Market overnight shrugged off the high CPI reading which was mostly expected and focused on up-and-coming reporting. JPM fell 3.22%, black rock was down 0.15%, First Republic Bank up almost 7% and Delta Air up 6.21%.
Delta air was up as they signalled; they could come back to profitability next quarter. JP Morgan fell after reporting a $524 million hit caused by market dislocations due to sanctions against Russia. They reported a 42% decline in first-quarter profits. Revenue, however, came in at $31.59 billion for the period, slightly higher than expectations.
The moves higher in Growth stocks overnight is likely traders buying the dip again, as many companies become oversold. We still expect Value stocks to outperform in the medium term until inflation and interest rate expectations cool off.
Energy across the board was higher overnight with crude back to 104.22 Us a barrel. This was despite Crude inventories coming in much higher than expected. Energy markets are rising on the back of fears in Ukraine as the nation braces for a Russian offensive attack in the east that could be more challenging than earlier battles near Kyiv. Also, the Covid lockdown in China may not be as worse as expected over the weekend.
This morning we will see BOQ reporting which will give us a hint on how the local banks are going. ANZ, WBC, MQG and NAB all report in early May. Today we will also see local unemployment numbers come out with the unemployment rate expected to come in at 3.9%.
Australian Outlook
The XJO is expected to edge higher following a strong night of gains in the U.S. Our meek open is understandable for several reason. First, our market hasn’t seen the falls the U.S has seen since their recent highs. Indeed, we have mainly tracked sideward showing almost uncharacteristic resilience. This make sense as markets shift from growth type stocks (especially tech) and move to more value-based stocks, of which our market is dominated by. This is largely on the back of an environment of tightening monetary policy. Secondly, with a four-day weekend around the corner, investors may be reluctant to make any substantial decisions on either the buy or sell side, especially if they are on holidays. Thirdly, the U.S has not broken their short-term descending channel. Finally, with their futures edging into the red this morning it seems they will not have the strength (at this stage) to break the descending channel, or give our market the positive leads to start pricing in during our session today.
Our market is clearly tracking sideward between key resistance at 7,550 and 7,430. We have broken the short term uptrend line in a rather lacklustre fashion, and coupled with a quiet period over easter and leading into ANZAC day, we will probably continue to track sideward and hold the range.
Today local job data will be released. Unemployment is expected to come in at the lowest it’s been since apparently 1974 (although since then, our measure and definition of full time and part time unemployment has changed.) It is also expected for the participation rate to edge slightly higher as well. If job data comes in as strong as expected, or even stronger, this is both positive and negative for our market. Employment is a key metric for the strength of our economy and so strong employment numbers should mean a strong economy. On the other hand, it will also likely keep the RBA on the path of tightening interest rates. The market may think the RBA will feel greater pressure to tighten faster and harder, which is a contractionary position the market doesn’t like. In reality though, it probably won’t affect our market today and won’t be a strong factor until we get word from the RBA.
US Markets
US shares closed firmly higher overnight, ending the recent string of losses. There was a lot of commentary from the financial media that bad news has been largely priced in. We also saw the first of the major earnings reports overnight, which were a little mixed, with JPMorgan narrowly missing earnings estimated, though they exceeded revenue estimates. BlackRock did the reverse and announced an unexpectedly large profit on smaller than expected revenues. Fastenal and Delta airlines each had better than expected results. Earnings season is usually a positive time for markets and price movements in reporting US companies could definitely influence Australian stocks. US economic data was fairly negative overnight, with producer prices coming in strongly higher than expected, feeding the inflation narrative. Official US oil inventory numbers also showed a large drawdown in inventories, which pushed oil higher again. Consumer Discretionary was the strongest sector overnight, followed by Technology and Materials stocks. Financials and Utilities were the only sectors to close lower, and their moves were small.
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