The Monday Report (On Tuesday) – 11 June 2024

Daily Market Reports | Jun 11 2024

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World Overnight
SPI Overnight 7805.00 – 79.00 – 1.00%
S&P ASX 200 7860.00 + 38.20 0.49%
S&P500 5360.79 + 13.80 0.26%
Nasdaq Comp 17192.53 + 59.40 0.35%
DJIA 38868.04 + 69.05 0.18%
S&P500 VIX 12.74 + 0.52 4.26%
US 10-year yield 4.47 + 0.04 0.88%
USD Index 105.12 + 0.23 0.22%
FTSE100 8228.48 – 16.89 – 0.20%
DAX30 18494.89 – 62.38 – 0.34%

Good morning,

The S&P Global Investment Manager Index has been freshly released and the key conclusions are:

-Risk appetite has slipped from May’s 2½-year high, but remains elevated by recent standards, supporting a stronger year-end outlook
-Tech has displaced energy at the top of sector rankings
-Shareholder returns and equity fundamentals are still viewed as major market drivers alongside the global economy, but the US economy impact wanes, and rates, valuations, and geopolitics weigh on sentiment

Overnight, equities globally have been weighed down by election results in Europe (where the political right and extreme right continue to win over the electorate, except in Hungary) and a strong payrolls survey in the USA.

SPI futures are indicating a negative opening for the ASX this morning.

By Chris Weston, Head of Research, Pepperstone

-European politics impacts the CAC40 and the EUR
-US equity moves and the leads for Asia
-Apple prints a bearish reversal as its WWDC fails to ignite a spark
-Crude rallies 3%, with gold holding its range lows
-What to focus on in Asia

European politics was the talk of markets as traders tried to price the risk of greater fragmentation in European relations, with the German-France nucleus of Europe both facing snap elections on 30 June and 7 July respectively, and Macron further losing his grip on power, and a split government looking likely.

The various US indices treated traders to a bit of a chop fest through European trade and into the US cash open, but those positioned on the long side will claim the session as a small victory – partly because we saw the S&P500 and NAS100 close at record highs, but also because the index etched out a small low to high trend day.

Either way, equity cash volumes were ok (8% above the 30-day average in the S&P500), even if breadth was poor (56% of S&P500 members closed high), with utilities, energy, and comms services outperforming.  

Apple has seen the bulk of equity trading activity, with 25m shares traded on the day, with traders focused on its formal entrance into AI at its WWDC conference. The risk of a ‘sell-on-fact scenario’ playing out was high, and the bearish daily reversal suggests that it has played out to an extent, where a break below US$192.15 in upcoming trade will confirm that change in structure.

We have seen some exciting features being rolled out, but most of these are geared to the iPhone 15, so one can assume this plays nicely into an upgrade cycle – either way, I’m not sure we heard anything that has truly surprised and the stock trades -1.9%.

Elsewhere Microsoft added 1%, with Amazon continuing its form gaining 1.5%. Nvidia closed at US$121.79 post-split and added 0.8%.

In commodity land, crude has found solid buyers pushing 3.4% higher, with an eye on improved demand and the upcoming IEA and OPEC-plus report due over the next couple of sessions. Having pushed nicely back into the range of US$81 to US$76.50 it held through May, we’ll see if it settles here or breaks above US$80.

Gold has held its own range lows of US$2285 and seen a session gain of 0.8%, where the upside supply may kick in around US$2325 – one for the gold scalpers to focus on. Copper and SGX iron ore futures both sit +1.5%.

In Asia, we see the various bourses reopening after holidays in HK and Australia yesterday and despite S&P500 futures essentially unchanged from the respective cash closes (on Friday), we see Aus SPI and HK index futures both -0.9% from their cash close and as such the ASX200 and HK50 should unwind to this extent.

There is little on the event risk side to trouble investors or traders today, and NAB business confidence won’t move the dial, so is not a risk event that I have concerns about holding AUD or equity exposures over.

In the UK we get wage and jobs data at 4 pm AEST, and that could have an impact on UK rates and the GBP by extension – UK politics aside, where a Labour landslide is seen as supportive for both the GBP and FTSE100, the debate is still firmly focused on whether the BoE cut in September, where we see a 50/50 chance this priced for this meeting and just -30bp of cumulative cuts priced for December.

On the calendar today:

Australia NAB Business Survey
-Japan May money stock and machine tool orders
-US NFIB Small Business Optimism Survey
-multiple ECB speakers

Corporate news in Australia:

-Ellerston Capital has reportedly acquired a sizable equity stake in IDP Education ((IEL))
-Bruce Gordon has increased his equity stake in Nine Entertainment ((NEC))
-Whitehaven Coal ((WHC)) in process to sell equity stake in Blackwater coal mine
-Take-over speculation surrounding Healius ((HLS)) and Bapcor ((BAP))
-Wesfarmers ((WES)) might be re-evaluating future of online marketplace Catch
-Hancock Prospecting reportedly considering buyout of Strike Energy ((STX)
-Genesis Minerals ((GMD)) looking to offload assets
-Opthea ((OPT)) raising $220m through MST Access

Back to Chris Weston:

Landmines galore on the macro side

On the macro side, US CPI, PPI, and the FOMC meeting are the highlights for the week ahead, with the BoJ meeting, and UK and Aussie employment report also getting some real focus.

Friday’s US nonfarm payrolls report saw 272k jobs created in the Establishment survey – a massive 4 standard deviation beat to consensus and the bigger influence on market movement over the 408k job loss in the BLS’s Household survey – the factor that pushed the US unemployment rate to 4%.

The wash-up was a 16bp rise in the US 2-year Treasury yield, with swaps pricing out 10bp of cuts by December, and we go into the new week with -36bp of cuts now priced for the end of the year. This sets us up nicely for Wednesday’s US CPI print, where the market sees core CPI at 0.3% m/m (3.5% y/y) and headline CPI at 0.1% m/m (3.4% y/y).

US CPI the elephant in the room

Simplistically, a core CPI print that rounds down to 0.2% m/m (i.e. below 0.25% m/m) would offer relief to US and global equity markets and gold and would hit the USD.

Conversely, a print that rounds up to 0.4% would see the US swaps market move closer to price just one -25bp rate cut this year and see US 2yr Treasury yields rise towards 5% – in turn, the US dollar index (DXY) would follow and test the recent trading range highs of 105.20.

We can assess the breakdown in the components of inflation, with the market looking closely at core services inflation, which is expected to moderate a touch to 0.38% m/m (from 0.41% m/m).

We also see the PPI inflation print on Thursday, and that, along with the outcome from the CPI print, should allow economist’s conviction to model US core PCE inflation (due 28 June). The Fed will be assessing the CPI print closely, although, it would take a true outlier print for any voting Fed member to shift their stance on future policy changes.

FOMC meeting offering hawkish risk to markets

The risk for markets from the FOMC meeting is skewed towards a hawkish outcome (i.e. US bond yields and the USD higher) and while the market will react to the tone of the statement, we could see some movement in markets depending on the revisions to the banks economic and fed funds forecasts (i.e. the ‘dots’).

We should see the ‘dots’ show a central tendency for two -25bp rate cuts (from three) this year, but there is a small chance they move to one cut – an outcome that would rock markets. The core PCE inflation forecast is expected to be revised up to 2.8% (from 2.6%) for 2024 and the unemployment forecast to 4.1% (4%), so a revision in core PCE to 2.9% or above would be seen as a hawkish outcome.

Fed Chair Jay Powell faces the usual grilling from the press 30 minutes after the FOMC statement drops. The core message we should hear from his commentary will remain one of patience and that policy remains restrictive enough for inflation to moderate to target over time.

Spot Metals,Minerals & Energy Futures
Gold (oz) 2328.05 + 16.85 0.73%
Silver (oz) 29.91 + 0.74 2.54%
Copper (lb) 4.20 0.00 0.00%
Aluminium (lb) 1.16 + 0.00 0.16%
Nickel (lb) 8.15 – 0.03 – 0.40%
Zinc (lb) 1.28 + 0.03 2.70%
West Texas Crude 78.07 + 2.69 3.57%
Brent Crude 81.56 + 2.12 2.67%
Iron Ore (t) 107.38 – 1.10 – 1.01%

The Australian share market over the past thirty days…

Index 07 Jun 2024 Week To Date Month To Date (Jun) Quarter To Date (Apr-Jun) Year To Date (2024)
S&P ASX 200 (ex-div) 7860.00 2.06% 2.06% -0.47% 3.55%
BPT Beach Energy Downgrade to Neutral from Buy Citi
GMD Genesis Minerals Upgrade to Accumulate from Hold Ord Minnett
LOV Lovisa Holdings Upgrade to Outperform from Neutral Macquarie
NST Northern Star Resources Downgrade to Hold from Accumulate Ord Minnett
NTU Northern Minerals Upgrade to Speculative Buy from Hold Ord Minnett
RGN Region Group Upgrade to Overweight from Equal-weight Morgan Stanley
SFR Sandfire Resources Downgrade to Hold from Accumulate Ord Minnett

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

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