The Overnight Report: Fifty Or Seventy-Five? – Smat News

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World Overnight
SPI Overnight 6637.00 – 40.00 – 0.60%
S&P ASX 200 6686.00 – 246.00 – 3.55%
S&P500 3735.48 – 14.15 – 0.38%
Nasdaq Comp 10828.35 + 19.12 0.18%
DJIA 30364.83 – 151.91 – 0.50%
S&P500 VIX 32.69 – 1.33 – 3.91%
US 10-year yield 3.48 + 0.12 3.48%
USD Index 105.48 + 0.28 0.27%
FTSE100 7187.46 – 18.35 – 0.25%
DAX30 13304.39 – 122.64 – 0.91%

By Greg Peel

Oh the Pain

It was actually quite a good session on the ASX yesterday, if you don’t count the -5.5% opening plunge. Clearly prospective buyers stood the hell out of the way when the bell rang, allowing the sell-at-market orders to be filled at heart-breaking levels.

It was testament to early sentiment that an hour or so in, the top five ASX200 leaders board had only three stocks on it, and the biggest gain was less than 1%.

The index bottomed at 6566 in the first twenty minutes and half an hour later was at 6615. There followed a slow build-up of momentum into the afternoon for a close at 6686, down -3.6%.

The technology sector had been down over -8% early on, before closing down -4.5%. BNPL stocks now dominate the sector and most everything is going wrong for them at present. Rising interest rates suggest rising default risk, leading regulators to warn of more scrutiny, Block ((SQ2)) in particular is closely linked to bitcoin, and they are among the most volatile of no-profit growth stocks on the market before anything else.

Block fell -15.1% and Zip Co ((ZIP)) -15.9%.

The energy sector copped the biggest hit at -4.9%, as had been the case on Wall Street overnight, and despite a slight rise in oil prices, signifying just how crowded a trade it has become on oil/gas price surges. Woodside Energy ((WDS)) in particular has been highly sought after post-merger, and fell -5.3% yesterday.

BHP Group ((BHP)) investors received Woodside shares in the merger. BHP fell -4.2% (or -30 index points) and the materials sector fell -4.4%.

Chinese lockdowns do not help.

The banks have been largely trashed ever since last week’s RBA rate hike, and fell another -3.7%, either despite or because of the Aussie ten-year bond rate…are you sitting down?…jumping 32 points to 3.99%. The two-year jumped 37 points to 3.08%, implying expectation the RBA will hike to 3% before reconsidering.

They were the biggest, and in the case of banks and resources, the most influential index point falls. The “outperformers” were defensives staples (-1.9%) and utilities (-1.8%), while healthcare copped -2.6% and real estate, which has also been trashed on surging rates,  fell -3.3%. UR Westfield ((URW)) dropped -11.7%.

So was that it? Have we now seen the bottom? Well, that depends on what the Fed decides tonight, and whether or not another 50 points hike from the RBA next month is priced in.

We’re not off to a good start, with our futures down -40 points this morning, but it would require a -120 points drop to return to yesterday’s intraday low which, incidentally, was a level last seen in February 2021.

No Consensus

US wholesale inflation fell to an annual headline rate of 10.8% in May from 10.9% in April. Oh what blessed relief! And it had peaked at 11.4% in March.

But that did follow a 0.8% month on month gain, as forecast, following 0.4% in April. Oil prices bounced in May and there’s not a sign of any significant pullback, even if all of China locked down. Surging food prices are on a lag and there’s no end in sight.

The core PPI was steady at 6.8%.

After two sessions of carnage, the Dow opened up 170 points last night, before chopping around all day, falling to -370 in the last hour and closing at -151. Suffice to say, no one on Wall Street can say what will happen next.

Credit markets have now priced in a 75 points Fed rate hike tonight. Many economists have shifted their forecasts to 75 from 50 since Friday’s CPI result.

Given Powell said in May there’d be two 50 pointers in June and July, and 75 was not on the table, many believe the Fed will stick to its guns lest it appears to have lost control and be panicked.

Logic would suggest, given the CPI immediately led to fears of a 75 pointer, that 50 points tonight would lead to a swift snap-back on Wall Street. And if it is 75, well it’s already priced in. But there is also a different view.

Another school believes that the Fed has already lost control and if it doesn’t go 75 tonight to try to rein in runaway inflation, the market will be very disappointed.

Let’s just say that sentiment does not exactly reflect a market brimming with confidence or circumspection right now.

Either way, the Fed is on a hiking trajectory to get to a neutral rate, whatever that might be. And let’s not forget it’s also running down its balance sheet, withdrawing liquidity from the market. That’s baked in. What will be critical is June quarter corporate earnings results which begin to flow in mid-July. Have estimates been lowered enough, or will profits show resilience?

Last night cloud company Oracle reported earnings and jumped 10%. FedEx announced a 53% dividend increase and board overhaul, and jumped 14%.

One issue that has yet to become front page news, despite the likes of Microsoft and Salesforce posting warnings, is the US dollar, which has surged 10% in a month to a two-decade high. America’s biggest stocks are its big multinationals.

This reflects soaring bond yields. Last night the US ten-year added another 12 points to 3.48%. The two-year lagged slightly, to be at 3.43%, suggesting the market has now shifted up the Fed neutral rate assumption to 3.5% from 3.0%.

We can debate the possibilities till the cows come home, but tonight we’ll get the Fed’s decision.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1808.50 – 10.20 – 0.56%
Silver (oz) 21.02 – 0.01 – 0.05%
Copper (lb) 4.21 – 0.05 – 1.11%
Aluminium (lb) 1.26 – 0.03 – 2.50%
Lead (lb) 0.94 – 0.01 – 1.03%
Nickel (lb) 11.57 – 0.24 – 2.00%
Zinc (lb) 1.64 – 0.02 – 1.42%
West Texas Crude 118.93 – 2.00 – 1.65%
Brent Crude 121.09 – 1.30 – 1.06%
Iron Ore (t) 138.26 – 1.27 – 0.91%

A similar story to Monday night, other than this time oil prices have fallen as well.

It appears the oils are now reflecting the growing risk of renewed Chinese lockdowns along with the rest of the commodity spectrum.

The Aussie is down another -0.7% at US$0.6878. Good for our exports, bad for iPhone sales and overseas holidays.

Today

The SPI Overnight closed down -40 points or -0.6%.

Yesterday’s local NAB business confidence survey for May, which took in both the election and the RBA’s first rate hike (25 points), showed a fall in both conditions and confidence but to still elevated levels. Today we’ll find out how consumers feel this month when Westpac’s more recent survey is released.

China reports May industrial production, retail sales and fixed asset investment today.

Along with the Fed decision, the US will see May retail sales.

Hub24 ((HUB)) hosts an investor day today.

Block holds its AGM.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
EDV Endeavour Group Upgrade to Outperform from Neutral Macquarie
HVN Harvey Norman Downgrade to Neutral from Outperform Macquarie
JBH JB Hi-Fi Downgrade to Underperform from Outperform Macquarie
WES Wesfarmers Downgrade to Underperform from Neutral Macquarie

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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