The Overnight Report: Whoa There

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This story features LOVISA HOLDINGS LIMITED, and other companies.
For more info SHARE ANALYSIS: LOV
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

Blink and you’ll miss it

The ASX200 step-jumped up from the open yesterday and closed around the same level, regaining the 7200 mark. Not much chance to get on. And last night the S&P500 fell -0.2% and our futures are down -0.6% this morning, which would take us back through 7200.

Seems extreme, but likely reflects caution ahead of today’s RBA decision. Will the government giveth and the RBA taketh away? Despite the 5.75% minimum wage increase, and higher April CPI, the market is still only suggesting around a 30% chance of another rate hike.

One factor may be that there were fears the wage increase would be as much as 7%.

But all those households with Philip Lowe photos on their dartboards will have the darts ready and aimed at 2.30pm today.

Somewhat surprisingly, consumer discretionary was the best performing sector yesterday, jumping 1.8%, despite retailing being one of the areas in which wage increases will hit hard. Lovisa Holdings ((LOV)), for example, rose 5.2% after having lost its shine in past sessions.

The day generally mimicked Wall Street on Friday night in that technology fell -1.1% while all other sectors, except utilities (-0.3%), shot higher. Wall Street saw a rotation out of runaway tech and into the lagging rest-of-market on the strength of the debt deal and US May jobs report.

The big sectors had big gains yesterday, with the banks and healthcare up 1.0%, staples and energy up 0.7% and materials up 1.5%, despite a drag from gold miners, which dominated what selling there was.

The bond market also followed the US, with the Aussie ten-year up 14 points and the two-year 11, yet real estate was up 0.8%, aligning with consumer discretionary.

Those sectors do not want a rate hike today.

Gold made a bit of a comeback last night while base metals settled, but iron ore was stronger on ongoing expected Chinese stimulus for the property market. Chinese stimulus is much touted but currently as elusive as a Ukrainian counter-offensive.

I suspect that after a weak start, the market should settle today ahead of the RBA.

Reality Bites

All anyone could talk about on Wall Street last night was Apple’s annual product update shindig, at which it rolled out its Vision Pro AR/VR headset. How exciting.

Apple shares hit a new all-time intraday high as the day progressed, until it was announced the headset won’t be available until next year and will cost US$3500. I’m buying two. Apple closed down -0.8%.

Otherwise, the exuberance of Friday night, which saw the Dow up 700 points, took its own reality check last night as the Dow fell back -200. Perhaps rumours of a rest-of-market catch-up are premature.

In economic news, the US services PMI fell to a five-month low 50.3 in May from 51.9 in April, when 51.8 was forecast. The great post-covid services boom appears now to be waning.

While suggesting a weaker economy, it should at least be good news on the sticky services inflation front, although most of that stickiness comes from rents, which don’t go down in a hurry.

Wall Street has priced in only a 21% chance of a 25 point Fed rate hike next week, implying 79% chance of a pause, but the odds suggest that pause will only be a “skip”, as the chance of rates being 25 or 50 points higher following the July meeting are 64%.

In other news, the crypto world was shaken last night after the US Securities Exchange Commission announced it was going after Binance, for various security law indiscretions, although admitted there was only so much it could do in the US jurisdiction.

Yet bitcoin and US crypto exchanges took a beating on the news.

All the hype around AI means the world seems now to have moved on from the crypto craze.

The question for Wall Street now, with the S&P500 having comfortably broken 4200 resistance, is what can be the next positive catalyst? The debt ceiling is resolved, the March quarter earnings season is all but over, the market already expects the Fed to pause, and the AI explosion has potentially run its course for now.

Something has to happen, because if it doesn’t, there’s only downside.

Commodities

A bit of a stall, with a slight catch-up for gold.

Oil prices ticked higher on Saudi Arabia’s announcement it will indeed cut production by one million barrels per day, even if OPEC-Plus sticks with current quotas. The Saudis were probably hoping for more than a US50c price jump on the news.

The Aussie is up 0.2% at US$0.6621.

Today

The SPI Overnight closed down -41 points or -0.6%.

Australia’s March quarter current account details are out today, including the terms of trade, ahead of tomorrow’s GDP.

And ahead of today’s RBA meeting.

Silver Lake Resources ((SLR)) holds its AGM today, the ASX ((ASX)) hosts an investor day and Perenti ((PRN)) provides a strategy briefing.

The Australian share market over the past thirty days…

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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