The Overnight Report: US Rotating To Record High

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This story features CHAMPION IRON LIMITED, and other companies.
For more info SHARE ANALYSIS: CIA
The company is included in ASX200, ASX300 and ALL-ORDS

US markets, led by the Dow Jones, eked out positive gains to set fresh all time highs.

Under the surface, investors have started to rotate out of high flying chip stocks.

Post a softer-than-expected April CPI print, the Australian market closed at the highs of the day yesterday.

ASX200 futures are pointing to a weak start, despite lower oil prices.

Good Morning,

The Australian market finished at its high yesterday, up 0.7% on weaker-than-expected inflation data. Interest rate sensitive sectors rebounded off earlier lows.

Today’s earnings reports are expected from Champion Iron Ore ((CIA)), ikeGPS Group ((IKE))  Readcloud ((RCL)), and Select Harvests ((SHV)).

For more details see https://fnarena.com/index.php/financial-news/calendar/

And to stay up to date on earnings season, check out the Corporate Results Monitor

https://fnarena.com/index.php/reporting_season/

Today’s Big Picture, J.L.Bernstein

The Rotation Is On 

The chip rally finally paused.

Nvidia closed lower for a fourth straight day. Arm, Qualcomm, and Marvell all sold off with it.

The Dow hit a fresh record while the S&P500 and Nasdaq sat flat.

First real sign of money leaving semis and moving into industrials and defensives since the AI trade took over.

Cybersecurity Got Gutted 

Zscaler dropped -31% on weak revenue guidance for the current quarter.

Palo Alto and CrowdStrike fell in sympathy. The cybersecurity ETF lost more than -5% on the day.

Salesforce reports tonight and the broader software group is on edge after a rough year.

Apple Won’t Quit 

Apple hit a new all-time intraday high at US$312.77, the sixth gain in seven sessions.

Market cap is now US$4.5 trillion, behind only Nvidia and Alphabet.

Tim Cook is stepping down later this year and the stock keeps making highs into his exit.

ANZ Bank, Australian Morning Focus

Equity markets were mixed on contradictory headlines on progress towards a resolution in the Middle East, but oil prices drifted lower.

By the numbers, the US S&P500 eked out a slight gain with the Dow Jones up 0.36%. The EuroStoxx50 and the FTSE100 indices both ended the session up 0.1%. The yield on the bellwether US 10y Treasury bond was up 1bp to 4.48%. 

The active WTI oil future was down -2.5% to US$89.5/bbl, while spot gold was -1% weaker at US$4,443.9/oz. 

US ADP reported private payrolls rose an average of 35.7k/week in the four weeks to 9 May, down from 40.8k the prior week. That pace of growth is within the 30.2k–40.7k range seen in the four prior readings. 

In a TV interview, de Guindos said the ECB must consider the weaker growth outlook for Europe stemming from the Middle East conflict when it meets in June.

While inflation has spiked, he said “if you look at soft indicators, sentiment indicators, these indicators clearly point at an important impact on growth”, adding that “the problem with a supply shock of this nature is that it increases inflation, but simultaneously reduces growth and reduces domestic demand” and “this reduction in domestic demand could reduce inflationary pressures”. 

His comments echo similar sentiments expressed by other central banks. 

Australian CPI: While trimmed mean (underlying) inflation printed in line with expectations, rising 0.3% m/m, the details of the release were a little softer than expected. 

Headline inflation rose 0.4% m/m (0.35% to two decimal places), below our and the market’s expectations, and there were only modest signs that higher input costs were flowing through to the broader inflation basket. 

The diffusion index showed a decline in the share of the basket rising above 3%. And on a three-month annualised basis, trimmed mean inflation is only a little above the top of the RBA’s target band, at just 3.1%.

There were some signs of second order impacts materialising, but they were relatively contained to expenditure categories such as postal services which lifted 6.0% m/m and new dwelling costs which were up 0.7% m/m.

Tony Sycamore, IG, Market Rate Pricing

RBA repricing continues after Wednesday morning’s inflation data, extending the dovish shift that began following last week’s softer jobs report.

Depending on whether looking at the futures or the OIS curve, the market is pricing just 0-2bp of hikes for next month’s RBA Board meeting.

For the remainder of 2026, just 20bp of rate hikes are now priced in — down from around 30bp in the morning and well below the citca 39bp priced prior to last week’s jobs data.

The market is placing the likely timing of a fourth and final 25bp hike at the November meeting. 

This raises the question why would the RBA wait almost six months to deliver a final rate hike, or is it already done?

Global: The rise and possible fall in long-term rates, Oxford Economics 

We don’t believe the sharp rise in bond yields has much room to run because financial markets appear to be treating the Middle East shock as more persistent than it is, even though the main effect should fade as oil volatility eases and central banks avoid overreacting to a supply-side hit as growth deteriorates.

The US should see some relief as 10-year Treasury as we expect oil prices and volatility to fall over the next few months, but Japan may see only a small dip even if oil prices fall and inflation expectations ease, while the UK is likely to remain constrained by fiscal and term-premium pressures.

We’d change our view if oil price volatility falls but term premiums don’t, market-based measures of inflation expectations rise as oil prices decline, and nominal wage growth accelerates even as growth in Q2 and Q3 softens.

All of that would signal that either the second-round inflation effects are much larger than we assume, or that the fiscal outlook has deteriorated more than we think.

Run It Hot, Yet Again, Alfonso Peccatiello 

Forward-looking indicators suggest the US nominal growth cycle is picking up pace again. The inflation-adjusted primary US fiscal spending is higher than in 2024-2025 at this point of the year.

Leading indicators also suggest the US labor market has found a bottom.

The NY Fed probability of finding a job in the next 3 months has stabilised and the weekly ADP job creation series has moved from -50k in June 2025 to plus-42k.

As a reminder, with the US labor force growth (e.g. supply side of labor market) estimated to be close to zero it doesn’t take much demand for labor to kickstart a virtuous cycle in the US job market.

A virtuous cycle in the US job market won’t necessarily mean runaway inflation, at least in the short term. While a tighter job market will heat up wages, the starting point for US wage growth is very modest.

The Fed’s dual mandate of

a) not letting the job market fall apart and

b) core inflation below 3% (yes, sorry, not going to pretend the Fed has a 2% target anymore) would now call for a different reaction function. 

‘’Would’’ is the key word here. 

The December Fed meeting is now priced at a robust probability the Fed will hike. Yet to hike rates, the FOMC needs a majority of voters to lean in. 

There are 12 voters, and a 6-6 situation gives the FOMC Chair the power to break the tie. 

And the new FOMC Chair was recently talking about shrinking the balance sheet as a cover to cut rates and moving the inflation benchmark from core PCE to trimmed mean PCE (you guessed it, trimmed mean PCE is lower than core PCE)…it’s safe to say Warsh would rather eat his hat than raise rates. 

In other words, you’d need 7 FOMC members voting for a hike to actually get a hike. 

Even assuming the 3 dissenters against the dovish language in May would outright vote for a hike, and Barr would join them (quite some assumptions already!), you need 4 more votes for a hike coming out of this group: Warsh, Williams, Powell, Cook, Bowman, Waller, Paulson, Jefferson. 

Yes, the BoE-sation of the FOMC is upon us. But I don’t think the FOMC will have a majority ready to hike any time soon.

Now, let’s assume my analysis holds. We would then find ourselves in the following situation: 

• US money printing is accelerating, and global money printing remains strong; 
• Nominal growth is likely to pick up; 
• The US labor market seems to have found a bottom, and might accelerate soon; 
• On the margin, this would add to inflationary pressures (but no runaway inflation dynamics yet); 
• The standard reaction function from the Fed should be to move to hikes (and the market asking for it); 
• The Fed is unlikely to have a majority actually voting for hikes any time soon; 
• So the title of the movie might be: Run It Hot, Yet Again

In that macro setup, my 40-year backtest shows the best trades to own are: 

1. High-beta equities (small cap, EM, value tilt)
2. High-beta commodities (silver, copper, but also gold)
3. Long cyclical and high-yielding FX, short defensive tilt FX (e.g. ZARJPY)
4. Curve steepeners, short long bonds

I was recently in London meeting 3 large macro pod shops, and when presenting this thesis the biggest pushback or complete lack of interest sits with a) gold b) small cap, value, EM equities. 

And that’s either a function of the AI dominance in equities recently or the ‘’it’s going nowhere’’ factor in precious metals such as gold and silver. 

Yes, I know: Hormuz. All the above is irrelevant if you think we escalate the war or there is no fix for months. 

But if we unlock energy flows, we will Run It Hot. And the market is not fully prepared for it. 

Corporate news in Australia:

• ANZ Bank ((ANZ)) has exited negative gearing lending, leaving Commonwealth Bank ((CBA)) as the only major bank still offering the product
• Revolut is targeting expansion into business banking, aiming to become one of the top three global business banks, including in Australia
• The sale process for Whyalla Steelworks has narrowed to two final bidders under a government-led restructuring initiative
• A Stonepeak-led consortium is set to acquire a majority stake in Estia Health from Bain Capital in a significant aged care sector transaction
• Mercer has resumed negotiations to acquire Colonial First State, with sellers now considering a more flexible partial-sale structure
• AGL Energy ((AGL)) plans to sell stakes in several major wind farms to private investors to help fund its renewable energy strategy
• Affinity Equity Partners may pursue an IPO for Scottish Pacific after receiving limited interest from potential buyout bidders
• A private equity investor has reduced its holding in Mayfield Group ((MYG)) through an approximately $30m block share sale

On the calendar today:

-AU 1Q Priv Capex

-AU April Household Spending

-US April building permits

-US April new home sales

-US April PCE

-US March Qtr GDP

-CHAMPION IRON LIMITED ((CIA)) earnings report

-IKEGPS GROUP LIMITED ((IKE)) earnings report

-READCLOUD LIMITED ((RCL)) earnings report

-SELECT HARVESTS LIMITED ((SHV)) earnings report

-TECHNOLOGY ONE LIMITED ((TNE)) ex-div 8c (75%)

-VULCAN ENERGY RESOURCES LIMITED ((VUL)) AGM

-YANCOAL AUSTRALIA LIMITED ((YAL)) AGM

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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