Daily Market Reports | Jun 05 2023
This story features IDP EDUCATION LIMITED, and other companies. For more info SHARE ANALYSIS: IEL
| World Overnight | |||
| SPI Overnight | 7229.00 | + 76.00 | 1.06% |
| S&P ASX 200 | 7145.10 | + 34.30 | 0.48% |
| S&P500 | 4282.37 | + 61.35 | 1.45% |
| Nasdaq Comp | 13240.77 | + 139.78 | 1.07% |
| DJIA | 33762.76 | + 701.19 | 2.12% |
| S&P500 VIX | 14.60 | – 1.05 | – 6.71% |
| US 10-year yield | 3.69 | + 0.08 | 2.30% |
| USD Index | 104.02 | + 0.46 | 0.44% |
| FTSE100 | 7607.28 | + 117.01 | 1.56% |
| DAX30 | 16051.23 | + 197.57 | 1.25% |
By Greg Peel
Mixed Feelings
History shows US debt ceiling battles are always resolved at the last minute and history has repeated. The debt bill passed through the Senate on (US) Thursday night without incident. The ASX200 jumped 55 points from the open on Friday.
But late morning came news the Fair Work Commission has approved a 5.75% increase to the minimum wage. Noting that all award wages thus rachet up on a minimum wage increase, such a substantial increase can only prove inflationary, and the chance of another RBA rate hike tomorrow just got a lot higher.
ANZ Bank economists have now moved their peak cash rate expectation up to 4.35% from 4.10%, or two more hikes instead of one.
Defensive sectors that all rose on Thursday all fell on Friday, noting some are substantial employers. Staples fell -1.3% to be the worst performing sector on the day. Healthcare, industrials and communication services all lost -0.5%.
It was thus left to the resource sectors to carry the day. Debt ceiling relief, and expectations of Chinese stimulus, had materials up 2.4% led by the big iron ore miners, and energy up 1.2%.
The banks split the balance and lost -0.2%.
Data on the day showed total lending for housing fell -2.9% in April, having risen 5.3% in March, to be down -25.8% year on year. Owner-occupier loans fell -3.8% to be down -24.3% and investor loans fell -0.9% to be down -28.6%.
On the wage outcome, the Aussie ten-year bond yield rose 2 points and the two-year rose 7.
Real estate nevertheless managed to have a positive session (+0.5%), as did utilities (+0.6%), while technology gained 0.7% and discretionary stood still.
Higher wages should be positive for discretionary demand, and IDP Education ((IEL)) bounced back 6.3% after brokers down-played market share loss in Canada.
On a net basis, the ASX200 still managed to put on 34 points, and following a positive response on Friday from Wall Street to the debt issue, and the May jobs report, our futures were up 76 points on Saturday morning.
That would get us back above 7200, again.
All-In
Friday night was the first chance for Wall Street to respond to the debt deal passage through the Senate.
The US added 339,000 jobs in May, when 190,000 were forecast. Additions in April and March were revised up by 93,000.
Despite the big beat, the unemployment rate actually jumped up to 3.7% from 3.4% and monthly wage growth eased to 0.3%, so there was in essence something in it for everyone.
Ongoing solid wage growth continues to suggest any recession the US might suffer, assuming it does, should be mild. While a big beat on jobs would typically imply another Fed rate hike, increased unemployment and easing wage growth may still be enough to support a pause, or a skip, this month.
The market is still pricing in a 77% chance of the Fed pausing in June, but only skipping to July.
The US ten-year bond yield rose 8 points and the two-year 16, implying an easing of recession fears.
Throw in expectations of Chinese stimulus and it was all systems go for Wall Street.
But a very unusual thing happened. The Dow rose 2%, the S&P500 1.5% and the Nasdaq 1%.
All year the Dow, representing mostly old-world industrials, has lagged the Nasdaq, representing new-world tech, to the point the Dow was flat for the year and the Nasdaq was up some 20%, led mostly by a small handful of Mega Tech names, and fuelled by the AI craze.
To that end observers have bemoaned a lack of breadth in the rally, leading to expectations it all must come crashing down, a la the dotcom bubble.
But the reverse was true on Friday night. The Nasdaq still rallied 1%, and hit a new 52-week high in doing so, but the rest of the market finally decided to join in. It was a case of breadth catching up lost ground.
As to whether this signals a new phase in the rally, commentators are wary, but agree there’s no reason the rally cannot continue for at least a while.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1947.50 | – 29.90 | – 1.51% |
| Silver (oz) | 23.59 | – 0.27 | – 1.13% |
| Copper (lb) | 3.76 | + 0.07 | 1.79% |
| Aluminium (lb) | 1.03 | – 0.01 | – 0.51% |
| Nickel (lb) | 9.68 | + 0.11 | 1.14% |
| Zinc (lb) | 1.05 | + 0.01 | 1.05% |
| West Texas Crude | 71.74 | + 1.64 | 2.34% |
| Brent Crude | 76.13 | + 1.83 | 2.46% |
| Iron Ore (t) | 106.33 | + 1.83 | 1.75% |
Debt relief and Chinese stimulus are positive for metals and oil, but the end of debt ceiling risk and higher bond yields are not good for gold.
Last night OPEC-Plus agreed to extend current production cut quotas into 2024 and maybe then make further cuts. It’s good news for those fearing an immediate further production cut, but tempered by 2024 expectations. As to whether members actually stick to the agreement is another story.
2024 is still a long way off.
Unusually, the US dollar and the Aussie are together up 0.4%.
The SPI Overnight closed up 76 points or 1.1% on Saturday morning.
The Week Ahead
The RBA makes its decision tomorrow. Economists had been warning an increase in the minimum wage would be a factor in the board’s decision.
Then on Wednesday we get the March quarter GDP result.
Ahead of that release, we see company profits and inventories today, and the current account tomorrow.
Today we’ll see May job ads and on Thursday April trade numbers.
China will release May trade numbers on Wednesday, and inflation on Friday.
In a quieter week for US data, factory orders and trade are the major releases.
Services PMIs are due today across the globe.
Silver Lake Resources ((SLR)) holds its AGM tomorrow.
The Australian share market over the past thirty days…
| Index | 02 Jun 2023 | Week To Date | Month To Date (Jun) | Quarter To Date (Apr-Jun) | Year To Date (2023) |
|---|---|---|---|---|---|
| S&P ASX 200 (ex-div) | 7145.10 | 0.00% | 0.76% | -0.46% | 1.51% |
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| AMI | Aurelia Metals | Upgrade to Speculative Buy from Hold | Ord Minnett |
| ASX | ASX | Upgrade to Accumulate from Hold | Ord Minnett |
| BOQ | Bank of Queensland | Upgrade to Neutral from Underperform | Macquarie |
| CGF | Challenger | Downgrade to Hold from Accumulate | Ord Minnett |
| DEG | De Grey Mining | Upgrade to Buy from Neutral | UBS |
| HAS | Hastings Technology Metals | Downgrade to Neutral from Outperform | Macquarie |
| IEL | IDP Education | Upgrade to Buy from Hold | Bell Potter |
| Downgrade to Neutral from Outperform | Macquarie | ||
| LFG | Liberty Financial | Upgrade to Buy from Neutral | Citi |
| MHJ | Michael Hill | Downgrade to Neutral from Buy | Citi |
| MP1 | Megaport | Downgrade to Accumulate from Buy | Ord Minnett |
| NAN | Nanosonics | Upgrade to Add from Hold | Morgans |
| NST | Northern Star Resources | Upgrade to Neutral from Sell | UBS |
| PPM | Pepper Money | Upgrade to Buy from Neutral | Citi |
| RRL | Regis Resources | Upgrade to Buy from Neutral | UBS |
For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.
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For more info SHARE ANALYSIS: IEL - IDP EDUCATION LIMITED
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