Market Wraps

Morning Wrap: ASX 200 flat + Macquarie shifts on the Big Four + Your guide to the July RBA meeting

Tue 04 Jul 23, 8:30am (AEST)

ASX 200 Futures are down 1 point, to 7216 as of 8am AEST.

US markets traded flat to higher on light volumes ahead of the July 4th holiday. Yesterday, the Chinese private sector activity read came in positive - but just barely. It'll raise more questions about how sustainable that post-reopening boost really was. In our neck of the woods, all eyes are on the RBA meeting at 2:30pm today. Rates markets are pricing in a 15bps hike and economists are just as split. And in our deeper dive, we're taking a look at Macquarie's less-than-convincing take on the big banks.

Let's dive in.

Overnight Summary

Tue 04 Jul 23, 8:30am (AEST)

Name Value Chg %
Major Indices
S&P 500 4,456 +0.12%
Dow Jones 34,418 +0.03%
NASDAQ Comp 13,817 +0.21%
Russell 2000 1,897 +0.43%
Country Indices
Canada 20,155 +1.22%
China 3,244 +1.31%
Germany 16,081 -0.41%
Hong Kong 19,307 +2.06%
India 65,205 +0.75%
Japan 33,753 +1.70%
United Kingdom 7,527 -0.06%
Name Value Chg %
Commodities (USD)
Gold 1,929.10 -0.02%
Iron Ore 110.87 -
Copper 3.776 +0.94%
WTI Oil 70.14 +0.50%
Currency
AUD/USD 0.6671 0.00%
Cryptocurrency
Bitcoin (AUD) 46,580 +1.60%
Ethereum (AUD) 2,932 +1.63%
Miscellaneous
US 10 Yr T-bond 3.858 +1.02%
VIX 14 -0.15%

US Sectors

Tue 04 Jul 23, 8:30am (AEST)

Sector Chg %
Consumer Discretionary +1.07%
Real Estate +0.85%
Consumer Staples +0.69%
Utilities +0.67%
Financials +0.63%
Energy +0.31%
Materials +0.31%
Communication Services +0.13%
Industrials +0.07%
Information Technology -0.31%
Health Care -0.82%

S&P 500 Session Chart

SPX 3rd July 2023
Note: US markets closed early ahead of the Independence Day Holiday. (Source: TradingView)

ECONOMY

  • Markets split on RBA rate path as inflation lingers

  • Millions of US borrowers brace for the return of student debt payments which will ripple through the economy as bills come due

  • Asian PMIs - China's weaker rebound weighs on regional manufacturing with soft demand clouding outlook for factories

  • Eurozone factory output shrinks faster than expected in June 2023 with industrial sector seen impacted by ECB rate hikes

  • UK manufacturing sector decline steepens in June, optimism fades with services sector now the main source of growth

  • Swiss inflation below SNB's 2% ceiling in June

  • BOJ Tankan survey shows Japan manufacturer sentiment rises in Q2 as raw material costs peaked, factory output rebounded

  • Australian home prices rise for 4th month in June as sustained squeeze on housing supply helps lift values nationwide

STOCKS

  • Tesla delivers record number of vehicles in Q2, topping market estimates

  • Netflix eyes new ad formats to boost revenue from ad-supported service

  • Apple forced to make major cuts to Vision Pro headset production plans on manufacturing problems

  • UBS aims to avoid using $10B backstop for Credit Suisse

  • AstraZeneca underwhelms on lung cancer trial data

Industry ETFs

Tue 04 Jul 23, 8:30am (AEST)

Description Last Chg %
Commodities
Lithium & Battery Tech 66.85 +2.81%
Strategic Metals 84.59 +1.72%
Copper Miners 38.21 +1.49%
Steel 64.8257 +1.35%
Silver 21.01 +0.57%
Gold 178.47 +0.11%
Uranium 21.6 -0.46%
Industrials
Global Jets 21.65 +1.07%
Aerospace & Defense 116.92 +0.21%
Healthcare
Cannabis 6.84 +7.21%
Biotechnology 126.81 -0.12%
Description Last Chg %
Cryptocurrency
Bitcoin 16.73 +2.54%
Renewables
CleanTech 14.87 +1.16%
Hydrogen 9.26 +0.65%
Solar 71.42 0.00%
Technology
FinTech 22.39 +1.45%
E-commerce 18.7 +1.14%
Electric Vehicles 26.32 +1.08%
Semiconductor 511.77 +0.89%
Video Games/eSports 56.13 +0.68%
Robotics & AI 28.87 +0.45%
Sports Betting/Gaming 17.5008 0.00%
Cloud Computing 19.82 -0.10%
Cybersecurity 24.14 -0.49%

Deeper Dive

Your guide to the RBA Decision

As we discussed on the newest episode of Signal or Noise, different data points are flashing different signals at investors. If you looked at the uptick in retail sales and PMIs, you'd think that the RBA should pause this afternoon. If you looked at inflation and investor sentiment, you would think that the central bank has to hike rates again.

That same schism can be seen in the following chart. Rates traders have priced in a 15 basis point hike at this afternoon's meeting. But 13 out of 27 economists think they will still go the full 25 basis points (the other 19 think they will pause).

ASX OIS Curve Friday 30 June
Source: ASX

If they do go again, it'll be all about inflation. A partial, non seasonally adjusted read of 5.6% is still too high and well above the RBA's 2-3% target. If they pause, then it will be down to sour sentiment as well as realising that last quarter's 0.2% GDP read is too close to its worst-case hard landing scenario. In addition, a pause this time could suggest that the pause in rate hikes will actually stick this time.

We'll find out which way they go at 2:30pm this afternoon.

Macquarie on the Big Four Banks

Speaking of Signal or Noise, Simon Doyle from Schroders made the astute observation that holding a lot of your portfolio in cash or term deposits is not a bad idea given you're now being paid to hold said cash. After all, term deposit rates are at near-decade highs. And while that's great news for savers and consumers, that's not good news for banks.

Here's what Macquarie analysts wrote yesterday.

Banks continued to raise their deposit pricing as most institutions passed through rate increases through base savings rates, potentially signalling the end of further margin accretion from savings accounts. TD rates also increased meaningfully during the month, with one-year special TDs lifting by around 30bps. We don't expect these benefits to be sustained.

They added that they are now forecasting a 3 to 8bps fall in margins across the Big Four for FY24 another 8 basis points in FY25. While you think that might not be too much at face value, it's actually a big drop considering some bank margins are under 2%.

Hans' Chart of the Day

Proving everything old is new again, my chart of the day comes to us from Goldman Sachs. Meme and "YOLO" (you only live once) stocks may have fallen sharply in 2022 but they are right back up again in 2023. Instant gratification is a weird beast.

Goldmans YOLO vs MEME stocks
Source: Goldman Sachs

Key Events

ASX Corporate Actions:

  • Trading ex-div: Sunland Group, 20cps

  • Listings: Chilwa Minerals (CHW) @ 1pm today

Economic Calendar:

  • 2:30 pm: RBA Cash Rate and Statement

Written By

Hans Lee

Senior Editor

Hans is one of the Senior Editors at Livewire Markets and Market Index. He created Signal or Noise and leads the team's coverage of the global economy and fixed income markets.

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