The Overnight Report: No Surprise From Powell

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The Australian share market looks poised for a weak opening this morning on weakening commodity prices (and related share prices).

World Overnight
SPI Overnight	7771.00	– 41.00	– 0.52%
S&P ASX 200	7829.70	+ 66.50	0.86%
S&P500	5576.98	+ 4.13	0.07%
Nasdaq Comp	18429.29	+ 25.55	0.14%
DJIA	39291.97	– 52.82	– 0.13%
S&P500 VIX	12.51	+ 0.14	1.13%
US 10-year yield	4.30	+ 0.03	0.73%
USD Index	105.11	+ 0.09	0.09%
FTSE100	8139.81	– 53.68	– 0.66%
DAX30	18236.19	– 235.86	– 1.28%

By Chris Weston, Head of Research, Pepperstone

Good morning.

-Global equity indices tread their own unique path
-US equity trades in the third lowest high-low range of 2024
-US banks finding the love
-The USD is unchanged, but watch NZD and GBP exposures ahead
-Commodity moves on the day

Moves are being made in global indices, but many are treading their own path and the dispersion in performance in the major markets is striking.

European equity indices find sellers easy to come by, and in the case of the CAC40 the set-up looks decidedly like it wants to break to new cycle lows. Japan heads in completely the opposite direction and has been an absolute pillar of equity strength as global capital moves to what’s strong and working’ and where the momentum is most pronounced.

The HK50 has been trending lower since mid-May, and while our opening call of 17,587 (+0.4%) for today’s cash open looks positive, the buyers hold little confidence that rallies will be any more than a one-day affair.

The ASX200 is essentially moving sideways and chops in a 7850 to 7650 range, and while banks support the index, materials are in the doghouse and can’t sustain a bid I am not sure today is going to get any easier, with iron ore and copper futures lower, with BHP’s ADR suggesting the stock opens -1% lower.

In the US, the S&P500 is grinding higher, having closed higher for a sixth straight day, although the net percentage change was a meagre +0.1%.

It was not a particularly great session for the day traders with the S&P500 trading in a 16p high to low trading range the third lowest of the year, and the buying looks exhausted as we approach 5600.

Moves are made beneath the index surface though, and despite Citi putting out a note suggesting investor take profits in the high-flying AI enablers, Nvidia still found some form and added 2.5%. Tesla has the wind to its back and while this is hard to chase at current levels, I feel the path of least resistance is still higher.

The banks are where we’re seeing capital allocated perhaps this is late-cycle investing, or perhaps traders are front-running earnings on Friday, but Citi, Bank of America and JPM all look strong and well-liked.

On the day, we’ve seen very little net change in US Treasuries, and this has spilt over into limited moves in FX plays. Fed chair Powell testified to the Senate Banking Committee, but his comments offered no real insights or new intel for traders and were perfectly balanced.

Powell speaks again in the session ahead, this time to the House Financial Services, but there is little chance he will say anything that is not already known US CPI (tomorrow) is the real catalyst, and it makes sense for Powell to be purposely vague until we get this intel.

Either way, the USD is little changed on the day.

Commodities get attention Crude looks heavy, and looks probable to head into US$80, where we see all the main moving averages. Gold sits at US$2364 (+0.2%), which is a far more fitting reaction to the confined moves seen in the USD and Treasury market.

Year-to-date performances:

-Nasdaq Composite: +22.8%
–S&P 500: +16.9%
–Dow Jones Industrial Average: +4.3%
–S&P Midcap 400: +3.8%
–Russell 2000: +0.1%

On the calendar today:

-New Zealand RBNZ monetary decision

-China June CIP & PPI

-US May Wholesale Inventories

-US Weekly crude oil inventories

Corporate news in Australia:

-Take-over interest for Insignia Financial ((IFL))

-Bapcor ((BAP)) knocks back take-over offer from Bain Capital

-Apparently there’s plenty of interest in acquiring Booktopia Group ((BKG)) from administrators

Spot Metals,Minerals & Energy Futures
Gold (oz)	2370.70	+ 4.20	0.18%
Silver (oz)	31.08	+ 0.04	0.13%
Copper (lb)	4.58	– 0.02	– 0.51%
Aluminium (lb)	1.12	– 0.01	– 1.23%
Nickel (lb)	7.72	– 0.13	– 1.67%
Zinc (lb)	1.32	– 0.00	– 0.17%
West Texas Crude	81.81	– 0.46	– 0.56%
Brent Crude	85.02	– 0.64	– 0.75%
Iron Ore (t)	110.51	+ 0.49	0.45%

Samer Hasn Market Analyst at XS.com

Crude oil is declining across the two main standards today as part of the continuous declines for the third day in a row after prices reached their highest levels since approximately mid-last April.

The declines in crude come with the decline of concerns about the safety of oil supplies in the US after the oil facilities were not damaged, in addition to the hope that a ceasefire could be reached in Gaza, which would defuse a wide-ranging regional war.

The Category 1 hurricane formerly of Category 5 that came with Tropical Storm Beryl did not cause any damage to the oil shipment facilities on the Gulf Coast after they were closed precautionarily, while it caused a number of casualties and left more than two million users without electricity there.

In the Middle East, there is some hope that a ceasefire can be reached in Gaza, with the ongoing negotiations that have so far yielded nothing that would lead to a significant change in the current situation. This cessation of hostilities would remove the specter of a regional war preparing to erupt from the gates of southern Lebanon, and it may extend to include more than one country in the region or even outside it, thus maintaining a state of uncertainty in energy markets.

Even though I do not think that the political reality in Israel serves the path of calm on both of the raging fronts, with the far-right parties pushing towards further escalation.

Globally, the economic reality does not seem to help energy market maintain its gains for long. Services and manufacturing activities in the US are contracting, unemployment is rising, and the housing market is recording more signs of weakness, as part of a series of data that we have witnessed since the beginning of July.

Economic activities are still contracting at a faster pace in the Eurozone as well, and investors have become noticeably more pessimistic after eight months of continuous improvement according to this month’s Sentix survey as well. In China, despite the growth in activities, sentiment about the coming months has fallen to its lowest levels in years.

While there remains hope that the interest rate will be cut next September or November in light of the recent negative data among the factors supporting oil prices, as it causes a reduction in Treasury bond yields, thus weakening the dollar, with which crude oil is valued.

The Australian share market over the past thirty days

Index	09 Jul 2024	Week To Date	Month To Date (Jul)	Quarter To Date (Jul-Sep)	Year To Date (2024)
S&P ASX 200 (ex-div)	7829.70	0.09%	0.80%	0.80%	3.15%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ARF	Arena REIT	Downgrade to Neutral from Buy	UBS
BWP	BWP Trust	Downgrade to Neutral from Buy	UBS
CNI	Centuria Capital	Downgrade to Sell from Neutral	UBS
CUV	Clinuvel Pharmaceuticals	Downgrade to Hold from Add	Morgans
DRR	Deterra Royalties	Upgrade to Buy from Neutral	UBS
GDG	Generation Development	Downgrade to Hold from Add	Morgans
GMG	Goodman Group	Downgrade to Sell from Neutral	UBS
GQG	GQG Partners	Downgrade to Accumulate from Buy	Ord Minnett
IGO	IGO	Upgrade to Neutral from Sell	UBS
		Downgrade to Sell from Hold	Bell Potter
LLC	Lendlease Group	Upgrade to Neutral from Sell	UBS
MGR	Mirvac Group	Upgrade to Buy from Neutral	UBS
REA	REA Group	Upgrade to Outperform from Neutral	Macquarie
RRL	Regis Resources	Upgrade to Neutral from Sell	Citi
		Downgrade to Neutral from Buy	UBS
RXM	Rex Minerals	Downgrade to Hold from Buy	Shaw and Partners
SCG	Scentre Group	Downgrade to Sell from Neutral	UBS
SUN	Suncorp Group	Downgrade to Neutral from Outperform	Macquarie
VCX	Vicinity Centres	Upgrade to Neutral from Sell	UBS

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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