Nasdaq rallies 6.7% in March, oil prices surge, why April is bullish for the ASX 200

The Nasdaq snaps a four-quarter losing streak, oil prices surge after OPEC+ announce a surprise oil production cut, Tesla Q1 vehicle production rises 36% year-on-year to a record 421,164, Eurozone headline inflation eases but core inflation hits a record high and why April tends to be one of the best performing months for the ASX 200.

Let's dive in.

S&P 500 SESSION CHART

MARKETS

• S&P 500 trends higher intraday on Friday and finishes the week up 3.5%
• Nasdaq Composite up 3.4% last week to a six month high
• Relatively uneventful past week with no specific catalyst driving the market higher
• Some bullish focus points: More signs of banking sector stabilisation, upside from depressed positioning, mega cap tech strength, cooler-than-expected core PCE
• Global dealmaking sinks to lowest level in over a decade (Reuters)

STOCKS

• Tesla (+6.2%): First quarter vehicle deliveries of 422,875, which slightly beat sell-side analyst expectations of 421,164. Production hit a record 440,808 (+36% YoY)
• Micron (-4.4%): Cyberspace Administration of China plans to roll out a cybersecurity review of Micron’s products sold in China
• Bed Bath & Beyond (-28.0%): Continued to tumble after the company warned that it may need to file for bankruptcy protection. The stock fell -47.6% last week

BANKING CRISIS

• Total Fed emerging lending to the banking sector fell to US$152bn from US$164bn in the prior week, borrowing via discount window eased to US$88bn from US$110bn
• Flight to money funds is adding to the strains on small banks (Bloomberg)
• Germans shun deposits abroad on fears of a new crisis (Reuters)

ECONOMY

• US consumer spending slows but seen boosting Q1 GDP growth (Reuters)
• Eurozone headline inflation cools but core inflation hits record high (CNBC)
• Canada GDP shows surprising strength despite rate hikes (Bloomberg)
• China manufacturing PMI moderates in March but remains in expansion (FT)
• China non-manufacturing PMI hits highest since May 2021 (Reuters)
• South Korea industrial output falls sharply, retail sales rebound strongly (Reuters)
• Fed officials see more work on inflation despite bank strains (Bloomberg)
• RBA on track to raise rates 25 bps next week but decision not a given (Reuters)

Deeper Dive

Oil: A surprise OPEC production cut

Russia, Saudi Arabia, UAE, Iraq and other OPEC+ oil producers on Sunday announced further production cuts through to the end of 2023. Barrels per day to be cut include:

• Saudi Arabia: 500,000
• Russia: 500,000
• Iraq: 211,000
• UAE: 144,000

The 1.2 million barrels per day cut brings the total cuts to 3.7 million bpd or approximately 3.7% of global demand.

OPEC+ has defended the cuts, saying that the move is necessary to ensure the stability of the oil market.

"The latest reductions could lift oil prices by $10 per barrel, the head of investment firm Pickering Energy Partners said on Sunday, while oil broker PVM said it expected an immediate jump once trading starts after the weekend," Reuters reported.

ASX 200 in April: Seasonal strength

I've been working on a data project and aggregated the ASX 200's daily average performance between June 1992 and March 2023.

From a seasonal perspective, April and December are tied in equal first as the two best performing months for the ASX 200, both up an average 0.11%.

April 3 represents day 93 of the year, and as the seasonality chart below suggests, we tend to see a bit of upside. But does this seasonal strength come round this time amid all the volatility and bearishness?

The rally: A bear market rally or new bull market?

The market's in a pretty awkward place. Last week, there were headlines about the Nasdaq entering a technical bull market after rallying 20% off last October lows.

At the same time, after the 2000 dot com bubble, the Nasdaq rallied over 20% 5-6 times before a true bull market was born. The volatile conditions call for investors to not get overly bullish when the market bounces, just as you shouldn't get too bearish when it begins to falter.

In terms of the expert views:

• Wells Fargo Chief Global Equity Strategist Scott Wren: "Tentative markets have taken a so-far, so good approach. Treasury yields are down, and stocks are up relative to levels seen during the initial response to the banking-induced selloff a couple of weeks ago. But we still have concerns and believe equity markets may likely see downside volatility in coming months as the economy stumbles and earnings prospects deteriorate. While we seek to take advantage of any meaningful pullback in the stock market from current levels, we believe now is not the time to broadly buy equities and believe a more defensive stance is still warranted at this time."
• JPMorgan's Marko Kolanovic: "With the banking crisis lingering, higher uncertainty justifies a defensive stance ... higher uncertainty should put upward pressure on risk premia embedded in asset prices and increase the need for precautionary saving among investors ... economic forecasts have a long way to downshift to catch up with markets."

Sectors to Watch

Energy: Oil markets came online at 8:00 am AEST and rallied 6.8% as the market opened. Will local names like Woodside and Beach Energy see a strong gap up to reflect the jump in oil prices?

Tech: The US market continues to see a rotation into big tech and quality growth names thanks to the banking crisis and downside in expectations about the Fed's policy path. The ASX 200 Info Tech Index was up 2.75% last week but down 0.7% for the month. Can we see more strength follow through for local tech?