The Overnight Report: Tech Bucks Downtrend

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This story features ATLAS ARTERIA, and other companies.
For more info SHARE ANALYSIS: ALX
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

Investors were happy to buy the dip in memory and semiconductor stocks, even as higher oil prices weighed on the S&P500 and the Dow.

The Australian market finished lower yesterday, albeit well off its intraday low.

ASX200 futures are pointing to yet another weaker start amid ongoing US-Iran tensions.

Good Morning,

The Australian market fell for a third consecutive session, down -19 points or -0.2% to 8,785.

The index did recover from its intraday low, having opened as low as down -1.3%.

Miners led the declines, falling -2%, while the Energy sector jumped 3.3%.

The local index has now lost some territory in three successive trading sessions and looks to add a fourth today.

Today’s Big Picture, J.L. Bernstein extract

Oil Climbs as the Ceasefire Crumbles

President Trump called the Iran truce over after Tehran attacked three commercial ships in the Strait of Hormuz.

The US hit more than 80 targets overnight and Trump says more strikes are coming tonight.

Crude pushed near US$80 a barrel.

Worth noting: tanker traffic through Hormuz is still running at a normal 40 crossings a day, so shippers aren’t panicking yet.

Fed Minutes Reveal a Family Fight

Kevin Warsh ran his first meeting as Fed chair last month and the minutes show a genuinely split room.

Many officials see rates at or below current levels by year end. Many others see them higher.

The dot plot narrowly tilts toward one hike this year, and traders moved their bets further toward an October hike after today’s oil spike.

Tech Rotation Hits the Kospi

South Korea’s benchmark index dropped into a bear market today.

Samsung and SK Hynix make up roughly half the index, so when chip sentiment turns, the whole market goes with it.

Investors moved money into cheaper AI names like Alibaba $BABA, which had its best day in months.

ANZ Bank Australian Market Focus, extract

Equity markets declined and bond yields rose across all key Northern Hemisphere markets following the re-escalation of tensions in the Middle East. 

President Trump said the ceasefire with Iran may be over and signalled further strikes on Iran are likely. 

The S&P500 fell -0.28%, and Nasdaq closed up 0.2%. The EuroStoxx50 ended its session down -1.8%, while the FTSE 100 lost -1.7%. 

The yield on the US 10-year Treasury note rose around 2.8 basis points to 4.58%. 

WTI climbed 2.9% to US$74.80/bbl. Gold was weaker at US$4,075.30/oz.

US Federal Reserve: 

The minutes from the June meeting showed some members saw a case for hiking rates in June, but they ultimately supported the decision to leave policy on hold, as was evident at the time.

The minutes generally echoed caution around the inflation outlook, noting that “participants generally assessed that information received over the intermeeting period suggested that upside risks to price stability remained elevated while downside risks to achieving maximum employment had moderated a bit”, alongside an expectation of continued “solid real GDP growth”.

The FOMC also discussed scenarios for the outlook for the economy and Fed policy, noting that “most participants remarked on scenarios in which inflationary pressures would dissipate and inflation would soon begin to return to 2 percent”.

The minutes added that “in such scenarios, almost all of these participants noted that it would likely be appropriate to maintain or eventually lower the target range for the federal funds rate”.

Geopolitics returned to the driver’s seat in global markets, as the escalation of tensions between the US and Iran challenged the market’s recent complacency.

The focus in the coming days will be on traffic through the Strait of Hormuz. Several ships reportedly completed the transit today, while several others turned back.

Reflecting renewed upside inflation risks, the repricing of central bank policy expectations was most pronounced across Europe and the UK, where rate hike expectations had seen the greatest unwinding following the signing of the Memorandum of Understanding.

Markets are once again close to fully pricing in a rate hike from the ECB at its September policy meeting and are fully pricing a hike from the Bank of England by November. In the US, the market is also close to fully pricing in a rate hike by September.

Our view remains that well-anchored inflation expectations afford central banks the flexibility to look through relative price shocks and focus instead on monitoring whether inflation broadens beyond energy-sensitive components.

War! What Is It Good For? Ed Yardeni & Elias Griepentrog, Yardeni Quicktakes extract

The 1970 song War! What Is It Good For? was performed by The Temptations on an album and by Edwin Starr as a single.

The song’s answer to the question is “Absolutely nothing!” The powerful lyrics include: “It ain’t nothing but a heartbreaker / Friend only to the undertaker, woo!”

Financial market history shows that geopolitical crises, including wars, have often been good buying opportunities for stocks.

That was true during Gulf War III, as the S&P500 bottomed on March 30 and rose 18.3% through yesterday’s close. The ceasefire in the war between Iran and the US ended abruptly today; will that present another buying opportunity?

We think so.

The numerous crises and wars in the Middle East since the 1970s have all been good for oil prices, at least initially. The end of the ceasefire today boosted the price of a barrel of Brent crude oil by US$4.42 to US$78.59 this morning.

However, there was a significant bear market in oil before the current war started, which explains why the price didn’t increase much more in March and April than it did and why it came tumbling down in May and June.

The S&P500 Energy stock price index spiked during Gulf War III in March and fell during the ceasefire, finding support at its 200-day moving average.

It undoubtedly will bounce off that level today after President Donald Trump declared that the tentative ceasefire with Iran is over after Iran attacked ships transiting the Strait of Hormuz yesterday.

At the NATO summit in Ankara, Trump blasted Iran, saying: “I don’t want to deal with them, but they’re scum. They’re sick people, they’re led by sick people, and they’re vicious, violent people, and if they had a nuclear weapon, they’d use it.”

We continue to recommend overweighting the S&P500 Energy sector as a hedge against increased geopolitical risk in the Middle East. That’s easy to do since the sector accounts for just 2.9% of the market capitalisation of the S&P500.

We view the recent weakness in semiconductor stocks as a buying opportunity. Their melt-up over the past three years has been well supported by their earnings. The S&P500 Semiconductor industry’s forward P/E was 17.4 yesterday.

This morning, the two-year US Treasury yield is up to 4.21%, reconfirming that the markets expect the Fed to raise the federal funds rate by a couple of 25-basis-point moves in the coming months.

The 10-year US Treasury bond yield is up to 4.57% this morning, retesting the yield’s downward trend line.

We think it will hold.

The gold price is retesting support, again, around US$4,000. We expect that support level will hold.

Weighing on the gold price currently is the resumption of the war, as it is boosting the foreign exchange value of the US dollar and bond yields.

7 Ways to Invest in the Growing Space Economy, Morgan Stanley

On April 10, four US astronauts safely returned to Earth after completing a 10-day journey around the Moon.

NASA’s Artemis II mission carried the crew farther from Earth than any humans had previously travelled, marking a significant milestone in deep-space exploration.

The mission’s success has added to investors’ interest in the space economy, which is now at its highest level since Morgan Stanley Research began tracking the sector.

“A combination of scientific advancements, geopolitics and economics has rekindled investor attention on the space theme,” says Adam Jonas, Morgan Stanley’s Global Embodied AI/Robotics Strategist, who also covers the space economy.

“Space has been ‘discovered’ and partially commercialised, but we are just scratching the surface.”

Government investment is accelerating alongside private-sector momentum. The Trump Administration has proposed a record US$1.5 trillion in defence spending for 2027, including a 77% increase in the Space Force budget, from US$40bn this year to US$71bn.

Through the Artemis program, NASA aims to return humans to the Moon in 2028 and establish a base for ongoing lunar operations.

Private companies are playing an increasingly central role, partnering with NASA while also investing heavily to unlock the commercial potential of space.

The number of objects launched into orbit, including satellites and rockets, has grown at an annual rate of around 20% between 2020 and 2025.

“Investors are looking for opportunities related to the space theme,” says Kristine Liwag, who leads coverage of Aerospace & Defence and Space Technology at Morgan Stanley Research.

Morgan Stanley Research has identified seven categories of stocks across the space value chain that could benefit from continued growth in the sector.

All space hardware relies on critical minerals to withstand extreme heat, stress and radiation. A single satellite can incorporate dozens of specialty metals across its structural, power, thermal and communication systems.

China currently accounts for around 60% to 90% of the global supply of key materials, including rare earth elements, tungsten, gallium and germanium, making supply chain disruptions a potential risk across the industry while creating opportunities for companies that can mitigate those risks.

Speciality materials and alloys.

Companies in this category develop advanced materials engineered to perform under extreme conditions. Spacecraft must endure dramatic temperature fluctuations and intense mechanical stress.

For example, rocket engines require materials capable of withstanding temperatures above 3,000°C.

Innovation extends beyond metals, with aerospace manufacturers increasingly adopting lightweight materials, such as carbon fibre composites and ceramic matrix composites, to improve payload capacity while maintaining strength and stiffness and reducing launch costs.

Propellants and industrial gases are essential for both spacecraft launches and in-orbit manoeuvring. Traditionally, companies in this segment have supplied refined kerosene and cryogenic liquid oxygen.

However, many next-generation reusable launch vehicles are transitioning to methane, which burns more cleanly and simplifies maintenance between missions.

Standard electronic components can degrade quickly in space due to radiation exposure. Companies in this segment design radiation-hardened semiconductors and systems that enable reliable communication, navigation and onboard processing over extended periods in orbit.

Components and subsystems segment includes suppliers of the thousands of precision-engineered parts that make up space systems, from connectors and valves to bearings, actuators and wiring harnesses.

Reliability is critical, as the failure of a single component can jeopardise an entire mission. These components must meet stringent standards to withstand vibration, thermal vacuum conditions and radiation over many years.

Spacecraft and launch systems.

This group designs, builds and launches satellites and rockets. There were 330 orbital launches last year, including 317 successful missions. Those numbers are expected to increase as demand for satellite deployment grows.

Companies in this category are focused on improving reusability, scaling manufacturing and increasing launch cadence to lower the cost of reaching orbit.

Satellite operators and services.

These companies operate constellations of satellites and the associated ground infrastructure that provide communications, Earth observation and navigation services.

Growth in this sector is being driven by demand for global connectivity, real-time data and analytics, as well as declining satellite production and launch costs.

Corporate news in Australia:

• IFM Investors completed its takeover of Atlas Arteria ((ALX)), securing a 67.43% stake
• ResMed ((RMD)) agreed to sell MatrixCare to Frazier Healthcare Partners for US$490m as it sharpens its focus on core sleep and respiratory care businesses
• Frasers escalated its pursuit of Accent Group ((AX1)) by appealing to the Takeovers Panel as the takeover battle intensifies
• Aura Consolidated Group agreed to acquire Qoria ((QOR)) in a US$2.1bn all-share transaction to create an ASX-listed global digital safety business
• Brokers have launched the bookbuild for the SCX.ai IPO as investor interest in artificial intelligence listings continues to build
• FDC Consolidated Holdings’ ((FDC)) successful market debut is expected to encourage a new wave of AI-focused IPOs on the ASX ((ASX))
• IperionX ((IPX)) launched a US$50m American Depositary Shares offering to fund the expansion of its titanium production capacity
• APG Asset Management has backed Palisade Real Assets’ European infrastructure expansion through the acquisition of Lemvig Biogas in Denmark

On the calendar today:

-NZ June Mfg PMI

-CH June PPI, CPI

-US June existing home sales

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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