The Overnight Report: US CPI, Iran & AUKUS

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SPI futures are indicating Australian shares are set to open slightly higher even as US stocks ended lower after reports the United States is preparing to evacuate its Iraqi embassy due to heightened security risks in the region.

Oil prices rallied and reports are emerging what most of us already suspected; it appears the AUKUS agreement might be in trouble, with the Pentagon now officially reviewing the US role in the US-UK-Australia agreement.

Excerpt from National Australia Bank this morning:

Softer than expected US inflation saw a rally in US rates Treasuries, yields down -5-6bp across the curve. The US-China trade talks ended with a framework to uphold the Genva agreement rather than any big new developments.

The S&P500 was -0.3% lower and the USD is broadly weaker, though AUD and NZD are the exception to the broadly weaker USD. Oil prices jumped on the back of escalating tensions in the middle east.

The S&P 500 snapped a three-day rally as big tech led declines. Apple led losses in megacaps, while Tesla gave up early gains. Despite the small decline overnight, the index remains up over 20% from April lows, buoyed by hopes of tariff rollbacks and resilient earnings. Energy stocks gained alongside the rally on oil.

The dollar slipped -0.3% on the DXY, driven by European currencies. The euro was 0.5% higher at 1.1487, the move largely in response to US CPI data. USDJPY was down just -0.2% at 144.61. Sourer risk sentiment and a lack of positive news out of the trade talks contributed to AUD and NZD underperformance. The AUD was -0.3% lower and is currently around the 65c level at 0.6503.

Brent oil prices jumped 4.2% higher. The gain looks to be attributable to an escalation of tensions in the middle east The US government ordered a partial evacuation of its embassy in Iraq amid rising security risks and the AFP reported that Iran threatened to target US military bases in the region if conflict breaks out.

President Donald Trump told the New York Post he’s “less confident” about whether he can convince Tehran to agree on shutting down its nuclear program.

From ANZ Bank commentary:

US CPI softer than expected in May. Both headline and core CPI inflation rose 0.1% m/m in May, lower than expected and confirming disinflation remains in place.

On an annual basis, headline CPI rose 2.4% y/y and core CPI rose 2.8% y/y. Across the components, core commodity prices were flat m/m, apparel -0.1% m/m, new vehicles -0.3% m/m and used cars/trucks -0.5% m/m.

Core services rose 0.2% m/m, shelter was 0.3% m/m and supercore CPI was 0.06% m/m. It was expected that early signs of tariffs would have driven a rise in inflation in May. However, the softer-than-expected CPI data suggest that businesses are holding back from passing higher tariffs on to consumers.

US-China trade talks “done”. The two-day talks in London concluded with President Trump announcing that a deal with China is “done”.

The trade delegations have agreed to a preliminary framework on how to implement the consensus reached in Geneva in mid-May, which now awaits approval from both Trump and President Xi.

Commerce Secretary Lutnick said that tariff levels “will not change again”. Equities pulled back as the market considered the reality of much higher tariffs being here to stay.

China agreed to faster licensing of exports of rare earth metals, while the US agreed to allow Chinese students back into the US. Meanwhile Lutnick said that an EU deal was likely to be at the very end of deals.

Crude oil prices surge. Expectations of a new US-Iran nuclear are slowly evaporating. President Trump said he’s less confident about whether he can convince Tehran to agree on shutting down its nuclear program.

Events in the Middle East overshadowed data showing signs of weakening US demand. Distillate demand plunged to all time seasonal lows (excluding 2020) based on the four-week average of product supplied, according to Energy Information Administration data.

Gasoline inventories rose 1.5mbbl last week to their highest level in two months, as the US heads into the peak summer driving season. Overall, EIA’s weekly inventory report showed that crude oil inventories fell 3,644kbbl last week.

Gold rose after softer-than-expected inflation data bolstered expectations that the US Fed will cut interest rates later this year. Haven buying was also apparent, following the escalation of geopolitical tension in the Middle East.

Gold’s is an important part of central bank reserves globally. Record high purchases have seen it overtake the euro as the second largest asset in reserves. The share of gold in global foreign reserves at market prices hit 20% at the end of 2024, surpassing the euro at 16%. The USD extended a steady decline to reach 46% of global reserves.

Corporate news in Australia:

-Fletcher Building ((FBU)) has confirmed takeover interest for its units amid ongoing review

-Johns Lyng ((JLG)) confirms takeover bid from Pacific Equity Partners, due diligence ends today

-Ventia Services ((VNT)) wins $800m NBN fibre contract across five Australian states

-Service Stream ((SSM)) and Genus Plus ((GNP)) have secured new NBN Co contracts worth a combined $570m to upgrade fibre infrastructure across multiple states

-EVT Ltd ((EVT)) has listed its Sydney CBD site for sale

-AGL Energy ((AGL)) has hired bankers to sell its 20% stake in Tilt Renewables

-Qantas Airways ((QAN)) is shutting down Jetstar Asia amid rising costs and strategic refocus

-Zip Co has upgraded FY25 profit guidance as US transaction value jumps 40%

-Ioneer ((INR)) is raising $25m via discounted share issuance to support its lithium exploration

-AFR reports Canaccord Genuity is eyeing major stake in rival Wilsons Advisory

On the calendar today:

-UK April GDP

-UK April Trade Balance

-US May PPI

-ASX LIMITED ((ASX)) investor briefing

-CHAMPION IRON LIMITED ((CIA)) ex-div 11.24c

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

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.)

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