The Overnight Report: Mega TACO Rally

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This story features HAMMER METALS LIMITED, and other companies.
For more info SHARE ANALYSIS: HMX

President Trump's announced cancellation of Iran strikes and a possible weekend peace deal was enough to put a 'rocket' under the Russel2000 and Nasdaq indices.

Gold rose, Oil fell.

The semi trade came back with a vengence and the largest IPO to debut, SpaceX, is due to trade around 11.30am (EST) tomorrow.

After a weak session yesterday, the ASX200 futures are indicating a strong start to the closing session of the trading week.

SPI futures are suggesting the market will start off with a 1.69% gain.

Good Morning,

The ASX200 declined by -20 points or -0.2% to 8,633 on Thursday with Energy outperforming and Banks weighing.

SpaceX debuts on Friday (EST) and is reported as taking until 11.30am, or even later, to trade.

IPO price is US$135 per share, valuing the company at US$1.8trn, the largest IPO — ever.

Current futures indicate the shares will start trading at US$165, inferring a 20% debut rally.

Today’s Big Picture, J.L.Bernstein

Trump called it off and stocks sprinted

Around 1:40pm (EST) President Trump posted he canceled tonight’s strikes and that a deal was “approved by all parties”.

Stocks went straight to session highs and the Dow closed up roughly 900 points.

Oil did the opposite, sliding back under US$90 after climbing toward it this morning.

One thing worth filing away: Iran’s own state media says it hasn’t agreed to any text yet, and nothing’s signed.

The market is trading this like the war is over.

Chips came roaring back, and SpaceX is the reason

The semis that got hammered all week bounced hard, with the chip ETF up sharply and Intel leading after a Bank of America upgrade.

Here’s the loop that matters more than today’s pop: investors spent the last two days selling Nvidia, AMD and Apple to raise cash for tomorrow’s SpaceX debut, the biggest IPO ever at roughly US$1.75 trillion.

If SpaceX runs hot tomorrow, that cash could rotate back into the AI names.

The European Central Bank raised rates today, and the Fed’s box got smaller

The first major central bank to start tightening because of this war’s inflation, lifting its deposit rate to 2.25%.

That’s the real tell.

Energy prices from the Hormuz shutdown have run inflation high enough that central banks are now hiking into a slowdown, the exact opposite of the cuts everyone penciled in for this year.

Our Fed reads the same data, and economists now see core PCE, the gauge the Fed actually targets, climbing toward 3.4% for last month, the highest since 2023.

NAB Markets Today extract

Markest have flipped into risk on/oil negative/bond positive/USD negative mode in the last few hour following President Trump’s post on Truth Social that,

“Based on the fact that discussions with the Islamic Republic of Iran have been brought to the highest level of Iranian leadership and approved, I have, as President of the United States of America, cancelled the scheduled strikes and bombings against Iran this evening. Discussions and final points have been, in both concept and great detail, approved by all parties involved,” Trump says. “Naval Blockade will remain in full force and effect until this Transaction is finalized — Time and place of the signing to be announced shortly,” 

Following earlier anticipation of renewed strikes on Iran as threatened late Wednesday, including the possible takeover of Kharg Island (and whether that might then constitute ‘boots on the ground’) all markets have undergone sharp turnrounds on the Trump post, notwithstanding the lack of positive acknowledgement from Iran.

The semi-official Fars news agency reports, citing a source familiar with the negotiations, reported Iran has not approved any text for an initial memorandum of understanding with the US (this was 3 hours ago).

In the last hour or so, Trump has said his understanding is that Iran’s Supreme Leader has approved the deal, that Iran won’t have a nuclear weapon and that the Strait of Hormuz will re-open immediately upon the signing of a deal, which could take place in Europe over the weekend with VP Vance, not President Trump himself, representing the United States.

The Russell2000 led the way in index terms, up 3% followed by the NASDAQ up 2.5%, the Dow Jones 1.9% and S&P500 1.75%.

This following a modestly positive day for European stocks and down day for most APAC indices.

ANZ Bank, Australian Morning Focus extract

The headline US PPI was stronger than expected in May, rising 1.1% m/m, matching April’s rise. However, the core PPI was softer, rising 0.4% m/m vs 0.7% m/m in April.

Excluding trade services, food and energy, the PPI rose 0.8% m/m vs 0.5% m/m in April. The services PPI rose 0.3% m/m, 40% of which reflected the rise in portfolio management fees as the stock market rebounded.

The core goods PPI rose 0.8% m/m vs 0.7% m/m in April.

As expected, the ECB lifted its deposit and main refinancing rates by 25bp, to 2.25% and 2.40%, respectively, becoming the first major central bank to hike following February’s escalation of the Middle East conflict.

The justification was that the “war in the Middle East is generating inflation pressures, and the decision to raise rates is robust across a range of scenarios mapping out how the shock might evolve and affect the medium-term outlook for the euro area.”

In the press conference, President Lagarde pushed back on suggestions it was an “insurance” hike, saying the decision stood on its merits.

Scarred by their slow response to inflation in 2022, policymakers have opted to respond pre-emptively, against a perceived threat to the credibility of the ECB’s commitment to the inflation target.

The likely path from here is that the ECB tightens further. The market is pricing in around a 60% chance of a hike at the July meeting.

We however expect the ECB will wait until September before hiking again.

Bull Jumping In Crete, Ed Yardeni & Elias Griepentrog, Yardeni Quicktakes extract

Greetings from Greece. My colleagues, Elias and Toby, have been writing the QTs this week while my wife and I are vacationing in Crete and Santorini. The weather, food, and people are great.

In Crete, we visited the ruins of the Palace at Knossos. It was the ceremonial and political center of the Minoan civilization and culture that thrived during the Bronze Age. We learned that for fun, Minoans enjoyed bull jumping.

In Greek mythology, Zeus was born in Crete. In addition, the Minotaur, who was half human and half bull, was confined by King Minos of Crete to dwell in the Labyrinth, designed by the architect Daedalus and his son Icarus. 

Icarus died by flying too close to the sun, which melted his wax wings. 

Today’s bull market in stocks has raised concerns that investors are flying too close to the sun and are in for a meltdown like Icarus’. We try not to be bullheaded, but we think that the earnings-led bull market will continue at least through the end of the decade.

We think that June’s Swoon so far is more likely to be a rotation than a correction. The S&P500 bounced off its 50-day moving average today on news that President Donald Trump decided to postpone a planned attack on Iran.

He subsequently said that a deal to end the war is imminent. Iran has yet to confirm this.

While the Magnificent-7 companies mostly continue to deliver fabulous earnings momentum (FEMO), investors aren’t sure they can sustain it given their enormous AI capex. In addition, there is lots of uncertainty about the AI investments’ payoff.

Recently, LLM providers have had to lower the prices of their “tokens” in response to pushback by business users at the high cost of using AI tools.

In recent weeks, the Impressive-493 collectively have outperformed the Magnificent-7 stocks. The latter might also be getting hit by profit-taking by investors participating in tomorrow’s gigantic SpaceX IPO.

The MAGS ETF is down -2.6% ytd, while the XMAGS is up 9.4%.

Another reason we don’t expect the current June Swoon to turn into a correction is that our two favorite Bull-Bear Ratios remain subdued. We tend to get concerned when there are too many bulls.

By the way, a couple of days ago, when the price of gold dropped below its 200-day moving average aroundUS $4,500, we concluded that it was likely to fall further and find support at US$4,000. 

We still think that, expecting it to bounce off that level and resume the bull market that began in late 2022.

We would have to seriously reconsider our current stance should the price fall below $4,000.

Corporate news in Australia:

• UBS backs the Amwins–Dragoneer $6.7bn acquisition of Steadfast Group ((SDF)) as strategically compelling, highlighting scale and growth opportunities
• Larvotto launches a $54m takeover bid for Hammer Metals ((HMX)) with support from Glencore
• Final bidders emerge for Sanjeev Gupta’s Tahmoor coal mine as coal market conditions improve
• Blackstone explores acquiring Agilex Biolabs to strengthen its clinical trials platform
• EQT and Morrison remain in the race for Ausgrid Plus Energy Services after KKR exits the $2.5bn process
• Redcape acquires Sydney’s Frisco Hotel in Woolloomooloo for about $15m
• Elanor Investors Group ((ENN)) resumes trading following an ASX suspension
• Megaport ((MP1)) launches a $309m retail capital raising to fund AI infrastructure expansion
• FDC Construction & Fitout prepares for an IPO, supported by revenue of around $1.9bn
• Wiluna Mining plans a $350m ASX relisting after an extended trading suspension

On the calendar today:

-NZ April net migration

-NZ May Manu PMI

-JP April Ind Prodn

-UK April GDP

-UK April Ind Prodc

-US U.Mich sentiment

-ALS LIMITED ((ALQ)) ex-div 23.10c (30%)

-DYNO NOBEL LIMITED ((DNL)) ex-div 4.60c

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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