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The Overnight Report: Technical Turnaround

Published 03/03/2023, 11:25 am
Updated 09/07/2023, 08:32 pm

By Greg Peel

Day Two

You’d be forgiven for thinking the ASX had forgotten to update its market data from Wednesday to Thursday, so near identical was yesterday’s action to Wednesday’s. In each case at the closing bell, the ASX200 had gone nowhere much but was squared off by big moves up in the resources sectors and a big move down for banks.

One difference was that Wednesday started with a big knock from ex-divs, before recovering. Yesterday the market shook off early ex-divs and rallied, but came crashing back late morning – there were some weak economic data but it looks more like a big sell order hit.

Another difference was that on Wednesday Aussie bond yields moved down, but yesterday shot up in line with the US. The ten-year jumped 8 points to 3.86%.

Otherwise, the energy sector rose 1.4% and materials 2.9% and the banks fell -1.9%, with all other sectors more modestly lower, as was exactly the case on Wednesday.

Staples fell -1.3% but only because Coles Group Ltd (ASX:COL) and Woolworths Ltd (ASX:WOW) both went ex.

Wednesday’s positive data out of China has lit a fire under the materials sector, despite major players all pulling back on the dividend payout intentions. It had earlier appeared China’s reopening was having little effect, hence with US/Europe potentially going into recession, commodity prices remained subdued. Wednesday’s February PMIs out of China have changed all that.

It has been a longstanding ploy that investors play resources off against banks – sell one to buy the other – being the biggest market cap sectors.

Yesterday’s top five index winners were led out by South32 Ltd (ASX:S32) on 5.1%, followed by Nickel Mines Ltd (ASX:NIC), Mineral Resources Ltd (ASX:MIN), New Hope Corporation Ltd (ASX:NHC) and then Sandfire Resources NL (ASX:SFR) on 4.3%. That’s mixed minerals, nickel, iron ore/lithium, coal and copper in the same bunch.

Contrarily, Lynas Rare Earths Ltd (ASX:LYC) topped the losers’ board in falling -6.8% but it has its own processing plant issues.

The day’s economic data release showed building approvals fell -27.6% in January, against a market expectation of -7%. Okay, no one’s much around in January, and December did see a surprise 15.3% jump, but when house approvals fall -13.8%, apartments -40.8% and non-residential -25.5%, you know there’ll be a slowing in building activity ahead beyond disaster-impacted areas.

Building material suppliers were hit yesterday, but as part of the materials sector they were swamped by the big miners.

If fewer dwellings are being built, and migration is returning to pre-covid levels, the result can only be higher rents on existing dwellings. They call that inflation.

We kick off this morning following some surprising strength on Wall Street, US rates higher still and only a couple of big ex-divs to start the session. The futures are up 28.

Critical Levels

US new weekly jobless claims fell -2000 to 190,000 last week, extending the run of sub-200,000 claims – a number which once upon a time was never seen. An update showed labour costs grew much faster than previously estimated in the December quarter.

On Wednesday night Wall Street ran scared when the US ten-year yield rose 9 points to the critical 4.00% level. Last night the yield breached that level early, and didn’t look back, rising another 8 points to 4.08%.

The S&P500 fell -23 points on the open, which took it below its 200-day moving average. That 200MA had proven staunch resistance through the back half of last year, but when it was finally overcome in January, the 200MA became support.

And so Wall Street turned.

While the labour data do nothing to undermine the Fed’s stance, helping to aid the subsequent bounce were comments from the Atlanta Fed president, who suggested steady quarter point rate increases were the way to go, reducing the likelihood of damage to the economy.

This in contrast to three other Fed presidents who in the last couple of weeks have pumped for a 50 point hike this month. But like the other three, Raphael Bostic is not an FOMC voting member.

The bounce-back on Wall Street then fed on itself to the close. Who would have thought the US ten-yield could smash through 4% and the Nasdaq would rally 0.4%?

Strange days indeed.

The Dow was supported by an earnings result from retail software company Salesforce, which rallied 11.5%.


A little bit of give-back, but mostly holding Wednesday’s strength.

The Aussie is down -0.3% at US$0.6732 after the US dollar jumped 0.5% on bond yields.


The SPI Overnight closed up 28 points or 0.4%.

Today we’ll see housing finance numbers.

February services PMI numbers will be reported around the globe.

Ampol Ltd (ASX:ALD), Nine Entertainment Co Holdings Ltd (ASX:NEC) and Treasury Wine Estates Ltd (ASX:TWE) are among today’s stocks going ex.

"The Overnight Report: Technical Turnaround" was originally published on Savings.com.au and was republished with permission.

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