have if this disruption had ended in a few weeks.
Nearly half of the capacity of Persian Gulf producers has been shut in, and reactivation will be a long and difficult process.

Global gas prices followed oil higher, as the prospect of a resumption of exports from the region was dashed after peace negotiations failed. The impact of the disruptions to supplies continues to have wide ramifications.

Asian LNG imports have dropped to their lowest level in almost six years. The 30-day moving average of net shipments to the region fell below 600kt over the weekend, the lowest since June 2020, according to Bloomberg ship tracking data.

Pakistan, which heavily depends on Qatar for supplies, hasn’t received any cargo since early March. Shipments to major buyers, including Japan and South Korea, have declined to around the lowest seasonal level in six years.

European imports of Russian LNG hit a record in March, as Middle East supplies were disrupted.
Aluminium led the base metals sector higher, as Trump’s blockade of the Strait raised the prospect of further disruptions. The gains were the greatest in contracts for immediate delivery, highlighting the tightness in the physical market.

The Middle East accounts for about 9% of global aluminium output. Several producers in the region have invoked force majeure due to an inability to make deliveries. Still, elevated prices across the metals sector are curbing demand.

Stockpiles of copper in LME warehouses reached an eight-year high last week. This won’t be helped by data showing that China’s credit expansion slowed more than expected in March. Aggregate financing rose by CNY5.2trn, its weakest pace since November 2024.

Gold edged lower as inflationary concerns returned following the US blockade of the Strait. This has seen US money markets price in less than a 20% chance of a rate cut by December.

‘The War Ain’t Over Till It’s Over’ Ed Yardeni & Toby Hearst extract

In his seminal work, On War (1832), Carl von Clausewitz famously wrote: “War is the continuation of politics by other means.” The US and Iran agreed to a ceasefire in their war and to talks seeking a diplomatic solution. However, their talks failed, and now they are both resuming the war. On Sunday, US Central Command said the Navy will blockade all maritime traffic entering and exiting Iranian ports on Monday at 10 a.m. ET.

The markets reacted swiftly on Sunday: the prices of Brent and WTI crude oil jumped by about US$8 a barrel each, putting them a bit north of US$100. The dollar firmed slightly. Gold fell about -US$100 an ounce. Futures prices for the DJIA/S& 500/Nasdaq fell a little over -1%.

The financial markets may be learning to live with the war in the Middle East, as they have with the war between Ukraine and Russia. China imports lots of Iranian oil.

The White House clearly is leaning on China to pressure Iran to end the war, and also threatened today to impose a 50% tariff on China if Beijing sends advanced defence equipment to Tehran.

President Donald Trump offered to facilitate the sale of cheaper oil from Venezuela to China. The unusual negative spread between Brent and WTI prices suggests that traders believe foreign demand for US crude oil is increasing as an alternative to oil supplied by Arabian Gulf producers.

Notwithstanding the ongoing war, we are sticking with our call that the S&P500 bottomed on March 30. We are sticking with our year-end target of 7,700 for the S&P500.

The recent outperformance of the Magnificent-7 stocks relative to the Impressive-493 suggests that their valuation multiples fell enough during the recent stock market pullback to attract buyers again.

It may also be a sign that investors are less concerned about an AI bubble. We agree with them. In early December of last year, we recommended underweighting the Mag-7. Three weeks ago, we suggested they were cheap enough to raise to market weight.

The Q1 earnings season is starting this week. After rising for several weeks, the analysts’ consensus estimates for 2026 and 2027 S&P500 operating earnings per share have flattened out over the past two weeks.

The S&P500 forward earnings rose to yet another record high during the week of April 9. At Friday’s close of 6,816.89, the S&P500 is trading at a 19.1 forward P/E.

Industry analysts are very optimistic about earnings growth this year, with their expectations of double-digit gains for all four quarters. They may be a bit too optimistic.

During the stock market pullback, Value outperformed Growth. Since March 30, when the stock market bottomed, Growth has outperformed. Interestingly, so have transportation stocks. The S&P500 equal-weighted index has underperformed. We think it will outperform the S&P500 market-weight index over the rest of this year.

Our pivot from Stay Home to Go Global late last year worked well until the war started. However, it has made a comeback since the market bottomed on March 30.

Walter Bloomberg @DeItaone, X

JPMorgan Chase says investors should buy market pullbacks, arguing conditions support another V-shaped recovery despite geopolitical risks. Strategist Mislav Matejka notes volatility may persist, but a 3–12 month horizon favours adding risk, as bearish sentiment and oversold signals create opportunity. The bank also expects international stocks, emerging markets, small caps, and value to outperform, with inflows likely to resume.

Corporate news in Australia

-A2 Milk ((A2M)) downgrades earnings outlook on supply chain issues

-Pro Medicus ((PME)) announces a $37m renewal contract with Northwestern Medecine.

-Private equity firms targeting Green Cross Health GP clinics as healthcare deal activity lifts

-Corrs Chambers Westgarth dealing with fallout from Cosette–Mayne Pharma deal collapse affecting client relationships

-Strong capital inflows targeting Australian energy assets as Rio Tinto ((RIO)) explores power asset sales

-Altered Capital linked to potential transaction involving Fletcher Building ((FBU)) residential division amid subdued investor demand

-Horizon Nexus expanding nationally through acquisitions of Perth and Brisbane accounting firms

-Amtek Corporation being readied for sale with interest from strategic and private equity buyers

-David Jones delaying supplier payments as part of cost reduction and turnaround strategy

-Bruce McWilliam builds 5.3% stake in Southern Cross Media ((SXL)) with $14m investment

-Carmakers shifting towards range-extended EVs to improve range and compete with Chinese manufacturers

-Australia faces heightened cybersecurity risk due to delayed access to Anthropic AI model

-WA Premier considering expansion of Perth Mint into rare earths processing to strengthen supply chains

-Used EV sales rise 138% as higher fuel prices linked to Middle East tensions drive demand

On the calendar today:

-NZ Feb net migration

-AU March NAB business survey

-AU Westpac Consumer Confidence

-JP Feb Industrial Production

-CH March Trade Bal

-US March NFIB

-US March PPI

-MICHAEL HILL INTERNATIONAL LIMITED ((MHJ)) Investor Day

-TURNERS AUTOMOTIVE GROUP LIMITED ((TRA)) ex-div 7.42c (85%)

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

The Australian share market over the past thirty days…

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