The Overnight Report: No Fat Lady

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World Overnight
SPI Overnight	7187.00	– 34.00	– 0.47%
S&P ASX 200	7209.30	– 8.10	– 0.11%
S&P500	4205.52	+ 0.07	0.00%
Nasdaq Comp	13017.43	+ 41.74	0.32%
DJIA	33042.78	– 50.56	– 0.15%
S&P500 VIX	17.46	0.00	0.00%
US 10-year yield	3.70	– 0.11	– 2.89%
USD Index	104.07	– 0.20	– 0.19%
FTSE100	7522.07	– 105.13	– 1.38%
DAX30	15908.91	– 43.82	– 0.27%

By Greg Peel

As I write, the US House Rules Committee remains in session ahead of a vote to send, or not, the Biden-McCarthy debt ceiling deal to the House for a vote. The committee has a 9/4 Republican majority.

That majority includes far right conservatives and as we await a vote, those outside the committee have signalled they are not happy with the deal. Hence, there is a risk the bill will not pass in the House, or even not pass through the Rules Committee.

That may explain why, with Wall Street flat overnight, our futures are down -34 points this morning, which would send the ASX200 back down through 7200.

Disapproval

Yesterday the ASX200 remained as flatter than it has been in at any time recently with only four of eleven sectors much bothering the scorer.

Having been the best performer on Monday, real estate was the worst performer yesterday (-0.9%) on, again, little move in bond yields, as investors in this sector continue to flip and flop.

Energy took a hit (-0.7%) on lower coal prices, but will suffer more today as oil prices have taken a tumble overnight.

After a solid day on Monday the banks gave back -0.4%, and while having sat it out on Monday, communication services woke up and rose 0.6% thanks to Telstra ((TLS)).

Materials managed a 0.2% gain thanks largely to iron ore, and a bit of support from gold, despite order being restored amongst lithium stocks (back on the top five losers’ table), and disturbing news from Africa.

Sayona Mining ((SYA)) fell -11.9% but that was to do with a capital raising, while uranium miner Paladin Energy ((PDN)) dropped -19.6% on news Namibia is considering part-nationalising its mining industry through minority stakes in mining companies.

Paladin, and uranium peer Boss Energy ((BOE)), have been touted by all and sundry as the stocks to play an expected upswing in uranium prices, given they are both close to production restarts. Paladin’s mine is in Namibia, while Boss Energy’s is in South Australia, which is not well known for its despotic governments. Boss rose 1.1% yesterday so there was no great rush to switch.

Sticking with materials, yesterday’s building approvals data would not have sat well with building materials producers.

Economists had expected a 0.2% increase in dwelling approvals in April but instead they fell -0.8%, to be down -24.1% year on year. Meanwhile, migration is running at a record pace and rents are already through the roof, and government’s housing policy will provide a negligible increase in housing stock.

It’s a tough one for the RBA – fewer approvals imply economic slowdown, increasing rents imply higher inflation.

We await the Rules Committee. Today’s set-up is largely binary, as a yes vote would likely reverse that futures fall.

Two Markets

The S&P500 similarly closed flat last night, at the 4200 pivot point, awaiting the legislative process. But once again, industrials (Dow) dragged while technology (Nasdaq) forged on.

On a slight gain on the day, Nvidia became the newest company to join the (US$) one trillion market cap club.

Microsoft and Meta hit one-year highs.

A company by the name of C3.AI jumped 30%, ahead of its earnings result tonight. I can only assume there’s a clue in the name.

And hence the debate over whether we’re in an AI bubble that must surely burst, or not for a while, continues. Those backing AI do not see any great macro risk derailing the story at present. Even a US default.

We note that last night was the first chance for Wall Street to actually respond to the debt ceiling agreement reached over the weekend, albeit expectations of such had that priced in on Friday night. But while stocks soared on Friday night, US bond yields remained becalmed.

Last night the ten-years and two-years each fell -13 points, taking off some of the creeping gains that were underway in the past couple of weeks as the ceiling circus performed. Yet commentators continue to point to the risk of yields running much higher (bond selling) if the debt ceiling is resolved, as then the US Treasury will start issuing bonds in a hurry to refill an empty wallet.

This implies lower prices, higher yields. The counter argument is data showing bond futures traders are very short at the moment, which will provide a buffer.

Anyway, we can but wait.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1959.30	+ 16.30	0.84%
Silver (oz)	23.16	– 0.01	– 0.04%
Copper (lb)	3.68	+ 0.01	0.35%
Aluminium (lb)	1.01	– 0.01	– 0.88%
Nickel (lb)	9.43	– 0.06	– 0.58%
Zinc (lb)	1.04	– 0.02	– 1.59%
West Texas Crude	69.46	– 3.58	– 4.90%
Brent Crude	73.69	– 3.38	– 4.39%
Iron Ore (t)	100.85	+ 0.26	0.26%

Concern over the debt ceiling is one reason oil prices tanked last night, but the other is concern over Sunday’s OPEC-plus meeting. Rhetoric from the Saudis on the one hand and Russia on the other (which is currently selling record volumes of oil to China at capped, below-market prices) is at odds as to whether another production cut will be forthcoming.

The market is assuming not.

Gold got a lift from lower US yields while the Aussie is down -0.4% at US$0.6519 despite a fall in the US dollar.

Today

The SPI Overnight closed down -34 points or -0.5%.

While all eyes might be on the US, locally today we’ll see April CPI numbers.

We’ll also see private sector credit, and March quarter construction work done.

The RBA governor will provide a testimony to parliament.

China will report May PMIs.

The US will see May private sector jobs numbers.

Champion Iron ((CIA)), I believe, will report earnings.

Life360 ((360)) and Nickel Industries ((NIC)) are among a handful of smaller companies holding AGMs.

The Australian share market over the past thirty days…

Index	30 May 2023	Week To Date	Month To Date (May)	Quarter To Date (Apr-Jun)	Year To Date (2023)
S&P ASX 200 (ex-div)	7209.30	0.76%	-1.37%	0.44%	2.42%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
FPH	Fisher & Paykel Healthcare	Upgrade to Outperform from Neutral	Macquarie
MP1	Megaport	Upgrade to Buy from Neutral	Citi
NAB	National Australia Bank	Upgrade to Accumulate from Hold	Ord Minnett
QBE	QBE Insurance	Upgrade to Hold from Lighten	Ord Minnett
SIG	Sigma Healthcare	Upgrade to Hold from Lighten	Ord Minnett
SNL	Supply Network	Upgrade to Buy from Accumulate	Ord Minnett
TWE	Treasury Wine Estates	Upgrade to Hold from Lighten	Ord Minnett
		Downgrade to Hold from Add	Morgans
TYR	Tyro Payments	Upgrade to Buy from Accumulate	Ord Minnett
WGN	Wagners Holding Co	Upgrade to Speculative Buy from Hold	Morgans

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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