Daily Market Reports | 8:31 AM
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Is momentum starting to wane ahead of the Fed Rate Decision tomorrow (EST)?
The Australian market finished flat after the RBA left the cash rate unchanged. ASX200 futures are pointing to a weak start.
| World Overnight | |||
| SPI Overnight | 8894.00 | – 31.00 | – 0.35% |
| S&P ASX 200 | 8917.70 | + 3.70 | 0.04% |
| S&P500 | 7511.35 | – 42.94 | – 0.57% |
| Nasdaq Comp | 26376.34 | – 307.60 | – 1.15% |
| DJIA | 51999.67 | + 328.64 | 0.64% |
| S&P500 VIX | 16.41 | + 0.21 | 1.30% |
| US 10-year yield | 4.43 | – 0.04 | – 0.92% |
| USD Index | 99.32 | – 0.10 | – 0.10% |
| FTSE100 | 10494.21 | + 63.59 | 0.61% |
| DAX30 | 24910.41 | + 16.40 | 0.07% |
Good Morning,
The Australian market recovered from its intraday lows to finish flat on Tuesday after the RBA left the cash rate unchanged at 4.35%.
The ASX200 rose 4 points to 8,918, with six of the eleven sectors finishing higher, led by consumer discretionary stocks.
Today’s Big Picture, J.L.Bernstein
The Hot Names Took the Day Off
The Dow closed at a record while the Nasdaq fell, and the gap says it all. With oil sliding, traders sold the crowded AI trade and bought banks and industrials instead. AMD led the chips lower and SpaceX gave back most of an early pop, while JPMorgan and Caterpillar pushed the Dow to new highs.
Oil Closed at Its Lowest Since March
Brent settled under US$80 for the first time since March, and the big banks moved with it. Goldman cut its fourth-quarter Brent target to US$80 from US$90, and Morgan Stanley sees only half the lost oil back by September. The barrels are coming back, just slower than the Friday headline makes it sound.
The Fed Lands Tomorrow
Warsh’s first decision comes Wednesday, and almost nobody expects a rate move. What everyone wants is the dot plot and how he reads inflation now that oil has cooled. He talked dovish on the way in. Today gave him cover to stay that way.
Savage Crude Moves, Semi Rotation & SpaceX Into Balance, Chris Weston, Pepperstone
The SpaceX listing euphoria continued overnight. The intensity of the focus is dissipating to an extent, and the price action is trying as best it can to come into balance, with increasing two way order flow seen across our desk.
Having reached a high of US$225.54, these intraday highs represented a potential 67% return for those fortunate enough to secure an IPO allocation. It’s understandable that some have taken the opportunity to lock in gains, with the closing orders seeing SpaceX head below US$200 for a period before the buyers stepped back in to provide support.
The Tech trade, which was firmly in play following last week’s broad cutback of extended positioning, followed by a strong session yesterday, has shown its hand. We have been watching closely for signs of a resurgence in memory and semiconductors, and a build on yesterday’s positive flow, but that trade has lost momentum and sellers are dominating.
There has been no obvious news catalyst behind the weakness, although, in a market where investors are looking for excuses to take profits, one is not necessarily required.
From a technical perspective, after rallying on Monday, the price action in many of the AI darlings looks telling, with the three day intraday charts showing many closing the gap higher from Monday’s open and subsequently trading through Friday’s high and closing levels, a factor which does not bode well for the near term directional outlook.
The beneficiaries of the rotation out of semis and chips have been the banks and utilities. The NASDAQ100 cash index was the clear underperformer on the session. NAS100 futures have broken below the psychologically important 30,000 level, with Monday’s low at 29,907 now a key level, where a break could accelerate the need for traders to reduce exposure to higher beta AI and growth names.
Another dominant theme has been the sharp move lower in crude.
Crude is dropping like a stone at the moment, with front month Brent futures falling directly into the 200 day moving average, almost to the tick, before finding better buying order flow. Momentum accounts are clearly near maximum short positions, but buyers stepped aside for most of the trade, and as such, the prevailing order book dynamics pulled pricing sharply lower.
Should Brent futures decisively break below the 200 day moving average, the next obvious level sits around US$73, corresponding to the high seen on 27 February before the geopolitical conflict sent prices gapping higher, leading to a rampant move towards US$120.
Could we close that gap? It seems unlikely, but should it happen, one can imagine the buyers will be keen to go hard on long positioning here.
The overnight release of API inventory data showed a draw of -8.33m crude barrels, which, taken together with ongoing tightness in the physical market and the decline in the US Strategic Petroleum Reserve to the lowest level since 1983, remain fundamentally supportive. These factors should limit the downside and are broadly constructive for energy markets.
However, the dominant narrative in the press centres around the prospect of the US allowing the resumption of Iranian crude exports once the finer details of the US-Iran MoU are fully released to markets. Added to that is the focus on Qatar, with reports that LNG output capacity could increase by 50% within one month and by 80% within two months. Markets are increasingly attempting to quantify just how much supply could return and how quickly.
The move lower in crude has, in turn, provided a modest tailwind for risk assets and gold. Treasury yields have edged lower, inflation expectations have softened, and those developments will no doubt be welcomed by the Federal Reserve, which meets in the coming session.
This meeting carries additional significance, with Kevin Walsh taking the helm and stepping up to the podium for his first press conference as Fed Chair. Markets will be paying close attention not just to what he says, but how he says it. His communication style, confidence, and assessment of the balance of risks will all come under scrutiny.
No one expects a change in interest rates at this meeting. However, investors are looking for guidance on the future path of policy, particularly given that Walsh’s preferred measure of inflation, Trimmed Mean inflation, does not suggest an imminent need for further tightening.
The market currently enters the meeting pricing an 82% implied probability of another rate hike by year end. Investors will be looking to assess whether that expectation remains fair, whether hikes should be pushed further into 2027, or whether the October meeting, currently priced at around 48%, could be repriced closer to 65%.
NAB Markets Today extract, RBA Rates Decision
The RBA left rates on hold as expected. The decision was unanimous. The post meeting statement gave a measured interpretation of the recent data flow.
Slower growth was characterised as near expectations and necessary, the April jump in the unemployment rate was looked at with appropriate scepticism, and they still see evidence of cost passthrough to consumer prices despite some fallback in short term inflation expectations.
In the press conference, Governor Bullock noted a downside surprise in headline inflation but pointed to trimmed mean tracking near expectations. The final paragraph repeated the Board “will do what it considers necessary” and added “including increasing the cash rate target further if required.”
Despite protests they remain concerned about inflation and would raise rates further if required, the clear impression is that it would take a decent surprise in the data flow to push them to tighten further.
NAB’s view is they won’t get that push, and the RBA will remain on hold before easing policy from Q2 next year, but inflation is likely to remain the main concern for the next couple of quarters. Accordingly, we think it appropriate that the market retains some chance of tightening in the next few months.
Fed Monetary Policy, Commonwealth Bank of Australia extract
We expect the Federal Open Market Committee (FOMC) will leave interest rates unchanged at this week’s meeting. We expect the post-meeting statement to convey a neutral bias. Since the April meeting, inflation has increased further, and the labour market shows further signs of strength. A neutral bias will suit Warsh who is in favour of the FOMC not providing forward guidance. Warsh’s view is that decisions should be made meeting-by-meeting.
We expect the next move in the Fed funds rate to be up. Strong AI capex, tax cuts and higher energy prices will increase inflation. We expect a tightening cycle to begin in December 2026.
Over his four-year term as Chair, we judge Kevin Warsh will be under pressure from President Trump to lower interest rates.
We expect that Warsh will refrain from attempting to deliver purely political interest rate cuts to please President Trump. However in line ball calls, we expect Warsh to favour lower interest rates.
In the near term we expect Warsh to reduce the number of FOMC meetings from eight per year to six. There will also likely be changes or possibly the removal of the FOMC’s Summary of Economic Projections (SEP). There may be fewer speeches from Fed officials.
Over the medium term, we expect Warsh will deliver a smaller balance sheet. However more than a slight reduction in the balance sheet will likely require changes to bank liquidity rules.
U.S. Economy: Running Hot, PGIM, Daleep Singh & Robert Sockin
The U.S. economy continues to power along with above trend growth, above target inflation, and now a warming labor market. These factors all suggest that the Fed policy will turn more hawkish.
As a result, PGIM has updated its current Fed outlook, now expecting three 25 basis point rate hikes this year. These rate hikes are likely to be relatively short-lived, and we anticipate three cuts of 25 basis points in 2027, followed by one final rate cut in 2028 for a terminal rate of 3.375%–a notch lower than where the policy rate sits today.
Five key factors have led us to adjust our rates call:
Above-trend U.S. growth: The U.S. economy continues to show remarkable resilience. We expect real GDP growth at 2.3% this year, extending a streak of above-trend results. U.S. outperformance is being driven by the AI buildout, the wealth effect on consumption, and fiscal stimulus. Higher-than-usual tax refunds and a still-low unemployment rate are providing ongoing support to consumers and offsetting the impact of the energy shock. Positive wealth effects from rising financial asset prices—driven by the AI ecosystem—continue to power spending among upper-income households.
High inflation with upside risks: U.S. headline PCE inflation has surged to 3.8% year-over-year as of April, the latest leg driven by higher energy prices. Core PCE inflation, which excludes food and energy prices, is also uncomfortably high at 3.3%. The good news so far—as further highlighted by CPI data for May—is that pressures from the Iran conflict have yet to show up in core prices. Still, we see risks to inflation as skewed to the upside for a range of reasons—perhaps most concerning among them is that leading indicators of the “pipeline pressure” for consumer inflation, such as the producer price index, remain very firm.
U.S. labor market is warming up: The labor market is somewhere between stabilization and acceleration, trending towards the latter. Strikingly, payrolls growth has averaged 188k per month for the last three months, up sharply from the approximate pace of 10k per month in 2025. While other labor market indicators such as wage growth and the quits rate do not suggest the labor market is heating, we expect these data to lag the renewed strength we are seeing in hiring.
Hawkish Fedspeak: The hawkish shift in Fed communication has been remarkable over the last several weeks, particularly in that it continued as Kevin Warsh took over as Fed Chair. A month ago, some Fed officials were still talking about rates moving down over time, but this type of communication has largely disappeared. More officials are now talking about the potential for hiking rates, and in many cases, they are broadening out the criteria for what might justify rate hikes.
Fed Chair Warsh’s disposition: How Kevin Warsh shows up as Fed Chair has been a months-long debate. Will he hold his belief that the Fed needs to hike into supply shocks, or will he argue the underlying inflation trend looks favorable and rates should move down over time?
With conditions having changed rapidly on the ground over the last few months, we anticipate it will be the former. Even if data on core inflation is better than expected, inflation is still far from the Fed’s target, and Warsh may need a “Volcker moment” upfront to cement his credibility and help bring inflation towards 2%. The biggest question for us, and the greatest risk to our forecast, is whether there will be political cover for Warsh to raise rates. If rate hikes are framed as a “precautionary” effort to counter supply-side inflation and the recent upward lurch in long end Treasuries yields, we believe there will be.
Market Implications
First, U.S. Treasury yields are likely to see further upward pressure as the Fed embarks on a precautionary hiking cycle. According to our model, for UST yields we estimate 10-year yields could rise to circa 4.60% assuming three 25bp Fed hikes are eventually priced. We expect the yield curve to flatten in this environment. Our view of a further 35bp increase in Fed Funds will put further upward pressure on front end rates. We expect this to temper the increase in long end rates, leading to a further flattening of the yield curve.
The impact on risky assets is more nuanced. In our previous scenario for Fed cuts, we expected credit spreads to widen moderately, largely due to tighter financial conditions driven by higher inflation expectations and higher long end rates. That impulse will be reduced, but higher Fed policy rates also involve a rise in the cost of credit which could challenge corporate profitability and lead to some spread widening. The tipping factor may be that markets will be reassured by the bold actions to control inflation against a backdrop of a strong U.S. economy, which should limit any spread widening.
Perhaps the most clear-cut market implication of tighter Fed policy is a stronger U.S. dollar. We had assumed that easier Fed policy, increased policy uncertainty, and higher inflation expectations would hurt the USD. With the Fed on the front foot and the US economy in good shape and better placed to weather energy shocks, we believe the USD would be more likely to appreciate versus major currencies.
Corporate news in Australia:
- Quadrant sells Partnered Health to Bupa in a deal valued at more than $400m
- IFM increases its Atlas Arteria ((ALX)) offer to $5.10 per share and pushes advisers to help secure control
- Blackstone considering a bid for Pickles used assets marketplace
- CVC DIF joins bidders for Ausgrid Plus ES smart metering business
- SpaceX acquires Cursor owner Anysphere in a US$60bn deal to accelerate AI ambitions
- Novonix ((NVX)) raises $23.7m to expand battery materials production capacity for Panasonic
- Serendipity Capital invests US$5m in QuantX Labs to support critical technology development (AFR)
- Acrow ((ACF)) plans a $70m capital raising to fund growth in construction systems (AFR)
On the calendar today:
-NZ 1Q BoP
-JP April Machine Orders
-JP May Trade Bal
-CH May Ind Prod’n
-CH May retail sales
-EZ May CPI
-US FOMC rate decision
-US May retail sales
-SELECT HARVESTS LIMITED ((SHV)) ex-div 3.50c (100%)
-BLOCK INC ((XYZ)) AGM
FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 4353.05 | + 21.85 | 0.50% |
| Silver (oz) | 70.13 | + 0.07 | 0.10% |
| Copper (lb) | 6.48 | – 0.01 | – 0.16% |
| Aluminium (lb) | 1.54 | + 0.01 | 0.54% |
| Nickel (lb) | 8.00 | – 0.08 | – 1.01% |
| Zinc (lb) | 1.62 | – 0.01 | – 0.52% |
| West Texas Crude | 76.64 | – 4.50 | – 5.55% |
| Brent Crude | 79.46 | – 4.16 | – 4.97% |
| Iron Ore (t) | 101.66 | – 0.28 | – 0.27% |
The Australian share market over the past thirty days…
| Index | 16 Jun 2026 | Week To Date | Month To Date (Jun) | Quarter To Date (Apr-Jun) | Year To Date (2026) |
|---|---|---|---|---|---|
| S&P ASX 200 (ex-div) | 8917.70 | 1.29% | 2.13% | 5.14% | 2.33% |
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| AX1 | Accent Group | Upgrade to Equal-weight from Underweight | Morgan Stanley |
| BRE | Brazilian Rare Earths | Upgrade to Speculative Buy from Hold | Ord Minnett |
| CHI | Channel Infrastructure NZ | Upgrade to Outperform from Neutral | Macquarie |
| DMP | Domino’s Pizza Enterprises | Downgrade to Hold from Buy | Morgans |
| ELV | Elevra Lithium | Upgrade to Outperform from Neutral | Macquarie |
| EVN | Evolution Mining | Upgrade to Outperform from Neutral | Macquarie |
| GGP | Greatland Resources | Upgrade to Outperform from Neutral | Macquarie |
| KAR | Karoon Energy | Downgrade to Trim from Hold | Morgans |
| LTR | Liontown | Upgrade to Outperform from Neutral | Macquarie |
| NWH | NRW Holdings | Upgrade to Accumulate from Hold | Ord Minnett |
| RFG | Retail Food | Downgrade to Speculative Hold from Buy | Bell Potter |
| RIO | Rio Tinto | Downgrade to Neutral from Outperform | Macquarie |
| S32 | South32 | Downgrade to Neutral from Outperform | Macquarie |
| SRG | SRG Global | Downgrade to Hold from Accumulate | Ord Minnett |
| TCL | Transurban Group | Downgrade to Neutral from Buy | Citi |
For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.
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