The Overnight Report: Big Tech Trumps ‘Value’

Daily Market Reports | Jun 14 2024

This story features DETERRA ROYALTIES LIMITED, and other companies. For more info SHARE ANALYSIS: DRR

World Overnight
SPI Overnight 7749.00 – 8.00 – 0.10%
S&P ASX 200 7749.70 + 34.20 0.44%
S&P500 5433.74 + 12.71 0.23%
Nasdaq Comp 17667.56 + 59.13 0.34%
DJIA 38647.10 – 65.11 – 0.17%
S&P500 VIX 11.94 – 0.10 – 0.83%
US 10-year yield 4.24 – 0.06 – 1.33%
USD Index 105.22 + 0.53 0.51%
FTSE100 8163.67 – 51.81 – 0.63%
DAX30 18265.68 – 365.18 – 1.96%

By Chris Weston, Head of Research, Pepperstone

Good morning,

-US PPI and weekly jobless claims in focus
-French election concerns grow with EU assets under pressure
-US cash equity indices close higher with tech dominating
– The BoJ meeting the key focus in Asia

While many market players continue to dissect the FOMC meeting and US CPI print, markets move forward and navigate an evolving set of new challenges.

US PPI (core PPI was flat m/m) and jobless claims (242k – the highest since August 2023) came out in late European trade and immediately saw brought out bond buyers and a rapid-fire sell-off in the USD – the PPI print offering a view that US core PCE (due 28 June) will come out closer to 0.1% m/m / 2.55% y/y, an outcome which would see the Fed’s preferred inflation gauge at the lowest levels since April 2021.

The initial sell-off in the USD didn’t last long though, and notably, we saw EUR sellers stating their case, with EURUSD falling from 1.0800 to 1.0733, as growing French election concerns trumped weaker US data, where notably the France-German 10yr bond yield spread widened 8bp to 70bp, and the biggest premium to hold French debt (over German debt) since 2017. 

The first round of voting in the French election comes on 30 June, with the second round on 7 July, and with limited visibility to price risk, traders hedge the risk of Le Pen’s RN party winning through spread widening (i.e. shorting French bonds & going long German bonds). An erosion of Macron’s political capital is one factor (recent polls show support for Macron sits at a 5-year low), with concerns still present that Macron may still announce his recognition if the RN party do indeed win.

There are also fears of fiscal indiscipline, a growing factor given the sizeable amount of French bond supply coming to market this year. At the same time, France’s credit rating could be in focus once again, with a strong possibility Moody’s may lower its rating from AA.

US cash equity closed higher, with the S&P500 +0.2% and NAS100 +0.6%, with both indices rallying off their mid-session lows and climbing into the close.

Tesla has been well traded on the long side with Musk having his US$56bn pay package approved, and the certainty that brings about his future involvement in the company. However, once again, it was big tech that drove the move, thanks to tailwinds in Apple, and solid earnings from Adobe and Broadcom, with Broadcom driving gains through the AI scene (Nvidia closed +3.5%).

Breadth was poor with just 36% of S&P500 stocks higher, and the Russell 2k closing -0.9% – so while market breadth has been a poor predictor of turning points at an index level, if we do lose the bid in tech, unless traders see compelling reasons to rotate in financials, materials, and energy, then the growing risk is for a grind lower in the S&P500 and NAS100.

Gold (-0.9%) and silver (-2.6%) have found better sellers on the day and attracted good flow from clients – no clear smoking gun for the move lower other than USD strength, but we now look for the possibility for gold to test the range lows again at US$2285 – a break here could get a lot of attention from traders, but the upside case in gold is lacking right now and rallies are failing to see any follow-through.

Turning to Asia and our index opening calls (ASX200 eyed -0.1%, NKY225 -0.3% and HK50 -0.8%) suggest a soggy open, and again the leads from US big tech don’t impact Asia like they do the NAS100.

The big event risk today is the BoJ meeting (no set time) and while they won’t hike rates at this meeting (July seems a more fitting date), the market is expecting tweaks to its JGB bond-buying program.

Corporate news in Australia:

-Mining royalties group Deterra Royalties ((DRR)) has made an all-cash offer for AIM-listed British lithium mining group Trident Royalties for -GBP144m
-Qantas Airways ((QAN)) is acquiring the remaining 49% stake in TripADeal for -$211m
-Pre-IPO,  the ACCC has expressed concerns the proposed tie-up between Sigma Healthcare ((SIG)) and Chemist Warehouse could reduce competition by raising barriers for rivals in the pharmacy sector
-Beach Energy ((BPT)) has made its first gas sale after connecting its Enterprise gas field to the Otway plant in Victoria
-Potential buyers of Healius's ((HLS)) Lumus Imaging unit are signing confidentiality agreements to receive information memorandums
-Australian Vintage ((AVG)) has secured $15m from institutional investors; will next a retail raise should bring the total to $19.9m
-Yesterday, ASX ((ASX)) shares came under pressure as the stock exchange guided towards higher expenses and higher capex spending for the years ahead

On the calendar today:

-Piedmont Lithium ((PLL)) AGM
-Bank of Japan announces monetary policy decision
-US export and import prices data
-University of Michigan consumer sentiment index

And again: today's important PPI release in the US:

The producer price index (PPI) fell -0.2% in May (survey: +0.1%). The annual growth rate eased from 2.3% to 2.2% (survey: 2.5%).
The core PPI (ex food & energy) was flat in May (survey: +0.3%).
The annual core PPI dipped from 2.5% to 2.3% (survey: 2.5%).
Initial jobless claims rose by 13,000 last week to 242,000 (survey: 225,000).

Spot Metals,Minerals & Energy Futures
Gold (oz) 2318.90 – 21.50 – 0.92%
Silver (oz) 29.00 – 0.75 – 2.52%
Copper (lb) 4.49 – 0.04 – 0.96%
Aluminium (lb) 1.15 – 0.01 – 0.82%
Nickel (lb) 7.99 – 0.12 – 1.47%
Zinc (lb) 1.29 – 0.00 – 0.24%
West Texas Crude 77.81 – 0.53 – 0.68%
Brent Crude 82.18 – 0.35 – 0.42%
Iron Ore (t) 107.12 + 0.70 0.66%

The Australian share market over the past thirty days…

Index 13 Jun 2024 Week To Date Month To Date (Jun) Quarter To Date (Apr-Jun) Year To Date (2024)
S&P ASX 200 (ex-div) 7749.70 -1.40% 0.62% -1.86% 2.09%
BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ABB Aussie Broadband Upgrade to Buy from Accumulate Ord Minnett
APM APM Human Services International Downgrade to Hold from Buy Bell Potter
BXB Brambles Upgrade to Overweight from Equal-weight Morgan Stanley
CDA Codan Downgrade to Neutral from Outperform Macquarie
IMD Imdex Downgrade to Neutral from Outperform Macquarie
NEC Nine Entertainment Upgrade to Buy from Accumulate Ord Minnett
SSM Service Stream Downgrade to Neutral from Outperform Macquarie
WDS Woodside Energy Upgrade to Outperform from Neutral 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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CHARTS

ASX AVG BPT DRR HLS PLL QAN SIG

For more info SHARE ANALYSIS: ASX - ASX LIMITED

For more info SHARE ANALYSIS: AVG - AUSTRALIAN VINTAGE LIMITED

For more info SHARE ANALYSIS: BPT - BEACH ENERGY LIMITED

For more info SHARE ANALYSIS: DRR - DETERRA ROYALTIES LIMITED

For more info SHARE ANALYSIS: HLS - HEALIUS LIMITED

For more info SHARE ANALYSIS: PLL - PIEDMONT LITHIUM INC

For more info SHARE ANALYSIS: QAN - QANTAS AIRWAYS LIMITED

For more info SHARE ANALYSIS: SIG - SIGMA HEALTHCARE LIMITED