The Monday Report – 01 July 2024

Array
(
    [0] => Array
        (
            [0] => ((ANZ))
            [1] => ((CQR))
        )

    [1] => Array
        (
            [0] => ANZ
            [1] => CQR
        )

)

This story features ANZ GROUP HOLDINGS LIMITED, and other companies.
For more info SHARE ANALYSIS: ANZ
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

Good morning,

The local market is set to open weaker after US and European share markets closed lower on Friday.

Investors digested in line US inflation data but also weighed political uncertainty after the US presidential debate and ahead of elections in France and the UK.

Shares in Nike slumped -20% on a surprise drop in fiscal 2025 revenue guidance from management. Shares in Amazon moved further into record territory after crossing US$2trn in market cap. The Vanguard Mega Cap Growth ETF gained 0.3%.

Semiconductor-related names acted as a drag on the broader market after Micron’s disappointing earnings report.

On Friday, the Dow Jones index fell -45 points or -0.1%, the S&P 500 index lost -0.4% and the Nasdaq index weakened -126 points or -0.7%.

Treasury yields settled lower in response to data releases and a US$44bn 7-yr note sale.

The slate of economic releases on Friday included an upward revision to Q1 GDP, the highest level of continuing jobless claims since November 2021, and better-than-expected durable orders growth for May. 

The 10-yr note yield settled at 4.29%, three basis points lower than the day prior. The 2-yr note yield settled at 4.72%.

In June, the Dow gained 1.1%, the S&P 500 advanced 3.5% and the Nasdaq jumped 6%.

In the June quarter, the Dow fell -1.7%, the S&P 500 added 3.9% and the Nasdaq rose 8.3% in a perfect illustration of how polarised financial markets are (including in Australia).

In the first half of 2024, the Dow gained 3.8%, the S&P 500 jumped 14.5% and the Nasdaq soared 18.1%.

Michael Brown Senior Research Strategist at Pepperstone

After a choppy end to June, dominated by end of month, quarter, and half-year flows, market participants brace for a busy week ahead, dominated by elections in France and the UK, the latest US employment report, and the ECB’s annual gathering in Sintra.

The Week That Was Themes

Last week was, perhaps, rather typical of the choppy and indecisive trade that is typically seen towards month-end, with rebalancing flows exacerbated by June also marking the end of the second quarter, and first half of the year dominating for much of the past five trading days, and rather muddying the waters when it comes to defining a precise narrative which can be assigned to suit the price action.

On the whole, despite this choppiness, volatility remains relatively low across the board, with markets appearing to have entered the typical summer lull, just as the sun begins to shine (at last!) here in the UK.

The return of the central bank put’, in a more flexible and forceful form than before, continues to substantially insulate markets from external shocks, while also continuing to give investors confidence to move, and to stay, further out on the risk curve. This should continue into H2, particularly with the BoE set for the first cut in August, and the first Fed cut possibly coming as soon as September.

To this end, the S&P500 notched an impressive 15% gain in the first six months of 2024, with ten of the eleven sectors ending H1 in the green, as the rally was led by Information Technology and Communication Services. The market extended upon these gains on Friday, with the S&P and Nasdaq100 both notching fresh intraday records, albeit with those gains paring into the close.

Nevertheless, the S&P500 has notched 31 all-time closing highs so far this year, with the index having ended at a fresh record on one-in-four trading days.

The path of least resistance, clearly, continues to lead to the upside.

Supporting the case for the aforementioned September FOMC cut which remains my own base case was last week’s PCE data, by far the standout event on what was an otherwise light economic docket.

The report showed the core PCE deflator rising just 0.1% MoM in May, bang in line with consensus, and down from an upwardly revised 0.3% MoM rise a month prior. To two decimal places, the MoM core PCE figure was 0.08%, representing the slowest monthly increase in the Fed’s preferred inflation gauge since back in November 2020.

On a YoY basis, the PCE report was similarly welcome news to policymakers. Core PCE rose 2.6% YoY in May, the slowest pace since early-2021. Put together, this data should help to provide the FOMC with additional confidence’ that the US economy continues on its path back towards 2% inflation, in line with the message portrayed in the most recent CPI report released earlier in the month.

Of course, one swallow doesn’t make a summer’, hence policymakers will look for further confirmation of this disinflationary trend having become embedded before pulling the trigger on the first -25bp cut; the USD OIS curve continues to fully discount said move by November, albeit pricing a 2-in-3 chance that such a cut comes in September, while pricing a total of -40bp of cuts this year.

A handful of other notable US datapoints were released last week, though had little market-moving impact.

First quarter GDP was, as expected, revised 0.1pp higher to 1.4% on an annualised QoQ basis, confirming that the first three months of 2024 snapped a 6-quarter run of GDP having grown faster than 2%, and providing further evidence of the economy continuing to normalise, with both growth rates, and price pressures, continuing to ebb.

As economic momentum wanes a little, signs are continuing to emerge of cracks beginning to form in the labour market. Continuing jobless claims, for example, rose to 1.839m in the week to 15^th June, a considerable rise from the 1.821m seen in the prior seven days, and the highest level since November 2021. With this data referencing the June nonfarm payrolls survey week, the soft claims print could introduce some downside risk for the non-farm payrolls figure, due this Friday 5^th July.

In the equity space, meanwhile, and as noted above, the path of least resistance continues to lead to the upside, with both the S&P 500 and Nasdaq 100 notching their fourth straight weekly gains. It seems likely that this path will continue to be taken for the next couple of week at least, with participants now eyeing CPI on 11^th July, and the start of Q2 earnings season on 12^th July as the next key risks for equities Friday’s jobs report can, likely, be shrugged off, barring a significant surprise, given its release on a day when most participants will be enjoying an extra-long Independence Day weekend.

The Week Ahead

Political developments are likely to be the market’s main focus in the week ahead, which is of course holiday-interrupted, owing to the US observing Independence Day on Thursday, seeing a raft of markets closed. This will also result in some early market closures on the Wednesday, while Friday is likely to be a day of thin volumes, and vastly reduced liquidity, as many make a long weekend out of the 4^th of July celebrations.

The week ahead also brings an election on this side of the Channel, though the result of the General Election appears all-but-certain at this stage, with Labour continuing to hold a roughly 20pt lead in opinion polling with less than a week to polling day.

On the calendar today:

-In Australia, data on home prices, inflation, manufacturing and job ads

-ANZ Bank ((ANZ)) pays dividend

-Charter Hall Retail REIT ((CQR)) ex dividend

Elsewhere:

-Caixin China manufacturing purchasing managers’ index (PMI)

-France: first round of election goes to the far right (but less than feared)

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.

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.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author’s and not by association FNArena’s – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms