The Overnight Report: Sluggish

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This story features LENDLEASE GROUP, and other companies.
For more info SHARE ANALYSIS: LLC
The company is included in ASX200, ASX300 and ALL-ORDS

Looks like the local market is in no mood to shrug off its lacklustre start into the fresh financial year.

By Chris Weston, Head of Research, Pepperstone

Good morning,

-Tactical developments from the French 1st round vote
-Tech dominates amid poor market breadth
-Staying long Tesla and Microsoft
-US Treasuries positioning for Trump 2.0
-Crude eyeing higher levels
-Asia equity opening calls and upcoming event risk

We close out the first full trading session for July and Q3, and there are moves worth highlighting notable in crude, NAS100, MAG7, and US Treasuries.

On the flow side, we’ve seen heavy interest in the EUR, with EURUSD and EURCHF seeing upbeat activity. The French election 1st round vote essentially removed the tail risk scenarios and EU assets have responded, but one suspects there is more to play out.

It will all become very tactical as we look to see if Le Pen’s RN party can get an absolute majority, or if France is headed for a hung parliament, which is looking like the market’s base-case.

US equity indices have seen both the S&P500 cash (0.3%) and the NAS100 cash (+0.7%) close higher, while US small caps again struggled (the Russell 2k closed -0.9%). Breadth was once again poor, with only 24% of S&P500 constituents closing higher, with tech and consumer discretionary working well. Materials, industrial and REITS closed lower, and again underperformed, so growth was again the dominant thematic.

Momentum in Tesla is there for all to see it’s a name I’ve been bullish on of late and would be holding and trailing stops on longs. Microsoft hits new highs, Apple looks well supported and should print new highs through US$220, while I would be looking to work buy-stop entries on Amazon above US$198.90 with the view of seeing continued momentum.

Nvidia is lacking real momentum flows, and as a result we see choppy price action on the daily timeframe that said, we are seeing good bids kick in around US$120, and I would be looking to jump into longs if we saw a push through US$130.

The US Treasury market has been lively, with sellers seen between the 5- and 30-year maturities. US data did promote a short-term reprieve from the selling with the June ISM manufacturing survey coming in below expectations at 48.5 (vs 49.1 expected), and US construction spending -0.1%. The Atlanta Fed GDP nowcast model was revised down to 1.7% and we see the Citigroup economic surprise Index at -32.4, the lowest since August 2022.

In the session ahead there could be some reaction in the bond market and USD to the US job openings report (due 00:00 AEST), with the broad consensus expecting a further moderation to 7.95m openings, an outcome which would please the Fed.

One would argue the sell-off in US Treasuries was related to the US Supreme Court verdict that detailed that Trump is indeed entitled to some degree of immunity from prosecution.

The US bond market seems to be telling us a message, notably with the aggressive 2s vs 10s bear steepening playing out. Bond traders have an eye on Trump’s increasing odds of taking the White House and the market senses Trump 2.0 will be inflationary, given the potential to extend the expiring tax cuts in 2025 resulting in an ever-larger deficit, as well as wide-ranging tariffs.

In commodities, we see crude as the standout and the bulls remain in control here I still like price through US$84 and into US$86, so I am staying long for now. Copper seems to have found better support and closed +1%, while gold (+0.2%) chops around in the same sideways range.

Turning to Asia open, and our calls suggest modest downside across the boards, with the ASX200 eyed to open lower by -0.3%. There’s not much to get me overly excited that the buyers step in and support the early weakness after the open, but portfolio flows can often surprise.

By way of event risk ahead, some will maintain a focus on developments in the French election, but we get the RBA meeting minutes, EU CPI, US job openings (JOLTS) and Powell and Lagarde speak.

Corporate news in Australia

-Lendlease ((LLC)) is selling its US military housing business to Guggenheim Partners as part of a $4.5bn asset divestment plan to refocus on its Australian operations

– MMA Offshore ((MRM)) major shareholder Halom Investments is backing a takeover offer from Cyan Renewables

-Yesterday, shares in Whitehaven Coal ((WHC)), Stanmore Resources ((SMR)) and New Hope Corp ((NHC)) rose as Anglo American experiences problems at its Grosvenor coking coal mine

On the calendar today:

-ANZ-Roy Morgan Australian Consumer Confidence at 9:30am

-RBA minutes at 11:30am

-Ricegrowers ((SGLLV)) ex-dividend

-RAM Essential Services Property ((REP)) ex-dividend

Elsewhere:

-US Federal Reserve Chair Jerome Powell speaks on a panel at the ECB Forum on Central Banking in Sintra, Portugal

-US JOLTS job openings data May

-Eurozone June CPI

-Eurozone unemployment rate

Samer Hasn Market Analyst at XS.com:

Crude oil continues its gains for the third day in a row and is up 0.6% and 0.4% across both major benchmarks, West Texas Intermediate (WTI) and Brent.

The continued gains in oil supported by the growing concerns of US administration officials about the possibility of the conflict in the Middle East igniting and getting out of control on several fronts, in conjunction with the absence of encouraging data from the US economy or China this week.

Politico reported, citing intelligence sources in the US, about the growing fears of that only few weeks separate us from the outbreak of conflict on the South Lebanon front in light of the military build-up and increasing preparations coinciding with the continuation of hostilities there. While estimates from the European side indicated this conflict is only days away, according to Politico as well.

While the ignition of that front may ignite other fronts in the region more than before, whether in Iraq, Syria, or the Red Sea, it is not unlikely Iran will enter directly into this conflict. In other words, the coming weeks may witness a large-scale regional war if these fears are correct, and this would constitute widespread disruption to many oil supply lines.

Russia may also express its willingness to provide support to its partners in the region, as it moves towards an unprecedented escalation towards the US after the latter allowed the targeting of the Russian interior with some advanced weapons.

The exacerbation of these fears comes with the stagnation of the negotiating track in Gaza, the completion of which is believed to save the situation on other fronts, and this is what the US administration knows and has also spoken about, which it also does not seem encouraged to enter directly into this conflict, according to the Wall Street Journal. The Israeli side is also very committed to continuing the war in Gaza for internal political motives, and this makes negotiation impossible in the current reality.

Aside from the Middle East, this week did not bring encouraging data for the oil markets from any of the major economies, as we witnessed a higher-than-expected buildup of US crude inventories and an unexpected contraction in pending home sales. These data would have been a boost for oil prices while enhancing the possibility of an interest rate cut, but the US dollar continued to rise against the major currencies.

While the Dollar Index is located at a major resistance area extending between the 106-107 levels, while failure to break above it may lead to a noticeable correction, and this would support the continuation of oil’s gains as well.

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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