The Monday Report – 22 July 2024

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Australian shares are poised for more weakness at the open on Monday with investors awaiting more Q2 earnings reports in the US, including two of the magnificent seven stocks.

World Overnight
SPI Overnight	7876.00	– 67.00	– 0.84%
S&P ASX 200	7971.60	– 64.90	– 0.81%
S&P500	5505.00	– 39.59	– 0.71%
Nasdaq Comp	17726.94	– 144.28	– 0.81%
DJIA	40287.53	– 377.49	– 0.93%
S&P500 VIX	16.52	+ 0.59	3.70%
US 10-year yield	4.24	+ 0.05	1.19%
USD Index	104.33	+ 0.14	0.13%
FTSE100	8155.72	– 49.17	– 0.60%
DAX30	18171.93	– 182.83	– 1.00%

By Chris Weston, Head of Research, Pepperstone

Good morning.

The first question many are asking as we start the trading week is whether Kamala Harris is a done deal as the Democratic Nominee, and subsequently, whether there will be any impact on many of the so-called Trump Trades’ that have already been expressed.

Joe Biden has formally exited the presidential race and has backed his VP Kamala Harris as the nominee, but the process from here still clouds the markets judgment and will either centre on the party rallying around Harris, or see a more open process, with other candidates (should they formally enter the race) going through a two-step voting process at the Republican National Convention on 19-22 August.

Harris is the huge favourite to get the gig, notably as this offers the smoothest transition and the outcome that will presumably sit best with party donors. Reports that both Gavin Newsom and Gretchen Whitner have said they don’t plan to challenge increases the prospect of the party rallying around Harris, but others (such as Hilary Clinton) may still play their hand.

 The Democrats need to show a united front

I am not a political expert but understand that traders are risk managers, and that politics has a significant connection with the financial markets. However, one suspects senior Democratic leaders would likely look to unite the party behind Harris, and we’ve already seen Dem Senator Stabenow endorse Harris, with reports that Gov Wes Moore will too. Unity has been scarce in the Dem’s current campaign and a galvanised party into the conventions would clearly be advantageous.

While nothing in this race is certain given prediction markets place Harris’s odds of being the Democratic nominee above 80%, it suggests most market players will look to price election risk and the playbook from a Trump vs Harris campaign. Recent polls had Trump marginally beating Harris in November, however, things could change on her first address to the nation and how presidential’ she sounds.

Still, while Biden stepping down is certainly not unexpected, it does add a layer of confusion, but one can imagine a softer USD and a slight pullback in the stocks that benefited from a clear Trump win and a Republican Red Wave‘.

Setting the platform for the new trading week

These developments aside, and setting the platform, we move past a week where tactical/discretionary traders have played defence, although this bias was more pronounced in FX and equity markets, where gold and US Treasuries closed the week lower. 

As we move into the new week, unless we see a marked pick-up in sentiment, the probability of these moves spilling over looks elevated.

In equity, it was the NKY225 and EU equity indices that underperformed the DM equity complex, with upbeat selling activity into the back part of the week. The NAS100 closed -3.7% w/w and I look for a break of the 50-day MA and 24 June swing low to naturally increase the probability of further liquidations pushing the tech-index into 18,900.

A solid flush out of well-owned tech plays

The S&P500 has seen a solid flush out of extended and concentrated positioning in some incredibly well-owned areas of the market, with the S&P500 tech sector losing -5.1% w/w, for the second worst week since 2022. Politics aside, we look ahead to the ramp-up in US and EU corporate earnings reporting, and notably numbers from Tesla, Alphabet, and IBM, which could see increased volatility at a single stock level, with the options market implying some sizeable moves in the respective names on the day of the report.

On the calendar today:

-South32 ((S32)) Quarterly update

-NZ Trade Balance June

-US Chicago Fed activity

Corporate news in Australia:

-Block’s ((SQ2)) Cash App is giving up on the UK and concentrating on growing in the USA

-Qantas Airways ((QAN)) is eying new non-stop international destinations to boost market share

-According to The Australian, Vicinity Centres ((VCX)) is seen as the frontrunner to acquire Lendlease’s ((LLC)) retail fund management business

US reporting

Alphabet, Google’s parent company, and Tesla are set to release their quarterly earnings after the market closes on Tuesday (Wednesday AEST). The following week reports are due from Microsoft, Meta, Amazon and Apple. Nvidia reports in late August.

Spot Metals,Minerals & Energy Futures
Gold (oz)	2404.85	– 43.05	– 1.76%
Silver (oz)	29.44	– 0.57	– 1.90%
Copper (lb)	4.24	– 0.02	– 0.56%
Aluminium (lb)	1.06	– 0.02	– 1.42%
Nickel (lb)	7.32	– 0.09	– 1.18%
Zinc (lb)	1.25	– 0.01	– 1.11%
West Texas Crude	78.94	– 1.89	– 2.34%
Brent Crude	82.58	– 2.16	– 2.55%
Iron Ore (t)	108.45	– 0.28	– 0.26%

The Australian share market over the past thirty days

Index	19 Jul 2024	Week To Date	Month To Date (Jul)	Quarter To Date (Jul-Sep)	Year To Date (2024)
S&P ASX 200 (ex-div)	7971.60	0.15%	2.63%	2.63%	5.02%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ACF	Acrow	Upgrade to Buy from Accumulate	Ord Minnett
BSL	BlueScope Steel	Upgrade to Buy from Neutral	Citi
CAR	CAR Group	Upgrade to Buy from Neutral	Citi
CTD	Corporate Travel Management	Downgrade to Hold from Accumulate	Ord Minnett
FLT	Flight Centre Travel	Upgrade to Buy from Neutral	UBS
GMD	Genesis Minerals	Downgrade to Neutral from Buy	UBS
IRE	Iress	Upgrade to Add from Hold	Morgans
MYS	Mystate	Downgrade to Accumulate from Buy	Ord Minnett
NIC	Nickel Industries	Upgrade to Buy from Neutral	Citi
PPS	Praemium	Downgrade to Hold from Buy	Ord Minnett
RIO	Rio Tinto	Upgrade to Add from Hold	Morgans
SEK	Seek	Downgrade to Neutral from Outperform	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.)

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