The Overnight Report: Pre RBA Weakness

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This story features OOH!MEDIA LIMITED, and other companies.
For more info SHARE ANALYSIS: OML
The company is included in ASX300 and ALL-ORDS

US markets powered higher on the Iran/US peace deal, led by Nasdaq including SpaceX, chips and the Mag 7.

After a strong rally yesterday, ASX200 futures are pointing to a sell off ahead of the RBA's rates decision at 2.30pm AEST.

The central bank is expected to remain on hold.

Good Morning,

The Australian market rallied sharply on Monday on news of an Iran/US peace deal.

The ASX200 lifted 110 points or 1.3% to 8,914.

Miners led the advance by 4.1% boosted by Gold stocks, while Energy fell -5.6% as oil futures fell.

Today’s Big Picture, J.L.Bernstein

The Market Priced The Oil Relief Before The Oil Moved

Stocks held their gains and crude settled below US$80 for the first time since March, all on a deal that isn’t signed until Friday.

The catch is physical. Reopening Hormuz isn’t a switch, it’s weeks of clearing tankers and rerouting ships, and traffic sat near zero all day.

Crude coming down helps headline inflation, but refined products like jet fuel lag the move and are still well above pre-war levels.

Retail Is Selling AI To Buy SpaceX, Right Before Earnings

SpaceX $SPCX held its US$2 trillion value into a second close, within range of Amazon.

The part that matters for everyone else: retail funded the buying by dumping chip names, with Micron and Marvell among the heaviest sold, the biggest single-stock retail selling since late 2023.

Both report into AI demand this week. So this isn’t just enthusiasm for a new ticker, it’s retail pulling money out of AI exposure right before the catalysts that have driven the whole market.

The Fed Hold Is Priced. The Risk Is What Warsh Signals.

Futures put a hold at better than 98%, so Wednesday isn’t about the rate, it’s about Warsh’s first read on inflation as chair.

Here’s the setup nobody loves: CPI is at a three-year high and the live debate is a hike, not a cut.

The market is leaning on the Iran deal to cool prices and let the Fed stay put.

Dow ends with record on US-Iran deal, RBA decision ahead, CBA Economics Daily Alert

A deal to re-open the Strait of Hormuz spurred a rally in riskier corners of Wall Street, with equities climbing alongside cryptocurrencies as crude oil sank on hopes the war that has jolted markets is close to an end.

The advance in equities drove the S&P500 index higher by 1.7% on Monday. The tech-heavy Nasdaq index added 3.1% while the Dow Jones Industrial Average hit all-time highs. US crude settled below -$US81 a barrel, easing inflation concerns. While US Treasuries and the US dollar barely budged, bets on US Federal Reserve interest rate hikes receded.

US sharemarkets rallied on Monday after the US and Iran struck a preliminary agreement to end the Middle East war and reopen the Strait of Hormuz, leading to an easing of inflation fears as crude oil prices dropped.

Seven of the 11 major S&P500 sectors were in the green, with the S&P500 tech index leading the advance with a 3.4% gain.

The Philadelphia semiconductor index hit a record high and rose 5.5%, with chip giant Nvidia up 3.5%. SpaceX shares popped 19.6% after soaring 19% in their public market debut on Friday. The Dow Jones index finished up 0.9% after hitting an all-time intraday high, the S&P 500 index jumped 1.7% and the Nasdaq index gained 3.1%.

Continental European sharemarkets hit record highs on Monday, boosted by a relief rally across most sectors. Germany’s DAX index rose 1.1% to a near two-week high. Spain’s financials-heavy index led gains among major regional indexes, climbing 1.4% to record highs.

Banks were among the biggest boosts, adding 1.5% to hit their highest since January 2008. The continent-wide FTSEurofirst 300 index rose 0.2%. In London, the UK FTSE 100 index dipped 0.4%.

US government bond yields fell to a one-month low on Monday as oil prices slid with the announcement of a preliminary agreement to end the Iran war.

The US 10-year Treasury yield declined -1 basis point to 4.47% and the US 2-year Treasury yield fell -2 basis points to 4.07%.

Currencies were mixed against the US dollar on Monday. The Euro rose 0.3% at US$1.1604, the Japanese yen was steady near JPY160.22 and the Aussie dollar gained 0.5% at US70.81 cents.

NAB Markets Today extract, RBA & BoJ

The local highlight is the RBA decision and Governor Bullock’s press conference to follow.

A hold at 4.35% is near-unanimously expected, and NAB agrees –- and we now see the tightening cycle as complete, with the next move likely down, pencilled in for Q2 2027.

The data flow since the May meeting suggests inflation is unlikely to surprise the RBA’s forecast higher, while unemployment and consumption growth may prove weaker than the Board anticipated.

With inflation risks still elevated, the RBA is unlikely to guide against further tightening, and the market continues to price some risk of it: OIS has only around 15bp of tightening priced by year-end.

The BoJ also decides today, and a 25bp hike to 1.00% is almost fully priced. 

NAB expects the move — the first of two this year that would take the rate to 1.25% by end-2026.

There are no new projections at this meeting, so the focus falls on the communication, which is complicated by Governor Ueda’s hospitalisation, with deputies standing in to chair and host the press conference.

Any steer on the pace of JGB purchase reductions is the key thing to watch.

Down the Valuation Rabbit Hole, Lori Calvasina, RBC Capital extract

At the recent low, the S&P500 was down -4.5% from its early June high, not quite in what we consider to be Tier 1 garden variety pullback territory of -5% to -10% on our Tiers of Fear framework, but a period of noteworthy unpleasantness nonetheless. 

Broadly speaking, across the major indices we track we think it’s fair to say that a decent amount of the froth was taken out.

At the same time, in this latest wobble we didn’t see the same degree of improvement in most indices that we saw at the March 30th low (which, as a sidenote, were not the kinds of P/E lows we’d consider to be “wash out” levels).

What signal does this send, particularly given the latest news on Iran? 

In our opinion, valuations aren’t standing in the way of a rebound, but don’t have a lot of room available before the ceilings of the recent past are tested.

Recently, the sentiment story has been one of mixed emotions, with takeaways varying depending on which data set one is looking at. As we’ve previously discussed, optimism on the stock market rose for consumers in the latest Conference Board survey. 

Last week, the University of Michigan survey also indicated that consumer sentiment improved modestly in the preliminary reading for June. 

What we’re seeing in the investor sentiment and positioning data sets we track are more in sync with the top income cohort in the Michigan survey. 

Indeed, net bulls on the weekly AAII survey fell sharply last week to -17.3%, a deterioration vs. the prior week’s -0.70%, and a move that took the four-week average down to -9.05%, almost one standard deviation below the long-term average. 

Similar to what we are seeing on our S&P500 valuation work, net bulls on AAII sentiment took a decent sized hit recently but didn’t quite make it back down to March 2026 lows (-21.6%). 

US equity futures positioning per the latest update from CFTC also showed a retreat for US equities, but less significantly and with overall levels still high. 

Overall, our takeaways from the AAII and CFTC data sets are similar to those from the valuation work.

The recent retreat on AAII net bulls has created room for improvement which suggests US equities have room to run (AAII net bulls are at levels consistent with a 10.8% 12-month forward return), but the CFTC positioning data is less enthusiastic.

Keeping a close eye on earnings sentiment.

While bottom-up consensus S&P500 EPS for 2026 has continued to inch up (now at US$342), we have also seen a bit of softening in the rate of upward EPS estimate revisions for the S&P500 as this stat has slipped to 84% from 89%.

Even if the dollar value of 2026 consensus EPS continues to inch up, we suspect we may have seen the peak in EPS sentiment.

Our Bottom Line, For Now: In recent weeks we’ve been concerned about the rising possibility of another short-term, tier 1 garden variety pullback of -5% to -10% in the S&P500 returning, while remaining constructive on the S&P500 longer term with our 12-month price target of 7,900. 

There’s been no change in our longer-term, constructive view. It will take some time to fully understand all the ramifications, but we see the weekend’s developments as pointing to upside risk to our price target. 

In the near-term, we suspect the weekend’s developments on the war have lowered tier 1 pullback risks for now, especially since the recent dip had already taken the index down -4.5% from peak. 

We do still see some short-term that haven’t gone away including the midterm elections, the potential for downward revisions to consensus EPS forecasts for 2027 to manifest later this year, and further profit taking on Semis (which don’t look cheap yet). 

We will be keeping a close eye on how views around the Fed, interest rates, and inflation are adjusted in the weeks ahead, as this had become one of the more concerning issues we’ve been monitoring.

Global: US-Iran agreement isn’t yet a game changer, Oxford Economics extract

The agreement between the US and Iran is a significant step towards reaching a full-blown deal.

But there will likely be bumps in the road, and it will still take time for shipping in the Strait of Hormuz to approach pre-war levels.

Though details are lacking, the fact that both sides announced an agreement reduces the tail risk of dwindling oil inventories prompting a recession-inducing oil price spike.

The latest developments don’t automatically point to a faster ramp-up in the amount of oil flowing through the Strait of Hormuz over the coming months compared with our June baseline.

We already assumed shipping through the Strait would resume in late July. Nonetheless, based on a risk-adjusted outlook, our near-term oil price forecast now looks too high and will be revised lower in our June second forecast, which will be released on 19 June.

While this will reduce headline inflation, we suspect the economic boost from this will be limited, and calendar year growth for 2026 is still likely to fall outside the 2.8% to 3.0% range of the past few years.

Overall, this reinforces our long-held view that the Federal Reserve and the Bank of England won’t hike rates and lessens the chance that central banks that have already raised interest rates, despite a weak economic backdrop, hike again.

Corporate news in Australia:

• Brett Blundy withdraws bid for Bras N Things due to tax hurdles
• oOh!media ((OML)) progresses takeover discussions with multiple private equity bidders
• GPT Group ((GPT)) acquires a 50% stake in $1.2bn Queensland and NSW shopping centres
• Woodside Energy ((WDS)) denies reports of takeover discussions with Exxon
• Frasers launches takeover bid for Accent Group ((AX1)), citing governance concerns
• Atlas Arteria ((ALX)) rejects IFM’s increased $5.10 per share takeover proposal as still undervaluing the company
• Aussie Broadband ((ABB)) completes acquisition of AGL Telco and reiterates FY26 guidance
• Perseus Mining ((PRU)) increases share buyback program to $150m
• SCEE raises $150m at a tight discount, supported by strong data centre demand
• St George Mining ((SGQ)) seeks $60m to fund rare earths drilling program in Brazil
• Gina Rinehart invested more than US$1bn in SpaceX ahead of its IPO

On the calendar today:

-AU RBA rate decision

-JP BoJ rates

-EZ Juen ZEW

-US May Housing starts

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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