The Overnight Report: Tech Masks Weakness

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This story features COMMONWEALTH BANK OF AUSTRALIA, and other companies.
For more info SHARE ANALYSIS: CBA
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

The AI trade and technology stocks continued to support the S&P500 and Nasdaq, as US consumer facing stocks struggled.

The US K-shaped economy is alive and well.

After a fourth successive weak session on the ASX200 yesterday, the futures are sadly, yes, pointing to another weak start.

Good Morning,

A -10% decline in CommBank ((CBA)) shares on Wednesday weighed on the ASX200 which thus fell for a fourth straight session, down -41 points or -0.5% to 8,630.

After some big earnings related moves in stocks yesterday, including CommBank and Aristocrat Leisure ((ALL)),  Xero ((XRO)) and GrainCorp ((GNC)) report today.

Yesterday, CommBank’s quarterly missed the mark, while Aristocrat beat low expectations and concerns about deflating sector momentum.

AGM’s for Ampol ((ALD)) and Flight Centre ((FLT)) might offer more colour around trading conditions.

Xero has announced operating revenue up 31% to NZ$2.8bn, adjusted earnings (EBITDA) up 18% to NZ$757.4m, and free cash flow reaching NZ$554m.

CEO Sukhinder Singh Cassidy highlighted accelerating US momentum, including 110,000 new customers and 50% pro-forma revenue growth, as Xero integrated Melio to expand beyond accounting into payments and build an AI-focused small business financial operating system.

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

Today’s Big Picture, J.L.Bernstein 

Tech Masked A Weak Tape 

The S&P500 printed a new record but the breadth was ugly.

Two-thirds of the index closed red.

Six of the Mag 7 added roughly half a trillion in market cap in one session.

AI stocks are where money went to hide from the inflation prints and the oil shock. 

Warsh Gets The Gavel 

Senate confirmed Kevin Warsh as Fed chair this afternoon, 54-45. He takes over from Powell on Friday.

The thirty-year is still above 5 and Boston Fed President Susan Collins is talking openly about rate hikes.

Not a soft landing setup. 

Ford Becomes A Power Play 

Best day since March 2020. Morgan Stanley flagged Ford Energy, the company’s stationary battery storage business, as worth roughly US$10 billion that nobody’s pricing in.

An old-line carmaker getting bid as data center infrastructure.

Equity markets rose, underpinned by AI-related optimism. US bond yields rose following stronger-than-expected US PPI data. The S&P500 was up 0.6%. The Euro Stoxx 50 and the FTSE 100 closed up 0.9% and 0.6%, respectively.

The yield on the UST 10y note rose around 0.4bp to 4.46%. The active WTI oil future lifted 0.3% to US$101/bbl. Gold was weaker at US$4,691/oz.

The US headline PPI rose 1.4% m/m, well above the consensus of 0.5%, seeing the annual rate rise to 6.0% y/y. Excluding food and energy, the PPI rose 1.0% m/m vs 0.3% m/m expected, taking the annual rate to 5.2% y/y. 

The strength in April reflected a 5.0% m/m increase in transportation and warehousing services, with truck freight services up 8.1% m/m. Trade services, which measure wholesale and retail margins, rose strongly, up 2.7% m/m.

Within this, fuel and lubricants retailing margins rose 26.6% m/m, which appears likely to reverse in the months ahead. The services PPI excluding trade, transportation and warehousing (43.2% weight in the overall PPI) rose 0.1% m/m, and was unchanged (0.0% m/m) in the prior month.

Euro Industrial production rose 0.2% m/m in March, slightly below the consensus of 0.3% m/m. Across Q1, industrial production fell -0.9% q/q. Whilst capital goods production continues to trend higher, likely reflecting fiscal stimulus, outside of that production is trending lower.

Notably, pharmaceutical production has deteriorated markedly following US tariffs. On a three-month moving average basis, pharmaceutical production is down -19% from the previous peak in July

Crude oil prices dipped, as the market waits a pivotal meeting between Trump and Xi. The International Energy Agency (IEA) warned around the world oil inventories are falling at a record pace.

Global observed oil inventories declined at a rate of about -4mb/d in March and April. It also reported that as of 8 May, about 164mbbl of oil have been released from emergency stockpiles in IEA countries.

The closure of the Strait of Hormuz continues to impact Persian Gulf producers. Saudi Arabia reported its oil production fell -6.316mb/d in April, according to OPEC’s monthly market report. The output is now down -42% since February. Overall OPEC member output slumped -1.727mb/d to average 18.98mb/d.

Aluminium led the base metals sector higher, as further signs of tightness emerge. The Middle East conflict has seen about -9% of global primary aluminium output cut off from the international market.

This has led to a scramble for available supplies. Orders for aluminium on the London Metal Exchange jumped by 27,750t to 47,025t on Wednesday.

Copper extended gains as supply risks mount around the world. The disruption of sulphuric acid from the Persian Gulf has put at risk around 20% of global copper supply that is produced via acid-intensive SX-EW processes. Refined copper production fell -3% y/y to 1.05mt in April.

Gold extended recent losses as expectations of a rate hike by the Fed rise. This was compounded overnight by data that showed US wholesale inflation also accelerated in April.

This saw yields on 10y US Treasuries rise to their highest since July, while traders raised their expectations of a hawkish Fed.

Meanwhile, India, raised import tariffs on gold and silver to about 15% from 6%. The hike will prompt price increases for the precious metals, probably leading to dip in consumer jewellery demand.

US: AI tracker – Impacts are building, Oxford Economics extract

-AI has achieved mainstream adoption in leading sectors, but usage still appears relatively low, explaining the mostly muted impacts on aggregate productivity and the labor market so far. Increasingly, the key metric to track will be the depth of adoption within firms.

-The capex for AI is surging, but we expect the net boost to GDP growth to remain close to a few 10ths over the coming year, as much of the value is accruing to foreign chipmakers. Still, increased output in software and research and development is keeping the net GDP boost from AI spending positive.

-AI is causing noticeable churn in the information sector, which is at the forefront of adoption. Hiring and layoff rates have simultaneously increased, but the net change in employment has barely moved. This portends broader workforce restructuring as AI adoption proliferates elsewhere.

-The baseline forecast assumes that AI proves more labor-augmenting than labor-displacing, on net. Moreover, the speed of adoption is critical, and it’s assumed to be orderly enough for new jobs to be created to absorb those lost in the most AI-exposed parts of the job market.

Resilience Becomes Investable, Morgan Stanley, Ellen Zentner extract

The global economy is moving past an era when “cheapest” was treated as “best.”

After decades of optimizing for efficiency –-through global supply chains, lowest-cost production and just-in-time inventories-– companies and governments now have other priorities: security, continuity and resilience, often at higher upfront costs.

Call it the rise of “resource nationalism.” Countries are using policy tools, such as subsidies and export controls, to reduce supply-chain vulnerabilities and increase control over the materials, components and energy essential to their economies.

The Iran conflict and shipping disruptions in the Strait of Hormuz, a critical chokepoint for global energy markets, are only the latest catalysts in this structural shift.

“This is what [economic] regime change looks like –- when scarcity and resource constraints are not simply inflationary but become critical determinants of economic prosperity and technology innovation and diffusion,” notes Wealth Management Chief Investment Officer Lisa Shalett.

That shift is also changing the investment map in ways that create both risks and opportunities for investors.  

Morgan Stanley Wealth Management’s Global Investment Office suggests looking for investment opportunities in industries with scarce capacity that can benefit from government support.

• Grid and electrification enablers: Companies involved in grid equipment, power systems and related infrastructure can benefit from sustained demand.
• Energy security and reliability. Policy support can benefit investments tied to dispatchable power, fuel logistics and reliability-enabling infrastructure.
• Critical minerals beyond mining. Processing, refining and specialty chemical production often represent the stages where capacity is most constrained and barriers to entry are highest. 
• Industrial resilience and automation technologies. These enhancements to productivity can help offset higher costs from reshoring and supply-chain diversification, positioning companies in those industries for growth.
• Defense production and secure communications. Companies involved in defense systems, secure electronics and communications infrastructure are also likely to benefit from policy-driven investment.

Corporate news in Australia

-Air New Zealand ((AIZ)) guides to a FY26 loss of -NZ$240m-NZ$390m on surging fuel costs

-MA Financial Group ((MAF)) is pitching the sale of battery storage company Akaysha Energy, with interest expected from infrastructure and energy investors

-Charter Hall ((CHC)) explored a potential takeover of Abacus Group ((ABG)), highlighting ongoing consolidation interest in the property sector

– I-MED’s $3bn-plus sale process has widened to additional bidders amid valuation concerns and management turnover

-Ownership Matters is targeting executive remuneration at DroneShield ((DRO)) ahead of shareholder meetings

-Accent Group ((AX1)) plans aggressive Sports Direct expansion, targeting $1.9bn in sales by 2030

-Healius ((HLS)) downgraded earnings guidance and plans to divest Agilex following budget-related healthcare pressures

-Automotive Superstore is raising $10m to accelerate growth in its online automotive parts platform

-BHP Group ((BHP)) and Rio Tinto ((RIO)) chiefs rejected calls to split up their businesses despite investor pressure for higher valuations

-SPC Global ((SPG)) is pursuing a $90m recapitalisation to address elevated debt levels

-Marketplacer’s valuation has fallen after private equity investors marked down their holdings

-The estimated bailout cost for Whyalla Steelworks has exceeded $2.6bn following blast furnace failures

On the calendar today:

-NZ March net migration

-UK 1Q GDP

-US April Retail sales

-AMPOL LIMITED ((ALD)) AGM

-AUTOSPORTS GROUP LIMITED ((ASG)) ex-div 5.00c (100%)

-FLIGHT CENTRE TRAVEL GROUP LIMITED ((FLT)) AGM

-FLEETPARTNERS GROUP LIMITED ((FPR)) ex-div 11.90c (100%)

-GRAINCORP LIMITED ((GNC)) 1H26 earnings report

-UNITED OVERSEAS AUSTRALIA LIMITED ((UOS)) ex-div 2.00c

-XERO LIMITED ((XRO)) 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.

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