Asian equity markets are expected to open higher following the second straight positive session of the US stocks. Wall Street shrugged off early losses that were sparked by a jump in bond yields and finished higher as investors continued to buy dips in tech shares despite a stagflation warning from the World Bank. The broad markets bounced off session lows after the retail giant, Target, downgraded its profit margin on excessive inventories and softened consumer spending for the second time in three weeks. In addition, the US economy may officially head into recession, with the Federal Reserve GDPtracker showing a possible consecutive negative growth in the second quarter. However, the “bad news” again becomes “good news” as it tells that the Fed’s aggressive rate hikes are slowing consumers’ demands and economic growth, in turn cooling inflation.
AU and NZ day ahead
The S&P/ASX 200 futures were up 0.63%, pointing to a higher open in ASX. All the 12 sectors closed in red due to an outsized rate hike by the RBA. The Reserve bank is expected to continue its 50-basis points rate hike in July, according to Westpac’s economist. The financial and real estate sectors are taking big hits as higher interests turn to press housing markets and borrowing. But energy and materials may continue to stay strong on China’s reopening optimism as Jefferies upgrades miner stocks.
The S&P/NZX 50 rose 0.2% at the open. The local markets may benefit from a tailwind from the US session and a price rebound in the global dairy auction. The GlobalDairyTrade price index rose 1.5%, to US$4,656, snapping a 5-time losing streak since late March. The New Zealand dollar bounced off a day low against the US dollar and finished flat at just under 0.65, showing a strong upside momentum.
Fonterra announces NZ$50 million share buyback program from June 30 this morning, which may lift the dairy giant’s shares higher. The company says it may acquire shares through the FSM at the prevailing prices over the next 12 months, up to a maximum of approx. 80.7 million shares, according to the NZX announcement.
Dow Jones Industrial Average rose 0. 8%, the S&P 500 was up 0.95%, and Nasdaq advanced 0.94%.
10 out of 11 sectors in the S&P 500, with energy stocks leading gains, up 3% amid strong oil prices. Big tech shares were mostly up. Apple rose 1.8% one day after the WWDC event, in which the iPhone maker launched a series of new features, including iOS 16, new Apple Watch software, and the M2 chips. The iOS 16 is also integrated with a "Buy now, pay later" service, competing with Affirm and PayPal in the fintech industry.
On Monday, Tesla CEO, Elon Musk warns to cancel the US$44 billion takeover deal of Twitter due to a lack of declaration of the fake and bots accounts by the social media. However Twitter’s shares rose for the second trading day, up 1.44% on Tuesday after an early drop of 5% on Monday.
European stock markets were hit by retailers on Target’s news and a slew of weak economic data. The Stoxx 50 (-0.83%), FTSE 100 (-0.12%), DAX (-0.66%), CAC 40 (-0.74%). Read more
Crude oil prices continued to perform strongly on China’s reopening. Traders will be closely watching the US inventory data to be released today, which showed a big drawdown in late May.
WTI: US$119.82(+1.11%), Brent: US$120.83 (+1.10%), Natural Gas: US$9.34(+0.20%)
Precious metals rebounded on a weakened US dollar as bond yields slid.
COMEX Gold futures: US$1, 854.6 (+0.59%), COMEX Silver futures: US$22.25 (+0.69%)
Agricultural products were mixed. Notably, the wheat price fell 19% from the May high due to improved weather conditions and Ukraine’s export optimism, which may also contribute to cooling inflation.
Wheat: US$1,071.75 (-1.94%), Soybean: US$1,549.75 (+1.06%), Corn: US$757.00 (+1.95%).
US dollar fell on sliding US bond yields. However, USD/JPY rose further due to the wide spread of the two central banks’ benchmark rates. Australian dollar spiked on the RBA’s outsized rate hike, while the Eurodollar strengthened against the greenback ahead of the ECB policy meeting later this week.
(See the below FX rates at EAST 7:24 am, Bloomberg)
US dollar index: 102.35 (-0.09%)
Both US and EU bond yields slid on weakened retailers’ outlooks. But Australia and New Zealand bond yields continued to climb on RBA’s aggressive rate hike.
US 10-year: 2.974%, US 2-year: 2.735%.
Germany bund 10-year: 1.287%, UK gilt 10-year: 2.212%.
Australia 10-year: 3.550%, NZ 10-year: 3.725%.
Cryptocurrencies fell initially but strongly rebounded. The digital coins returned a positive correlation with risk assets since a collapse in the stablecoine, UST, and its relating token, Luna early May.
(See below prices at AEST 7:30am according to Coinmarketcap.com)
Bitcoin: US$31,321 (- 0.68%)
Ethereum: US$1,837.49 (- 1.66%)
Cardano: US$0.6276 (+2.82%)