Morning Wrap: ASX 200 to fall + How does the market perform in July?

US markets were closed for Independence day, European benchmarks were steady in a relatively uneventful trading session, China imposes export restrictions on two niche battery metals, Facebook is set to launch its own Twitter-like app called Threads, US PMI data flags growing recessionary and disinflation risks plus a closer look at how the ASX 200 performs in July.

Let's dive in.

ASX 200 DAILY CHART

ASX 200 is up five of the last six sessions (Source: TradingView)

MARKETS

Hi, Kerry here. I'm back after some brutal food poisoning last Thurs/Fri and a little getaway earlier this week. Hope the markets have treated you well :)

• US markets closed in observance of Independence day

• Major European benchmarks held steady in thin trading on Tuesday, amid the lack of fresh economic data and uncertainty around global interest rates (Reuters)

• FTSE 100 inches lower as declines in industrials offset gains from real estate (Reuters)

• China’s chip-metals producers surge on export restrictions (Bloomberg)

• Oil prices rise as markets weigh supply cuts against outlook (Reuters)

STOCKS

• Meta to launch Threads, a new social media app to rival Twitter (FT)

ECONOMY

• UK mortgage five-year rate tops 6% for the first time this year (Bloomberg)

• South Korea inflation cools more than expected in June (Bloomberg)

• RBA unexpectedly holds rates but maintains tightening bias (Reuters)

• RBA pivot to active QT could assist in reducing inflation (The Australian)

• European power prices drop below zero as solar output surges (Bloomberg)

• China to impose export controls on two rare earth metals from August (Reuters)

• US to curtail China's' access to cloud computing services (Bloomberg)

Deeper Dive

How does the ASX 200 perform in July?

The ASX 200 hit the seasonal May-June low right on cue. Since 1992, the ASX 200 typically declines a respective 0.58% and 0.68% in May and June. Historically, June is the second worst performing month of the year but the last four days tend to be positive.

The Index is now up five of the last six sessions, up 2.8% as we gear up for the seasonally strong month of July, where the market historically gains 2.19%.

ASX 200 seasonal performance from June 1992 to March 2023 (Source: Market Index)

US ISM Manufacturing PMI: Two Things are Crashing

On Tuesday, US manufacturing data flagged a deepening contraction in June, reaching the lowest levels since May 2020. It also marks the eighth consecutive month that the PMI has stayed below the 50 threshold, which separates contraction from expansion. This streak reflects the longest stretch since the Global Financial Crisis.

US ISM Manufacturing PMI (Source: TradingEconomics)

But again, economic data points remain conflicting. As Reuters puts it "at face value, the ISM survey is consistent with an economy that is in recession. But the so-called hard data such as nonfarm payrolls, first-time applications for unemployment benefits and housing starts, suggest the economy continues to grind along."

What's interesting is that the prices paid component fell from 44.2 to 41.8. According to Capital Economics, this "leaves it at a level which, over the past 20 years or so, has usually coincided with headline CPI inflation of close to zero." In parallel, the prices paid index also came in the lowest this year.

What does this tell us? Both recessionary and disinflation signs are increasing.

China's New Metal Export Restrictions

China imposed restrictions on two niche metals that are critical for chips, EVs and telecommunications. Those metals are gallium and germanium. They're not rare but the production process is complex and costly, and China is responsible for more than 80% of global output.

The restrictions (not a total ban) will take a toll on Europe, as the EU imports a respective 71% and 45% of its gallium and germanium from China, according to Bloomberg.

It's worth noting that the vast majority ASX-listed rare earth stocks don't produce or explore for these metals. The main name that comes to mind is Battery Age Minerals (ASX: BM8) via the 15% owned Bleiberg Project in Austria.

It's an early stage project but according to scientific consensus, in 700 years of mining, some 3 million tonnes of metal have been produced, with an average grade of 5.0% zinc, 1.0% lead and 200 ppm Germanium.

ASX corporate actions occurring today:

• Trading ex-div: Qualitas Real Estate Fund (QRI) – $0.013, Graincorp (GNC) – $0.24 

• Dividends paid: Champion Iron (CIA) – $0.11, National Australia Bank (NAB) – $0.83

• Listing: Chilwa Minerals (CHW) at 11:30 am

Economic calendar (AEST):

• 9:00 am: Australia AI Group Industry Index

• 11:45 am: China Caixin Services PMI

• 4:00 am: FOMC Minutes