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The morning catch up: ASX set to dip as Q2 CPI anxiety starts to kick in

Published 30/07/2024, 09:55 am
© Reuters.  The morning catch up: ASX set to dip as Q2 CPI anxiety starts to kick in
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After an upswing yesterday, the ASX is set to dip today.

ASX 200 futures are down 0.7% to 7,899 points after the US markets closed.

Today’s expected fall follows mixed results on Wall St, where the S&P 500 and technology-focused Nasdaq indexes each closed 0.1% higher, while the Dow Jones ended in the red, down 0.1%.

  • US 10-year bond yields slipped to 4.18% ahead of the anticipated signal on rate cuts in September at the Federal Reserve meeting on Wednesday (Thursday AEST).
  • Oil prices declined more than 1% as Middle East tensions persisted, with the global benchmark Brent crude near US$79.12 per barrel and US West Texas Intermediate (WTI) near US$75.94 per barrel.
  • Bitcoin rose to nearly US$70,000, bringing the cryptocurrency closer to record-high levels after US presidential candidate Donald Trump's speech at a conference on Saturday.
  • Iron ore futures dipped to US$102.15 per tonne on the Singapore Exchange.
  • Gold futures remained flat near US$2429.40 per ounce.
  • The Australian dollar is trading around US$0.6548.

Let’s dive in

While the ASX200 rose yesterday on strong sector performances, today will be different.

The ASX200 closed 68 points higher (+0.86%) yesterday, reaching 7,989. The Information Technology (IT) sector led the gains with a 1.53% increase, followed by Telecommunications (+1.40%) and Real Estate (+1.35%). In contrast, the Materials (+0.33%) and Energy (+0.59%) sectors underperformed the broader market.

The ASX200's strong start to the week was driven by gains on Wall Street from Friday night and positive performances from US equity futures and Asian equity markets after reopening.

DroneShield, recovering from a nearly 50% decline since mid-July, rose 5% to A$1.47. Commonwealth Bank of Australia (ASX:CBA) (CBA) gained 1.32%, reaching a new record high of A$134.90, and added almost 10 points to the ASX200's gains. Conversely, JB Hi-Fi fell 1.46% to A$66.32 after UBS downgraded the stock to a sell with a price target of A$60.

The Aussie market will now be scrutinising Q2 CPI.

“Ahead of tomorrow's all-important Q2 CPI, the rates market is pricing in a 6bp or a 23% chance of a 25 bp RBA rate hike in August,” writes IG Markets analyst Tony Sycamore.

“The expectation for the June 2024 quarter (Q2) is for headline inflation to rise by 1% QoQ for an annual rate of 3.8%. The Trimmed Mean is expected to rise by 1% QoQ, which would see the annual rate of Trimmed Mean inflation remain at 4.0% YoY. If the Trimmed Mean prints at 1.2% or higher, it increases the chances of another RBA rate hike before year-end.”

US equity markets subdued

US equity markets remained quiet overnight, with investors adopting a cautious approach ahead of a data-rich economic and earnings calendar this week. The prevailing theme of the past fortnight — a rotation from tech stocks into small-cap stocks — showed signs of easing.

The potential resumption of this trend hinges on the upcoming earnings reports from major tech companies, including Microsoft (NASDAQ:MSFT), Meta, Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN).

In stock-specific news, Tesla (NASDAQ:TSLA) experienced a significant surge, climbing 5.6% to close at $232.10. This boost followed Morgan Stanley (NYSE:NYSE:MS)'s designation of the electric vehicle (EV) maker as its "top pick" in the US market. Despite this positive movement, Tesla still has technical challenges ahead to recover from last week's decline, which was triggered by a disappointing earnings report.

“Looking ahead, key economic data releases are expected to influence market sentiment,” writes Sycamore. “The Job Openings and Labor Turnover Survey (JOLTS) job openings report is due tonight, with market expectations indicating a decrease to 8.05 million in June from 8.14 million in May. Additionally, the Conference Board's Consumer Confidence Index is anticipated to ease to 100 in July, down from 100.4 in June.”

European sharemarkets mixed

European markets were mixed on Monday, reflecting investor caution at the start of an earnings-heavy week. The forthcoming Federal Reserve policy meeting added to global risk aversion.

The automotive sector saw the largest decline among major sectors, dropping 1.3%. Stellantis, listed in Milan, fell 3.3% after Deutsche Bank (ETR:DBKGn) downgraded its rating from "buy" to "hold."

Among individual stocks, Heineken plummeted 10.1% following a miss on half-year operating profit estimates. Reckitt Benckiser dropped 8.8% after US healthcare firm Abbott Laboratories (NYSE:NYSE:ABT) was ordered to pay US$495 million in damages related to its formula for premature infants.

The FTSEurofirst 300 index decreased by 0.2%. Conversely, the UK FTSE 100 index rose 0.1%, reaching its highest level since early June.

Rising value of Japanese yen

Neil Roarty, analyst at investment platform Stocklytics, says the Yen is making a comeback.

“It’s been a rollercoaster of a year for the Japanese yen, which lost more than 11% of its value against the dollar during the first seven months but now appears to be making a comeback. The yen is up 5% over the last two weeks to a three-month high and there are reasons to believe the climb might continue.

“While most central bankers contemplate cutting interest rates, the Bank of Japan raised them for the first time in 17 years back in March, ending an eight-year era of negative rates. The move has been widely seen as a success, sparking hints of growth after 30 years of stagnation. It’s of little surprise that they may now look to repeat the trick.

“If, as expected, Japan’s rates tick upwards again in the next few months, while the Federal Reserve reduces rates in the US, the narrower spread between the two could see major in-flow into the yen. Remember, the only currency pair more highly traded than USD-JPY is USD-EUR; even a relatively small movement could cause a flurry of activity.

“Were Japan to decisively shift away from negative or low rates, a considerably strong yen is likely to follow.”

What about small caps?

The S&P/ASX Small Ordinaries finished the day 0.81% higher to 3,021.90 and is 0.13% higher over the past five days.

Small cap companies are busy pushing their quarterlies out, but work programs continue and you can read about the following and more throughout the day.

  • Brookside Energy Ltd (ASX:BRK, OTC:RDFEF) has provided an update on operations from the multi-well Flames-Maroons Development Plan (FMDP) in the core of the southern SCOOP Play in the Anadarko Basin. Completion operations for the multi-well FMDP program are underway with mobilisation of completion crew and equipment to the Rocket Well on the Flames Pad.
  • Iondrive Ltd (ASX:ION) has completed its large-scale bench trials including independent verification of the metal recoveries by Independent Metallurgical Operations (IMO) in Perth. These results confirm the robustness and economic potential of Iondrive’s deep-eutectic solvent (DES) battery recycling technology.
  • Race Oncology Ltd (ASX:RAC, OTC:RAONF) announced that the investigator-sponsored Phase 1b/2 trial of bisantrene in combination with clofarabine and fludarabine (Bis/Clo/Flu) in relapsed or refractory acute myeloid leukaemia (R/R AML) patients has been successfully concluded having achieved its primary endpoint for efficacy. The trial was conducted at the Chaim Sheba Medical Centre in Israel under the supervision of AML key opinion leader Professor Arnon Nagler.
  • Triangle Energy (Global) Ltd has raised $4 million through a placement to institutional, sophisticated, and professional investors. This significant capital injection will be directed towards exploration and drilling activities in Triangle’s Perth Basin assets.
  • Tryptamine Therapeutics Ltd (ASX:TYP, OTC:TYPTF) has appointed Professor Phillipa Hay to its Scientific Advisory Board. Professor Hay is an academic psychiatrist who is recognised internationally for her research and expertise in improving health outcomes associated with eating disorders and obesity.
  • Read more on Proactive Investors AU

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