The Overnight Report: One More Hurdle

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World Overnight
SPI Overnight	7172.00	+ 47.00	0.66%
S&P ASX 200	7110.80	+ 19.50	0.27%
S&P500	4221.02	+ 41.19	0.99%
Nasdaq Comp	13100.98	+ 165.70	1.28%
DJIA	33061.57	+ 153.30	0.47%
S&P500 VIX	15.65	– 2.29	– 12.76%
US 10-year yield	3.61	– 0.03	– 0.80%
USD Index	103.56	– 0.68	– 0.65%
FTSE100	7490.27	+ 44.13	0.59%
DAX30	15853.66	+ 189.64	1.21%

By Greg Peel

Modest Relief

The ASX200 was down -10 points yesterday ahead of the US House vote on the debt bill. When the bill was passed at 11am, the index shot up 50 points, but quickly settled back and remained flat for the rest of the session.

It was a modest response, with investors likely waiting to see what would happen in the US last night, and on commodities markets. While the rally on Wall Street was also muted, commodity prices have rebounded strongly, and our futures are up 47 points this morning.

While technology posted the biggest gain yesterday (+1.1%), among the large caps there was a decidedly defensive tone.

Healthcare rose 1.2%, staples 0.9% and communication services 0.6% while both the banks and materials sat it out. The move up in staples was interesting given the sector lost -1.5% on Wednesday on the CPI number – bit of a rethink.

The flat close for materials featured a balancing act, with the iron ore and gold names rising and lithium names and Alumina Ltd ((AWC)) falling. Champion Iron ((CIA)) missed out, falling -5.3% on its earnings result.

Paladin Energy ((PDN)) continued its comeback (+11%) after it assured investors it is not aware of any Namibian government intentions to take a stake in its 75%-owned Langer Heinrich uranium mine.

No doubt the materials sector in general will enjoy a solid day today, as will energy, which rose 0.4% yesterday, ahead of this weekend’s OPEC-Plus meeting.

Despite analysts down-playing IDP Education’s ((IEL)) likely loss of market share in Canada, the stock fell another -6.2% yesterday. Consumer discretionary nonetheless closed up 0.3%, despite the ABS confirming that retail sales were flat in April on a seasonally adjusted basis.

In other economic news, private new capital expenditure grew 2.4% in the March quarter after a revised increase of 3.0% in the December quarter, up from the initial result of 2.2%. This is considered a good result in the face of inflation, although capex plans for FY24 rose only modestly compared to normal at this time of the year.

Today should bring a more relieved tone to the market, with the futures up 0.7%, so we’ll see how we go.

Not Done Yet

The debt ceiling bill passed thought the House on a 314-117 vote but hopes the bill will now sail through the Senate have already been watered down by a number of Republicans announcing they will introduce amendments, implying the bill would be sent back to the House again.

The bill is still expected to be approved, and both party’s Senate leaders have expressed confidence it will be, but it may yet take several days.

They’ve got until Monday, in theory.

Lingering uncertainty was enough to assure Wall Street did not fly out of the box last night, and mixed economic data didn’t help to alleviate confusion either.

The US manufacturing PMI fell further into contraction in May, dropping to 46.9 from 47.1. The ADP private sector report showed 248,000 jobs added in May, when economists had expected 100,000.

Weekly new jobless claims edged up last week, but there remains no sign of mass layoffs.

Investors are really not sure what the Fed will do at its next meeting. It is looking possible that for the first time in a year and a half, there may be dissent evident in the vote, between those keen to go again and those pushing for a pause, or a “skip” at least, in rate rises.

It will come down to what Jerome Powell decides. He’s the boss.

After a stumbling start, Wall Street did ultimately rally last night, paring gains towards the close, but still posting a 1% gain for the S&P500 which outs the index back above the 4200 pivot point.

Tonight we get the May non-farm payrolls number, for which economists have forecast 180,000 additions, down from 253,000 in April. But as the ADP number suggests, economists rarely get it right.

Over in the AI bubble (don’t say bubble!), there was finally some cooling down last night. We recall that on Wednesday night, a company called C3.AI jumped 30% ahead of its result last night, which showed a greater loss than expected.

C3.AI subsequently fell back, but only by -13%.

The more established and diversified, from a chip point of view, Broadcom, beat on the top and bottom lines but not by much. If traders were expecting another Nvidia, they were disappointed, but then Broadcom is down only -1.5% in the aftermarket.

Meanwhile, the tail-end of the US earnings season is filled with retailer results, and if you think you might be able to draw some conclusion about the health of the US consumer then think again. Responses have been very sharp for many a chain, but in mixed directions.

On Wednesday night a company called Capri, which distributes brands you may have heard of such as Versace, Michael Kors and Jimmy Choo, fell -13% on result.

In last night’s aftermarket, athleisure-wear retailed Lululemon reported and is up 13%.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1977.40	+ 15.00	0.76%
Silver (oz)	23.86	+ 0.37	1.58%
Copper (lb)	3.69	+ 0.05	1.33%
Aluminium (lb)	1.03	+ 0.02	2.17%
Nickel (lb)	9.57	+ 0.31	3.39%
Zinc (lb)	1.03	+ 0.02	1.50%
West Texas Crude	70.10	+ 2.01	2.95%
Brent Crude	74.30	+ 1.64	2.26%
Iron Ore (t)	104.50	+ 3.13	3.09%

Commodity prices had been weighed down in the past couple of weeks by debt ceiling concerns.

With the US dollar retreating on the House vote, the Aussie has leapt up 1.1% to US$0.6577.

Today

The SPI Overnight closed up 47 points or 0.7%.

We’ll see numbers today for housing loans.

The US jobs report is out tonight.

OPEC-Plus meets on Sunday night.

The Australian share market over the past thirty days…

Index	01 Jun 2023	Week To Date	Month To Date (Jun)	Quarter To Date (Apr-Jun)	Year To Date (2023)
S&P ASX 200 (ex-div)	7110.80	-0.61%	0.27%	-0.93%	1.02%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ASX	ASX	Upgrade to Accumulate from Hold	Ord Minnett
BOQ	Bank of Queensland	Upgrade to Neutral from Underperform	Macquarie
CGF	Challenger	Downgrade to Hold from Accumulate	Ord Minnett
DEG	De Grey Mining	Upgrade to Buy from Neutral	UBS
HAS	Hastings Technology Metals	Downgrade to Neutral from Outperform	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
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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