The Overnight Report: US PPI, CBA Lift The Mood

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By Chris Weston, Head of Research, Pepperstone

Good morning.

Cross-asset moves through the US trading session feel eerily reminiscent of what went down throughout June. That is, US AI-related, big tech and discretionary names showing leadership, growth and cyclical plays firing up with defensives taking a backseat, US Treasures rallying and some questioning “Why should I buy gold when I can just buy Nvidia?”.

It’s rare that we see the US PPI reported before CPI, but in this case, the PPI outcome has resonated and has set expectations for the CPI print to an extent. While not all metrics in the PPI report were lower than consensus expectations, the wash-up from the PPI print is that the elements we take out to forecast the more important US PCE inflation print (seen on 30 Aug) are constructive and would see economists’ lower estimates within their models.

Many would now forecast the Fed’s preferred inflation gauge of core PCE at 0.16% m/m a slight revision lower. Today’s US CPI print will galvanise that call, and whether it’s premature to go into the CPI print having gone hard buying Treasuries and equity is a risk – but traders have reduced right-tail risk, and the chase is back on, at least for now.

The US bond market has held the keys on the day, where there has been solid buying in the 2-year Treasury, with yields falling from 4.02% to settle at 3.92%. We can see within that move, that swaps traders have added 3bp of cuts to the September meeting, and now price -37bp of cuts However, further out we see -12bp of additional cuts added to respective meetings seen through Q2, where interest rate swaps price -203bp or 8x -25bp cuts by July 2025.

Risk (growth equity, NZD, AUD, GBP) will find buyers if additional implied rate cuts are driven by a reduced inflation dynamic (i.e. right tail risk). However, the opposite is true if any additional rate cuts are driven by weaker growth or poor labour market readings this week’s US retail sales report could therefore be influential on that thesis.

The intraday tape of the NAS100 was as clear cut as they come it was an out-and-out trend day, and it seemed the sellers just stood aside or pulled orders to higher levels. The NAS100 futures joined the S&P500 futures in closing firmly above the 100-day MA, with the S&P500 cash index seeing a similar move and closing right on session highs. Participation was solid, with 84% of S&P500 stocks closing higher on the day, where only energy subtracted index points.

Geopolitical concerns really played little part in the thought process of traders, and it were tech and discretionary names that showed leadership very June-like as I say.

Turning to Asia our opening index calls look constructive at this stage, with the ASX200 set to outperform. Earnings matter today though, with CBA just reporting FY numbers and on first blush look compelling and have beaten expectations on FY NIM, cash profit and dividend with a 9% weight on the ASX200, and a clear influence into the other banks, the numbers matter for AUS200 traders. 

On the calendar today:

-RBNZ cash rate

-UK July CPI

-US July CPI

-Adacel Technologies ((ADA)) earnings report

-Australian Foundation Investment ((AFI)) ex-div 14.5c (100%)

-AGL Energy ((AGL)) earnings report

-Amotiv ((AOV)) earnings report

-Alliance Aviation Services ((AQZ)) earnings report

-Bravura Solutions ((BVS)) earnings report

-BWP Trust ((BWP)) earnings report

-CommBank ((CBA)) earnings report

-Computershare ((CPU)) earnings report

-Charter Hall Social Infrastructure REIT ((CQE)) earnings report

Corporate news in Australia:

– Seven West Media ((SWM)) to cut -$108m in costs and stop its share buyback program over the next year after an advertising pullback slashed profits

-The ACCC has accepted a court-enforceable undertaking from TPG Telecom ((TPG)) it will not enter into agreements with Google to pre-install its search services as a default function on Android devices

-Wesfarmers ((WES)) and Macquarie Group ((MQG)) are reportedly eyeing the $3bn I-MED diagnostic imaging business

-Rio Tinto ((RIO)) is seeking to sell a stake in its Winu copper project in Western Australia

-Orora ((ORA))  rejected Lone Star’s “opportunistic” takeover bid, saying it undervalues the company

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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