Daily Market Reports | 8:51 AM
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US equities markets fell on rising bond yields, including a weak US 20-year bond auction and simmering debt concerns over President Trump’s “big beaufiful bill”. Futures are pointing to a weak start for the ASX200.
| World Overnight | |||
| SPI Overnight | 8326.00 | – 82.00 | – 0.98% |
| S&P ASX 200 | 8386.80 | + 43.50 | 0.52% |
| S&P500 | 5844.61 | – 95.85 | – 1.61% |
| Nasdaq Comp | 18872.64 | – 270.07 | – 1.41% |
| DJIA | 41860.44 | – 816.80 | – 1.91% |
| S&P500 VIX | 20.87 | + 2.78 | 15.37% |
| US 10-year yield | 4.60 | + 0.12 | 2.57% |
| USD Index | 99.48 | – 0.43 | – 0.43% |
| FTSE100 | 8786.46 | + 5.34 | 0.06% |
| DAX30 | 24122.40 | + 86.29 | 0.36% |
Good Morning,
Hints of the “sell America” trade are creeping back into market commentary as US bonds, equities and dollar all weakened overnight.
Market participants are keeping a watchful eye on US Treasury yields amid the House of Representatives’ approval of the long awaited tax bill.
What happened overnight: Extract NAB Markets Today Research
-Long-end yields continue their rise; curve bear steepens
-Soft US 20yr auction adds to the bond sell-off
-USD falls despite rise in yields rise; gold/bitcoin also rise
Longer end bonds continued their sell-off overnight with the US 10yr yield up 10.4bps to 4.59% and the 30-year yield up 11.4bps to 5.08%.
While yields were trending higher amidst US budget headlines, a soft US$16bn 20yr auction saw yields spike by 5-7bps.
The spike in yields also intensified the sell-off in equities with the S&P500 closing down -1.6%. At 5,845 the index is close to the 200dma of 5,767.
There was little top tier data news flow outside of US budget headlines and the UK CPI which printed to the high side (Core CPI 3.8% y/y vs. 3.6% expected).
On the ‘big beautiful tax bill’, US House Speaker Johnson said he had reached an agreement to press ahead with Donald Trump’s showpiece fiscal legislation.
The proposed tax cuts are raising concerns from economists about the US’s fiscal position and there are signs of anxiety in the bond markets about the country’s debt burden.
Former US Treasury Secretary Mnuchin said he is more alarmed by the fiscal deficit than its trade imbalances and urged policymakers to prioritise fiscal repair. Similar comments also by the IMF.
And the ECB also commented on US policy uncertainty: “The unpredictability of a broad range of US policies seems to have led investors to require higher risk premia on US assets. At the same time, it could also have shaken confidence in the US dollar as the global reserve currency and US sovereign bonds as safe-haven assets.”.
Powerful words from what is traditionally a conservative institution. While risk premia are hard to determine, the term premia on the US 10yr have risen some 70-80bps since when Trump was elected.
As for the soft 20-year bond auction, the US$16 billion auction tailed by more than 1bp and had a weak bid-cover ratio, despite yields being above 5.0%.
It is the first auction since the Moody’s downgrade at the end of last week.
The closely watched 30-year treasury yield increased 11bp and has made fresh highs for the year at 5.08% and is not far off its October 2023 highs of 5.11%.
The selloff has been led by the longer maturities with the curve steepening. Fed funds pricing was not related to the move in yields, with this little changed at -50.3bps of cuts for 2025 from -52.7bps on Tuesday.
While currency markets were overall subdued, the dichotomy of rising US yields and a falling USD was evident with the DXY -0.5%.
A spike higher in GBP after the higher-than-expected CPI was short lived.
Gold rose 1.1% to US$3,316 and so did Bitcoin up 1.1% to $108,111.
Meanwhile, Oil gave back its recent rise with Brent -1.1% to US$64.67. Note: the earlier jump in oil during Asia yesterday was linked to a CNN reported that US intelligence had suggested Israel is preparing to strike Iranian nuclear facilities, has fully retraced.
Finally, for UK CPI, all metrics were higher than expected. Core inflation was 3.8% y/y vs 3.6% expected. Services inflation, which is closely watched by the Bank of England (BOE) as a measure of underlying price pressures increased 5.4% vs. 4.8% expected.
Most of the rise in inflation was driven by administered prices and the shifting timing of Easter for airfares.
When stripping out those measures, services inflation eased back to 3.8% y/y from 4.4%.
Nevertheless, the BoE will be keenly observing whether there are any secondary effects from the spike in CPI.
“Sell in May” or “Dull Tape”? Extract from Steve Sosnick, Interactive Brokers
I have an affection for time-tested market adages.
Two have the potential to collide this week: “sell in May and go away,” and “don’t short a dull tape”.
Kudos if you’ve resisted the idea of “sell in May” so far this month.
As I type this, the S&P500 (SPX) is up over 6% and the Nasdaq100 (NDX) over 9%.
In a normal environment, those would be decent years, though of course this environment is anything but normal.
For starters, we’ve become accustomed to double-digit annual percentage gains in recent years. And when we consider the recent plunge and almost immediate turnaround, we find ourselves enmeshed in one of the most powerful momentum surges that I can remember.
Quite frankly, I’m not a big fan of relying on seasonality.
While there are some factors that might influence seasonal patterns, I favour Eddie Murphy’s “GI Joe with the kung fu grip” explanation; those factors get overwhelmed by the events of the moment.
While May is one of only three months that have yielded negative returns over the past 15 years (along with August and September), and 5 years (February and September), the average decline in each of those periods is less than -1%, and the dispersion of those monthly results is substantial.
That also means that average returns for June and July over those periods has been positive. Thus, my persistent question of “go where’? remains unanswered.
As for “don’t short a dull tape”, while the market activity itself has been rather dramatic, there is a distinct lack of catalysts this week ahead of the Memorial Day weekend.
Economic reports are sparse until after the holiday, and while we have received results from key retailers like Home Depot, Lowes, and Target, the modest post-earnings declines in these names have not spooked the overall market.
Things certainly pick up next week, with a significant flurry of economic data that include Durable Goods, GDP, PCE, FOMC meeting minutes, and sentiment reports from both the Conference Board and University of Michigan.
And those are likely to be dwarfed in market importance by the most important single earnings report of all, Nvidia, which reports after the close on Wednesday May 28. Any concerns about a dull market evaporate on this Friday’s close.
Thus, while we have seen some early declines in recent days, positive momentum has seized control once the initial selling ran its course.
On Tiesday, the SPX bounced back nearly all the way back after a nearly -1% overnight selloff, and NDX has moved solidly into positive territory.
The facetious pattern that I laid out previously seems to be in place again today:
-Pesky foreigners sell overnight
-Wake up and buy futures (optional: make coffee, brush teeth, shower)
-Watch for 8.30 economic news, if positive, buy more; if negative, wait for dip, then buy more
-Chase rallying markets after stock market opens
-Rinse, repeat
That rubric was written while we were sweating the potential effects of the Moody’s downgrade of US debt. We noted that 2-, 10-, and 30-year yields were breaching some key psychological levels 2-yr > 4%, 10-yr > 4.5%, 30-yr > 5% but they had all retreated below those points by about 10am.
Wednesday saw those same breaches, but as of now, none of those yield have retreated. They all remain above those key levels, and perhaps more importantly, the US dollar is down about -0.6% against a basket of major currencies. Remember, all things being equal, a currency should rise against its peers when rates rise.
In this case, all things are not equal.
I interpret this as another piece of the tidal shift out of US assets. That would explain both the early selling in stock futures (see item #1 in the list above), along with the ongoing sales of both bonds and the dollar.
Last month, we noted the significant “sell America” trade. Although those flows have ebbed from a tidal wave into a bit more of a steady leak, they still exist at least in the bond market.
The likely best time to reassess the title question will be Friday afternoon.
Barring any outside catalysts perhaps from the budget negotiations, the momentum trade seems intact until the weekend.
Perhaps then it will be a more opportune time to sell in May, but after avoiding the likely dull tape that can be driven higher by momentum traders.
Corporate news in Australia
-FIRB has approved the Gold Fields takeover of Gold Road Resources ((GOR)) for $3.7bn.
-Cosette is reconsidering the acquisition of Mayne Pharma ((MYX)) for $672m, noting changes to recent financial updates and correspondence with the US FDA.
-Catalyst Metals ((CYL)) is raising $130m in equity.
-The Virgin IPO is being planned for June.
-KKR-backed Advanta and BP (Britsh Petroleum) are reported as looking at Nufarm’s ((NUF)) $900m seed business.
On the calendar today:
-Global PMIs
-ARISTOCRAT LEISURE LIMITED ((ALL)) ex-div 44.00c
-ORICA LIMITED ((ORI)) ex-div 25.00c
-WESFARMERS LIMITED ((WES)) investor briefing
FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 3317.37 | + 20.78 | 0.63% |
| Silver (oz) | 33.73 | + 0.44 | 1.32% |
| Copper (lb) | 4.66 | – 0.02 | – 0.32% |
| Aluminium (lb) | 1.12 | – 0.00 | – 0.23% |
| Nickel (lb) | 6.96 | – 0.01 | – 0.13% |
| Zinc (lb) | 1.22 | – 0.01 | – 0.97% |
| West Texas Crude | 61.32 | – 0.99 | – 1.59% |
| Brent Crude | 64.64 | – 1.00 | – 1.52% |
| Iron Ore (t) | 100.05 | 0.00 | 0.00% |
The Australian share market over the past thirty days
| Index | 21 May 2025 | Week To Date | Month To Date (May) | Quarter To Date (Apr-Jun) | Year To Date (2025) |
|---|---|---|---|---|---|
| S&P ASX 200 (ex-div) | 8386.80 | 0.52% | 3.21% | 6.93% | 2.79% |
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| CLW | Charter Hall Long WALE REIT | Upgrade to Buy from Neutral | Citi |
| DXS | Dexus | Downgrade to Hold from Buy | Ord Minnett |
| GTK | Gentrack Group | Upgrade to Neutral from Sell | UBS |
| IAG | Insurance Australia Group | Downgrade to Neutral from Buy | UBS |
| MVF | Monash IVF | Upgrade to Speculative Buy from Hold | Morgans |
| PGC | Paragon Care | Upgrade to Buy from Hold | Bell Potter |
| SKO | Serko | Downgrade to Neutral from Outperform | 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
For more info SHARE ANALYSIS: ALL - ARISTOCRAT LEISURE LIMITED
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For more info SHARE ANALYSIS: MYX - MAYNE PHARMA GROUP LIMITED
For more info SHARE ANALYSIS: NUF - NUFARM LIMITED
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