The Overnight Report: RBA Decision & US CPI

This story features JB HI-FI LIMITED, and other companies. For more info SHARE ANALYSIS: JBH

The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

Nasdaq reached a new high before succumbing to weakness, leaving US markets in the red overnight with all eyes on Tuesday's upcoming July CPI print.

The ASX200 futures are pointing to a soft start ahead of the 2.30pm AEST RBA rates decision.

Good Morning,

The ASX200 reached a fresh all time intraday high on Monday ahead of today’s RBA rates decision. The index rose 38pts or 0.4% to close at 8845.

Eight of eleven sectors rose with Materials in pole position underpinned by lithium stocks as Chinese battery manufacturer CATL has suspended production at a major Chinese mine for at least three months.

Discretionary stocks fell, led by JB HiFi’s ((JBH)) -8.39% with its CEO stepping down and analysts commenting the financial performance had not been good enough to continue the upward momentum.

Pilbara Minerals ((PLS)) crowned itself the top performing ASX200 stock, up 19.69%.

What happened overnight: NAB Markets Today Research extract

The White House imprimatur is on just about every market news story overnight but with no big surprises compared to what was being anticipated at the start of the week.

Movements across US equities, Treasuries and currencies are all modest at best. IT fell -0.6%, with energy down -0.7%, and were the two weakest performing S&P500 sub-sectors, in front of US CPI tonight where latest evidence of tariff passthrough to inflation is keenly awaited.

Perhaps the biggest news story of the week so far was the FT revealing yesterday morning that Nvidia and AMD would give the US government 15% of the revenues from chips sales in China as a condition for obtaining export licences for semiconductors. For Nivida, this would apply to the H20 processor and, overnight, Trump said he will consider allowing Nvidia to sell a more advanced artificial intelligence chip in China under a similar sort of arrangement.

How we got from banning sensitive IT sales to China on national security grounds to charging exporters a tax –-which as my colleagues Jason Wong points out is illegal under the US Constitution– you the reader can decide. Political observers have often remarked that when it comes to US-China trade and geopolitical affairs, President Trump is usually the least hawkish guy in the room. 

Perhaps the government has determined that sales are probably going to happen anyway via circuitous routes so it might as well take a cut.

Following this latest development, Jason as well as other external economic and market commentators we follow have pointed to a Wall Street Journal Op-Ed by Greg Ip published Monday titled ‘The US Marches Towards State Capitalism with American Characteristics’.

Ip says President Trump is imitating the Chinese Communist Party by extending political control ever deeper into the economy, citing the recent examples include Trump’s demand that Intel’s chief executive resign; the 15% of certain chip sales to China that Nvidia and Advanced Micro Devices (AMD) will share with Washington; the “golden share” Washington will get in U.S. Steel as a condition of Nippon Steel’s takeover; and the US$1.5 trillion of promised investment from trading partners Trump plans to personally direct.

In commodities, iron ore is the strongest performer, up 1.7% for the Singapore futures benchmark to US$103.80, not that this has done much to support the AUD. Other industrial metals are mostly lower (LMEX index -0.35%).

Gold is off -2.5%, in which respect President Trump has posted on Truth Social that “Gold will not be tariffed” (it doesn’t appear that this was ever intended, but exporters were initially required to apply a classification code to shipments which meant they subject to the 39% tariff on Swiss imports). The bigger tariff news, though wholly expected, is that Trump had signed an executive order to extend the US-China trade truce for another 90-days.

The Wall Street Journal reported over the weekend that up to ten candidate were being considered to be nominated to be the next Fed Chair and which added James Bullard and Marc Sumerlin to the list, now, Dallas Fed President Lorrie Logan, Fed Governor Michelle Bowman and Philip Thomas Jefferson are reportedly all under consideration. Jefferson is of course a current FOMC voter, so presumably his credential wouldn’t be harmed by voting for a rate cut next month.

In Russia-Ukraine news, any hopes for a decision to end the Russia-Ukraine war have been slipping since Trump announced he will be meeting Putin at the end of the week in Alaska. Trump has now said the purpose of the meeting was to “feel out” whether a peace deal was possible. This after President Zelensky over the weekend made clear he would not cede any territory to Russia. The Wall Street Journal reports that European leaders plan to meet Trump before he talks with Putin, “to reiterate what Europe sees as red lines that could prevent Europe and Ukraine from accepting a cease-fire deal”.

NAB expects the RBA to cut rates by -25bps to 3.60% from 3.85%. The overwhelming consensus is for a cut, and markets are fully priced. We would also expect a unanimous decision. As for SoMP forecast we see little change in these with inflation, growth and unemployment broadly meeting the RBA’s prior May SoMP forecasts. 

Key for markets, assuming the cash rate is cut to 3.60%, is whether the RBA now assesses policy to be in the realms of neutral. This is likely. With policy set to be in the wide realms of neutral, it is possible Governor Bullock sounds a little hawkish, or at least not guiding towards back-to-back rate cuts. NAB continues to see the RBA cutting rates again in November and February, bringing the cash rate down to 3.10%, which we see as broadly neutral.

The NAB Business Survey (Jul) is out before the RBA decision. While we do not preview the survey, given we publish it, over the past year the survey has picked up margin compression with firms having trouble passing on elevated cost growth to the end client. That no doubt has been one driver for the moderation in consumer inflation.

Stephen Innes: SPI Asset Management

It was one of those Mondays where the market wakes up in its bathrobe, sips bad coffee, and shuffles through the motions, all because the real show doesn’t start until the CPI curtain rises.

Everyone who’s anyone is somewhere else — Sardinia, the Hamptons, maybe lost in a golf cart in Nantucket — leaving Wall Street to hum quietly under fluorescent lights. But “quiet” doesn’t mean “boring.” The dollar had a little too much espresso, gold got shoved off the high dive, and stocks sagged just enough to make you squint at your screens and wonder if folks have more pink tickets (sell orders) to hit the machine.

NDX managed to tag a fresh all-time high in the morning, a victory lap that felt oddly hollow given Apple, last week’s Atlas carrying the Nasdaq on its back, decided to dump some cargo after its best weekly run in five years. 

The Dow? The dog of the day. SPX? Just driftwood in the tide until the close, when a last-minute algo ramp tried to paint some lipstick on this Monday pig. Nasdaq losses deepened into the final hour for no obvious reason, only to reverse in the final seconds, the market equivalent of a drunk finding his dignity just before last call.

Volume was sluggish, SPX trading in a 40bps intraday straitjacket until that closing wobble, and ETFs running at 27% of the tape, just under year-to-date averages. Goldman pointed out something far more interesting than the day’s tape: more than half of all equity volume is now happening off-exchange, with overnight ATS activity spiking like a meme stock in 2021. Blue Ocean ATS volumes are up 124% YoY to 7.7M shares a day.

The overnight playground is dominated by the glamour kids: Nvidia, Tesla, and crypto ETFs like IBIT and ETHA. The top 10 tickers make up 55% of activity — and no, contrary to myth, it’s not penny-stock degeneracy. It’s big, liquid names trading under the glow of midnight monitors.

Bonds? Narrow range, a yawn in chart form. Oil shuffled higher inside Friday’s range, an “inside day” that spoke more to trader lethargy than conviction. Crypto had its own drama. Bitcoin nearly kissed record intraday highs overnight at US$122K before falling back to a US$120K handle. Ethereum pushed back above US$4,300, proving the weekend warriors in DeFi still have some ammo left.

The bullion pit saw the day’s most notable action after Trump clarified he wasn’t slapping tariffs on gold, crushing the futures-spot spread faster than you can say “arbitrage.” Spot gold slid back toward the top of Friday’s payroll spike range, leaving anyone who chased the move feeling like they bought the high tick at a yard sale.

The dollar spiked — maybe to remind everyone it still exists — but in the big picture, it’s still nursing a bruise from last week’s payrolls dive.

And that’s the tell: the tape isn’t dead, it’s just lying in wait. This week’s calendar is a minefield — CPI, PPI, tariffs, Nvidia earnings on Aug 27th. Seasonals? Nomura calls them “not great.”

If CPI runs hot, stocks could catch an ugly downdraft, but in this market, you can almost hear the dip-buying cavalry warming up in the paddock. The question isn’t whether they’ll ride in and whether they’ll have the firepower to turn a stumble into another leg higher.

For now, the market is a coiled spring in a room full of bored traders. The quiet is deceptive — and the fuse is already lit.

Corporate news in Australia

-Santos ((STO)) has extended the exclusivity period for the $30bn takeover from the XRG consortium.

-Tuas ((TUA)) was placed in a trading halt ahead of for a $416m placement and share purchase plan to acquire 100% of M1.

-Eagers Automotive ((APE)) has teamed up with Mitsubishi to pursue automotive and mobility growth.

-Pexa Group ((PXA)) has started a review of is Digital Strategy business and cuts earnings guidance.

-DigiCo Infrastructure REIT’s ((DGT)) SYD1 has achieved the top government hosting certification.

On the calendar today:

-AU Jul NAB business survey

-AU RBA rate decision

-EZ August ZEW

-UK June unemployment

-US July CPI

-US July NFIB

-LIFE360 INC ((360)) earnings report

-COMPUTERSHARE LIMITED ((CPU)) earnings report

-CORONADO GLOBAL RESOURCES INC ((CRN)) earnings report

-LGI LIMITED ((LGI)) earnings report

-SGH LIMITED ((SGH)) earnings report

-SEVEN WEST MEDIA LIMITED ((SWM)) earnings report

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.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author’s and not by association FNArena’s – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms