Morning Wrap: ASX 200 to fall, S&P 500 extends losing streak, US 30-year yield hits highest since 2007

In a nutshell:

• S&P 500 (-0.67%), Nasdaq (-0.84%) and Dow (-0.65%) extended losses to a third straight session as a brutal bond rout dragged stocks lower

• US 30-year yield briefly topped 5.19%, its highest in 19 years, with 10-year hitting 4.66% on persistent inflation, higher oil prices and growing rate hike concerns

• Fed now expected to hike 25 bps by year end (42% probability), while the likelihood of two 25 bp hikes has jumped to 16.4% (from 0% a month ago)

• Commodities continue to tumble against a backdrop of rising bond yields, a firmer US dollar and higher oil prices

• We are running incredibly late today. Some technical issues on our end pushed things back. Thanks for your patience and apologies for the delay

Let's dive in.

• Major US benchmarks lower, finished near worst levels as soaring bond yields continued to pressure equity markets

• S&P 500 and Nasdaq down for a third-straight day amid a somewhat defensive pivot into Healthcare, Energy and Utilities 

• US 10-year surged 8 bps to 4.66%, the highest since January 2025 amid a broad range of drivers including re-accelerating inflation fears, still-solid macro, Fed chair Warsh appointment and higher oil prices

• South Korean stocks sell off as chip slump raises overheating concerns amid weak market breadth (BBG)

• BofA's May Global FMS shows increased equity allocations on optimism over earnings growth, potential for Fed rate cuts (RT)

• Rising borrowing costs could spark a correction in stock market (FT)

• Japan government official downplays prospect of selling Treasuries to support yen (BBG)

• BMO's Ian Lyngen warned a push through 5.25% on the 30-year could trigger a "more durable pullback" in equity valuations rather than just a bad day (CNBC)

• Global bond rout deepened with Germany's 30-year bund yield at 3.68%, UK 30-year gilt above 5.77%, and Japan's 30-year yield hitting a record high (CNN)

• Record 37 pp increase in equity allocation to net 50% overweight, the highest since January 2022

• Cash levels fell 0.4 pp to 3.9%, falling into sell signal territory, while BofA Bull & Bear Indicator rose to 7.8, just below the 8.0 sell threshold

• Profit expectations jumped by the sixth-largest amount on record, with net 17% expecting global profits to improve (vs net 14% in April expecting deterioration)

• Half of investors see the Fed cutting rates in the next 12 months despite net 23% expecting higher short-term rates (highest since October 2022) and net 66% expecting higher global CPI

• Second inflation wave seen as biggest tail risk, long global semiconductors flagged as most crowded trade (up 49 pp m/m to 73%)

• BofA said bull capitulation almost complete, flagging early June as ripe for profit-taking with bond yields determining the degree of any pullback

• NATO discussing possibly helping ships through Hormuz if Strait not open by July, does not yet have unanimous support (BBG)

• Trump threatens Iran with a 'big hit' over coming days if negotiations remain stalled (BBG)

• Trump says China's Xi promised he was not sending weapons to Iran (FT)

• Iran submitted a revised 14-point proposal to Pakistani mediators on Monday addressing the Strait of Hormuz, nuclear program and US sanctions relief, per Iranian state media (T)

• Bessent at G7 Paris urged allies to "step up" with aggressive new sanctions on Iran's financing networks, claiming the US has frozen nearly half a billion dollars in regime-linked crypto (CNBC)

• Goldman Sachs estimates every month the Strait of Hormuz remains closed adds US$10 per barrel to year-end oil prices, with the waterway still largely shut (CNBC)

• Home Depot Q1 FY26: Revenue up 4.8% to $41.77bn, EPS $3.43 vs $3.41 ests, comparable sales up 0.6%, reaffirmed full-year guidance, shares up 0.8% from 2 ½ year lows (CNBC)

• Nvidia closed down nearly 1% ahead of Q1 FY27 results, with Wall Street eyeing ~$78bn revenue and ~$1.77 EPS, data centre near $73bn (CNBC)

• Bloomberg report flagged SpaceX IPO as a "serious risk" for Tesla investors with the prospect of another Musk vehicle drawing retail capital (BBG)

• Meta transferring ~7,000 staff to AI-related roles as part of restructuring (BBG)

• US-China readouts diverged on summit outcomes, with Beijing not confirming the Boeing order, soybean amounts, or rare earths commitments specified in the Washington fact sheet (CNBC)

• Trump and Xi agreed to establish a US-China Board of Trade and Board of Investment to manage bilateral economic ties on a government-to-government basis (CNN)

• RBA May minutes showed 8 of 9 board members backed the 25bp hike to 4.35%, citing risk that longer-term inflation expectations could become "de-anchored" (RBA)

• RBA Hunter warns risk of inflation expectations drifting higher as firms pass on costs (BBG)

• BOJ June hike to 1.0% now priced at 65% after stronger-than-expected Japan Q1 GDP, though governor cut FY26 growth forecast to 0.5% from 1% on Iran war energy disruption (CNBC)

• Australia Westpac-MI Consumer Sentiment Index rose 3.5% to 83.0 in May from 80.1, recovering from April's sharp 12.5% fall, though deeply pessimistic on rate hikes and energy (IVST)

• Japan Q1 GDP expanded an annualised 2.1% vs. 1.7% ests, with QoQ growth of 0.5% beating 0.4% forecast on improved consumption and exports (CNBC)

• Global inflation weighs at G7 as higher bond yields persist, OECD warns of further economic deterioration (BBG)

• CVC CEO Mark Avery stepping down to pursue other opportunities, expected to remain in his role until July (CVC)

• Infratil to sell 53.5m shares in Contact via block trade at NZ$9.25 per share, Infratil will hold ~9.0% post-sale and committed to holding remaining shares through to at least Contract’s FY26 results in August (IFT)

• James Hardie reports Q4 revenue up 45% to $1.4bn (organic net sales down 1%), net income of $172.6m vs. $178m ests, management targeting adjusted EBITDA growth of 4-8% in FY27, management see inflationary and affordability pressures weighing on housing activity, NYSE-listed shares down 5.5% after hours (JHX)

• Oaktree considering a non-binding indicative offer for oOh!Media, making it a potential third suitor for the outdoor advertising giant (AFR) 

• Commodities under pressure: Downward driver of commodities converged overnight, with Brent up 1.1% to US$110.91 a barrel, the US Dollar index up 0.3% to 99.3 (highest since 8-Apr-26) and bond yields continue to push to multi-year highs. Copper tumbled 2.2% to US$6.2/lb, gold smashed 1.85% to a near two-month low and more. This drove outsized weakness for resource equities, with US-listed Silver, Gold, Uranium and Copper ETFs down 3-4% overnight. NYSE-listed BHP shares also fell 2.5%.

• Energy: Brent starting to push recent highs, while the S&P 500 Energy index is on a five-day losing streak. Woodside starting to move out of a short-term downtrend, while Santos is having another crack at $8 (pretty sure its failed to break through $8 at least a dozen times in the last ~4 years).

• Brambles upgraded to Neutral from Sell; target lowered to $19.34 from $20.95 (Goldman Sachs)

• Gemlife initiated Buy with $5.50 target (UBS)

Stocks trading ex-dividend: 

• Wed 20 May: Gullewa (GUL) – $0.07

• Thu 21 May: Orica (ORI) – $0.285

• Fri 22 May: None
  

Other ASX corporate actions today:       

• Dividends paid: None

• IPOs: None

• Earnings: Catapult Sports (CAT), Plenti Group (PLT)

• AGMs: Resolute Mining (RSG), Waypoint REIT (WPR)

Economic calendar (AEST):

• 4:00 pm: UK Inflation