Daily Market Reports | Jun 01 2023
This story features BANK OF QUEENSLAND LIMITED, and other companies. For more info SHARE ANALYSIS: BOQ
| World Overnight | |||
| SPI Overnight | 7087.00 | – 13.00 | – 0.18% |
| S&P ASX 200 | 7091.30 | – 118.00 | – 1.64% |
| S&P500 | 4179.83 | – 25.69 | – 0.61% |
| Nasdaq Comp | 12935.29 | – 82.14 | – 0.63% |
| DJIA | 32908.27 | – 134.51 | – 0.41% |
| S&P500 VIX | 17.94 | + 0.48 | 2.75% |
| US 10-year yield | 3.64 | – 0.06 | – 1.70% |
| USD Index | 104.24 | + 0.17 | 0.16% |
| FTSE100 | 7446.14 | – 75.93 | – 1.01% |
| DAX30 | 15664.02 | – 244.89 | – 1.54% |
By Greg Peel
Line up the Ducks
At 10am Sydney time the House will begin voting on the US debt ceiling deal.
On May 25 the ASX200 opened lower on US debt ceiling concerns and broke 7200, sparking a technical sell-off that sent the index down -100 points. Yesterday was déjà vu all over again. On May 29, the index regained 7200.
While the technical breach yesterday alone is enough to explain the sell-off – notwithstanding it was also the last day of the month – it was a case of a lot of bad news flowing in to create a sum of the parts. The one piece of good news was the US debt deal actually making it to the House for a vote, but that was overwhelmed.
Oil prices tumbled overnight and coal prices through the day to send energy down -2.5%. Metals prices were lower overnight and spot iron ore fell during the day to take materials down -2.2%.
Sparking the selling of bulks was China’s manufacturing PMI for May, which showed further contraction to 48.8 from 49.2 when a recovery to 51.4 was forecast, underscoring the fact China is simply not rebounding out of lockdowns. The services PMI fell to 54.5 from 56.4.
Bank of Queensland ((BOQ)) announced it had entered into an enforceable undertaking with both APRA and AUSTRAC on the back of risk and governance concerns. The bank will need to appoint both an external auditor for AUSTRAC as well as an independent reviewer for APRA as they look to work through a number of concerns from the regulators.
Bank of Queensland shares fell -5.4% and financials fell -2.0%.
The there was the April CPI data release.
The headline CPI rose to 6.8% from 6.3% in March and the core rate rose to 6.7% from 6.5%. While most economists have been forecasting another RBA hike to 4.10%, that was not expected to come until July or August. Dataflow more recently, such as flat retail sales, had given the RBA every excuse to pause next week, which was the assumption, but now that looks less likely.
Consumer discretionary fell -1.9% and staples -1.5%, while real estate fell -1.4%.
When inflation comes in hotter than expected, you’d assume bond yields would rise and so too the Aussie. But the ten-year fell -8 points and the two-year -4 points and the Aussie traded under US65c before recovering slightly overnight.
Falling yields suggest recession fear, brought about by rising rates. The ACTU has already begged Philip Lowe not to go again. Making his testimony to parliament yesterday, Lowe again underscored the risk of letting inflation get out of control, and the additional rate rises that would be required to tame it.
While falls in other sectors were not as severe, the only sector to close higher on the day, by 0.01%, was technology. The AIs have it.
Wall Street fell overnight, also on the last day of the month, with the vote on the debt deal still a risk. The S&P500 lost -0.6% but on yesterday’s de-rating, our futures are down only -0.2% this morning.
Could a “yes” vote save the day?
Focus back on the Fed
It was a bit of a no-brainer that investors might choose to take some profits on soaring tech stocks on the last day of the month. And so the Nasdaq lost -0.6% after several sessions of gains. Nvidia fell -5.7%.
The Dow was down -300 points early in the day, and it had fallen over the past several sessions. While there may have been some concern over the passing of the debt deal, and cause to be cautious, Wall Street is tentatively assuming the deal will be passed.
Which puts the focus on the June Fed meeting. Last night’s data showed US job openings rose to 10.1m in April from 9.7m in March. That’s heading in the right direction for an easing of labour market pressure, but not enough. There are still 1.8 jobs available for every unemployed.
Fear is growing the Fed will have to go again in June.
Later in the morning two Fed speakers managed to calm the seas and trim the losses. “I am in the camp increasingly coming into this meeting thinking that we really should skip, not pause, but skip an increase,” said the Philly Fed president.
Fed Governor Philip Jefferson agreed that even if the central bank opts to skip another increase in interest rates in June, it would not necessarily mean it is done for the year.
It looks like “skip” is the new buzzword. Whether or not the Fed chooses to pause in June, it would not imply that’s all folks.
The other growing concern on Wall Street harks back to the debt ceiling bill. At face value one assumes passage of the bill would be a big relief for Wall Street, but every silver lining has a cloud.
More and more commentators are warning of the massive borrowing the US Treasury will need to undertake in the short term to refill the coffers, issuing bills and bonds. This will suck liquidity out of the system at the same time QT is doing just that and rates are potentially set to rise further.
Still, US bond yields fell again last night, when Treasury borrowing implies higher yields. Yields have, nonetheless, come back quite a way in recent weeks, with short-end jumps pricing in such an outcome.
So tonight we’ll see how Wall Street responds to a debt ceiling deal. There appears to be downside risk either way, even if a “yes” does spark a short-term relief rally.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1962.40 | + 3.10 | 0.16% |
| Silver (oz) | 23.49 | + 0.33 | 1.42% |
| Copper (lb) | 3.65 | – 0.03 | – 0.85% |
| Aluminium (lb) | 1.01 | – 0.01 | – 0.60% |
| Nickel (lb) | 9.25 | – 0.18 | – 1.92% |
| Zinc (lb) | 1.02 | – 0.02 | – 1.93% |
| West Texas Crude | 68.09 | – 1.37 | – 1.97% |
| Brent Crude | 72.66 | – 1.03 | – 1.40% |
| Iron Ore (t) | 101.37 | + 0.52 | 0.52% |
See: China PMIs.
The Aussie is -0.2% lower at US$0.6505.
Today
The SPI Overnight closed down -13 points or -0.2%.
We’ll see the debt deal result sometime this morning.
Today brings manufacturing PMI numbers from across the globe.
Locally we’ll see May house prices and March quarter private sector capex.
29Metals ((29M)) holds its AGM.
TechnologyOne ((TNE)) goes ex-dividend.
The Australian share market over the past thirty days…
| Index | 31 May 2023 | Week To Date | Month To Date (May) | Quarter To Date (Apr-Jun) | Year To Date (2023) |
|---|---|---|---|---|---|
| S&P ASX 200 (ex-div) | 7091.30 | -0.89% | 0.00% | -1.21% | 0.75% |
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| ASX | ASX | Upgrade to Accumulate from Hold | Ord Minnett |
| DEG | De Grey Mining | Upgrade to Buy from Neutral | UBS |
| FPH | Fisher & Paykel Healthcare | Upgrade to Outperform from Neutral | Macquarie |
| IEL | IDP Education | Upgrade to Buy from Hold | Bell Potter |
| Downgrade to Neutral from Outperform | Macquarie | ||
| NST | Northern Star Resources | Upgrade to Neutral from Sell | UBS |
| RRL | Regis Resources | Upgrade to Buy from Neutral | UBS |
| SNL | Supply Network | Upgrade to Buy from Accumulate | Ord Minnett |
| WGN | Wagners Holding Co | Upgrade to Speculative Buy from Hold | Morgans |
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CHARTS
For more info SHARE ANALYSIS: 29M - 29METALS LIMITED
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For more info SHARE ANALYSIS: TNE - TECHNOLOGY ONE LIMITED