The Overnight Report: The Day After The Budget

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This story features ARISTOCRAT LEISURE LIMITED, and other companies.
For more info SHARE ANALYSIS: ALL
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

Nasdaq and the S&P500  took a breather overnight, while the Dow advanced as market commentators declared the thesis for further Fed rate cuts is now pretty much 'dead'.

US CPI rose the most since 2023. Demand for business credit has fallen to its lowest level since November 2021.

Almost all major chip stocks endured persistent selling pressure, barr Nvidia. Advanced Micro Devices was among the biggest hit.

The ASX200 fell for a third straight day yesterday pre Budget. Futures are pointing to a slight dip to start the day after the budget.

Good Morning,

The ASX200 fell for a 3rd consecutive day, dropping -31 points or -0.36% (low -83pts) as investor jitters pre-Budget rattled nerves.

Over in the US, run-away chips stocks tripped over (worst day in seven months). A top Pentagon official testified the cost of the war with Iran had risen to around US$29bn, up from an estimated US$25bn two weeks ago.

On the calendar today are interim results from Aristocrat Leisure ((ALL)) and a quarterly update from CommBank ((CBA)), while Accent Group ((AX1)) presents to investors and ResMed goes ex-dividend.

CommBank reported cash net profit after tax down by -1% on the first-half quarterly average but up 4% from the prior period.

Operating income was broadly flat during the quarter as growth in lending and deposits offset the impact of two fewer trading days and continued competition in home and business lending.

CET1 ratio at 11.6% is below analysts’ forecasts. The included loan loss provision of -$316m is higher than forecasts. Both financial metrics are a negative.

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

Also, RBC Capital has identified Rio Tinto ((RIO)) as one of the beneficiaries from the federal government’s latest budget measures (see further below).

Today’s Big Picture, J.L. Bernstein extract

The Chip Trade Cools Off 

Semiconductors had their worst day in seven months.

Qualcomm closing in its worst session since 2020 and Intel rolled over after a massive run.

The group is still up big year to date so this looks more like profit taking than a broken thesis.

Real Wages Just Turned Negative

Inflation adjusted hourly pay fell year over year in April. First negative print since 2023.

Prices are rising faster than what workers actually take home.

The stock market can ignore hot inflation. Paychecks cannot.

Rate Hike Now On The Table 

The Senate confirmed Kevin Warsh to the Fed board today on a near party line vote.

The chair vote comes Tomorrow and Powell exits Friday.

Markets now see roughly a one in three chance the Fed hikes by December, up from one in four yesterday.

The 2026 rate cut story is dead for now.

ANZ Research, extract

US CPI inflation: April CPI inflation rose 0.6% m/m to leave the headline rate at 3.8% y/y, its highest level since May 2023. The increase was driven by a 17.9% y/y rise in energy costs which added 1.3% to the headline y/y print.

Core commodity inflation, excluding food, energy and used cars and trucks was 0.0% m/m and the annual rate eased slightly to 1.77% y/y vs 1.92% y/y, providing a glimmer of hope that the tariff effect on core commodity goods may be peaking.

Despite all the hype last year that tariffs would raise inflation, core inflation was unchanged at 2.8% y/y in April, the same as it was in April 2025. That shows underlying core inflation pressures ex-goods have been moderating.

That is good news amid the current challenging environment and rise in headline inflation. It suggests that tariffs have not fanned a broader inflation problem.

Crude oil extended recent gains as the ongoing closure of the Strait of Hormuz weighs heavily on oil supplies. The latest peace talks have been unable to find any common ground, with Iran insistent on maintaining some control over its nuclear program.

Iran’s response to President Trump’s most recent peace proposal also included its right to maintain a degree of control over traffic through Hormuz. It announced that it had deployed small submarines to act as an “invisible guardian”.

The breakdown in negotiations suggests an extended disruption to oil supplies from the Persian Gulf is likely. The US blockade of Iranian ports is also starting to have an impact. Oil shipments from Iran’s main export terminal appear to have come to a standstill over the past several days, according to satellite images obtained by Bloomberg.

Iran has been able to maintain exports during the conflict, with ship tracking data suggesting shipments of around 1.8mb/d.

The disruptions to oil supplies are quickly shrinking the inventory buffer the market has been relying on over the past couple of months. 

We estimate that global crude oil inventories fell by nearly 200m barrels in April. That equates to a daily rate of 6.6mb/d. If Hormuz remains shut, the second quarter of 2026 will see the largest quarterly crude inventory drawdown in history at 6.5mb/d.

The surge in oil prices dragged the natural gas market higher. However, the gains were limited amid hopes that some LNG cargoes may start emerging from the Persian Gulf. Qatar was successful in getting two LNG tankers through the strait earlier this month by turning their transponders off.

It has subsequently asked more ships near its main LNG export facility to do the same. At least nine tankers have subsequently stopped sending signals as of 11 May, according to Bloomberg ship tracking data.

Nevertheless, buyers remained concerned about the availability of supply, with an increasing number entering the spot market for the first time in a while.

Copper jumped to a fresh high amid signs of stronger Chinese demand and mounting supply risks. The three-month futures contract on the LME traded as high as USD14,106.50/t, just shy of its all-time high of USD14,500/t set in January.

Sentiment has been buoyed by recent economic data that showed industrial activity in China has been much better than expected, with limited impact from the Middle East conflict. Strong equity markets driven by AI stocks have also raised the prospect of further investment in data centres, which should support demand for the industrial metal.

This comes as a looming supply crunch hangs over the market. There are growing concerns that copper supply may be hindered due to the disruption of sulphuric acid from the Persian Gulf. This puts at risk around 20% of global copper supply that is produced via acid-intensive SX-EW processes.

Gold edged lower as higher US inflation raised the prospect of interest rate hikes by the Fed. The precious metal was down as much as -2.1% after the Bureau of Labor Statistics said the consumer price index rose the most since 2023.

This has seen traders increase bets that the Fed will hike rates by December. The subsequent rise in bond yields also weighed on investor appetite for the precious metal.

Sentiment was not supported by concerns over weaker demand in India. Titan Co Ltd, India’s largest jeweller, expects a slowdown in demand if the government implements measures to curb gold buying.

Key themes and views

US: The April NFIB survey of small business optimism was 0.1pts stronger at 95.9 but the underlying details were weak.

Plans to make capital expenditure over the next six months rose 1.0% to 17% from March, which was the lowest level since November 2009.

That prompted the NFIB to conclude that “small businesses aren’t just sitting on the sidelines –- it appears many of them have left the playing field altogether.”

Firms reporting higher sales in the past three months fell 3% to 8.0% indicating weakening demand. Expectations for higher sales over the next three months fell 4% to 3.0%, the lowest reading in a year.

Demand for business credit fell -2% to 22%, its lowest level since November 2021.

RBC Capital, Budget Metals & Mining Read Through extract

Our view: The 2026–27 Federal Budget is supportive for large diversified miners, downstream processing assets and established mining systems.

Rio Tinto appears among the clearer direct beneficiaries given its aluminium processing exposure, although the broader policy direction increasingly favours incumbents with existing infrastructure and brownfield expansion pathways.

In our view, the more important implication is that future Australian mining growth is increasingly constrained by infrastructure, approvals & power, which advantages established operations & long-life, brownfield expandable assets.

Event: The Federal Government delivered the 2026–27 Budget against the backdrop of a global oil shock and supply-chain disruption, with policy heavily focused on domestic gas supply, fuel security, productivity reform and industrial resilience.

Key measures included a proposed 20% domestic gas reservation scheme from July 2027, expanded fuel reserves, approvals reform and further support for “Future Made in Australia” industrial policy.

Key points:

Domestic gas reservation materially improves the long-term outlook for Australian processing economics. Australia’s proposed 20% domestic gas reservation policy should reduce east coast gas price volatility and improve industrial competitiveness for energy-intensive processing assets.

Rio Tinto appears among the clearest beneficiaries through QAL, Yarwun, Boyne and Tomago (we think likely low single digit percentage reduction in operating costs, or importantly avoidance of future cost escalation), where lower and more stable gas and electricity pricing could improve refining economics and reduce margin volatility across the aluminium value chain.

The read-through for most miners is more indirect and thematic rather than a material near-term earnings change.

The Budget further increases the value of existing infrastructure systems and brownfield growth pathways. A broader read-through from the Budget and policy direction is that future mining growth in Australia is becoming increasingly constrained by infrastructure, approvals, power and logistics.

In that environment, incumbent producers with established operations & brownfield expansion pathways are advantaged, as incremental growth can leverage existing infrastructure, approvals & logistics networks rather than requiring entirely new standalone developments.

While the degree of benefit likely varies materially between companies & commodities, the advantage is likely most pronounced across large, established mining corridors and operating hubs such as the Pilbara, Bowen Basin, Hunter Valley and Olympic Dam.

Copper and critical minerals are the clearest beneficiaries of the Government’s industrial policy agenda. Copper & critical minerals appear the clearest beneficiaries of the Government’s broader industrial policy direction.

The Budget reinforces support for approvals reform, domestic processing and strategic supply chains, which directionally favours long-life Australian copper and battery material assets over time.

However, the impact is largely indirect and strategic rather than an immediate change to project economics, with key challenges around capex, execution, permitting and weak near-term commodity markets remaining unresolved.

More important second-order implication is policy precedent (i.e. domestic gas reservation policy). The Budget reinforces the view that Australia is becoming increasingly willing to intervene in resource and energy markets where domestic affordability, industrial competitiveness or supply security become politically sensitive.

Over time, this likely increases the strategic value of domestic industrial assets and established operations, while modestly increasing sovereign risk for long-life investments.

Implications for investors – negative gearing & CGT

The changes to negative gearing, the CGT discount and the minimum tax on trust distributions have potentially big implications for many investors.

I will leave the details to those with more expertise regarding taxation, but the changes to negative gearing are probably the most significant with about 1.2 million taxpayers reporting a loss for tax purposes on property.

However, whether the CGT discount change is significant going forward will depend on the interaction of the rate of property price growth and inflation.

Since the introduction of the discount in 2000 it has been beneficial to most investors as asset price gains were high and inflation was low.

But if we go back into a period where property price growth is more constrained (say 5% pa) and inflation higher (at say 3% pa) then under scenarios where the holding period is 12 years or less investors may actually end up better off. 

Where the CGT tax change may bite is in relation to shares and businesses – particularly those which don’t meet any carve out for startups.

The removal of the 50% discount could take the CGT rate for a high-income earner from the low end of comparable countries to the high end.

This in turn could work against growth shares and small businesses and attracting talented workers to such businesses which could work against the Budget’s objective to boost productivity.

Budget Implications for Australian assets, Shane Oliver & Diana Mousina, AMP extract

Cash and term deposits – no major implications.

Bonds – the projection for smaller medium term budget deficits imply slightly less upwards pressure on bond yields.

Property – the curtailment of negative gearing and the CGT discount by making property less attractive to investors could knock around -5% off property prices in the short term as investors retreat due to lower after tax returns.

This is likely to be compounded by the backdrop of RBA rate hikes. However, the dip is likely to prove temporary as the supply imbalance reasserts itself.

Shares – since shares (and all assets apart from property) are not affected by the changes to negative gearing they will benefit as an investment destination relative to property.

The CGT change will boost the appeal of high dividend stocks over growth stocks. Super will also benefit as an investment destination versus property as its tax rules are unchanged.

The $A – the Budget is unlikely to change the rising trend for the $A.

Corporate news in Australia

-CommBank ((CBA)) books $316m provision hit citing economic uncertainty

-Santos ((STO)) approves final investment for a Papua New Guinea gas project

-Elevra Lithium ((ELV)) prepares a $200m equity raising

-Australian Taxation Office alleges JB Hi-Fi ((JBH)) overvalued The Good Guys brand assets by ten times their worth

-ASIC is investigating DroneShield ((DRO)) over its governance controversy and insider share sales

-Fortescue ((FMG)) is ordered to pay USD108m in an Aboriginal rights legal case

-Ingenia Communities ((INA)) secures funding support from Hostplus

-Orora ((ORA)) shareholders are agitating for board changes

-AUB Group ((AUB)) appoints former National Australia Bank CFO Gary Lennon to its board

-Helloworld Travel ((HLO)) appoints former Australian treasurer Peter Costello as a director

-Westpac ((WBC)) cuts jobs in its BT Panorama platform as part of an ongoing simplification program

On the calendar today:

-NZ 2Q 2-yr Inflation expectations

-AU 1Q Lending

-AU 1Q WPI

-JP March BoP

-EZ 1Q GDP

-EZ 1Q Industrial Prod’n

-EZ 1Q Unemployment

-US April PPI

-ARISTOCRAT LEISURE LIMITED ((ALL)) 1H26 earnings report

-ATLAS ARTERIA ((ALX)) AGM

-ACCENT GROUP LIMITED ((AX1)) investor briefing

-COMMONWEALTH BANK OF AUSTRALIA ((CBA)) Qtrly Update

-RESMED INC ((RMD)) ex-div 5.90c

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

The Australian share market over the past thirty days…

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