Morning Wrap: ASX 200 to open at all-time highs, US inflation cools, Markets rotate into small caps

ASX 200 futures are trading 45 points higher, up 0.57% as of 8:30 am AEST.

The local sharemarket is set to open above March 2024 highs, major US benchmarks underperformed as investors rotated out of high-flying megacap tech stocks and into small caps and rate-sensitive sectors, gold prices are within an arms reach of all-time highs and a recap of last night's inflation report.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 experiences a sizeable selldown as investors pivot from big tech to small caps, high beta and rate-sensitive stocks (Source: TradingView)

OVERNIGHT MARKETS

• Major US benchmarks finished mixed as cooler-than-expected US inflation data triggered a rotation out of big tech and into small caps and rate-sensitive pockets of the market like Real Estate and Utilities

• Nine of the top ten largest US stocks finished lower, led by Tesla (-8.4%), Nvidia (-5.5%), Meta (-4.1%) and Alphabet (-2.7%)

• Berkshire Hathaway (+1.2%) was the only top ten name to buck the trend

• Bond yields dipped, with the US 10-year down 7 bps to the lowest level since 1-Apr

• Gold prices ripped higher, now within 1% of all-time highs

• IEA says global oil demand slows further as China cools (Reuters)

• JPMorgan now expects September rate cut versus prior prediction for November (Bloomberg)

STOCKS

• Amazon reveals its Prime Day sales amid Walmart's and Target's sales discounting events around same time (Axios)

• Google reportedly abandoning efforts to acquire HubSpot (Bloomberg)

• Costco raises membership fee for first time since 2017 (CNBC)

• Delta Q3 passenger and earnings miss expectations due to weak pricing on industry overcapacity (Reuters)

• Pepsi posts weaker-than-expected earnings as volumes slip (Bloomberg)

CENTRAL BANKS

• Fed’s Daly says today’s inflation data is a ‘relief’ and could warrant some policy adjustments (Bloomberg)

• BoE Mann signals reluctance to cut rates, citing inflation concerns (Bloomberg)

• Eurozone wage growth sparking speculation about how deep ECB can cut (FT)

• Bank of Korea holds rate at 3.50%, examining timing of rate cut (Reuters)

POLITICS & GEOPOLITICS 

• Biden losing support from Democratic allies and Hollywood donors (Axios)

• NATO leaders deliver their most serious rebuke against Beijing over its role in Russia's Ukraine war (NY Times)

• Foreign officials warn that Trump mulling cutting back intel sharing with EU if he returns as President (Politico)

• Macron calls for broad coalition, excluding far-left and far-right, to break parliamentary deadlock (Bloomberg)

US JUNE CPI

• Core inflation up 0.1% month-on-month vs. consensus for a 0.2% rise

• Core inflation up 3.3% year-on-year vs. consensus 3.4%

• Headline inflation down 0.1% month-on-month vs. consensus for a 0.1% rise

• Headline inflation up 3.0% year-on-year vs. consensus 3.1%

• Gasoline price index fell 3.8% in June, more than offsetting the 0.2% rise in the shelter price index (smallest increase since August 2021)

• Used cars and trucks index down 1.5% month-on-month, airfares fell 5.0%

• Fed rate cut expectations for September jumped to 84.6% from 69.7% a day ago and 46.8% a month ago, according to CME Group

ECONOMY

• UK GDP rebounded quicker than expected in May (Bloomberg)

ASX TODAY

• ASX 200 to crack a fresh all-time high today as cooler-than-expected US inflation data propped up value and cyclical pockets of the market

• A2 Milk unlikely to vote in favour of Synlait's recapitalisation plan, including a major equity raising (A2M)

• BHP to temporarily suspend Western Australia Nickel operations from October due to oversupply – plans to invest ~$300m per annum following the transition period to support a potential restart but decision will incur a non-cash impairment charge of $0.3bn (BHP)

• Metals X acquires strategic stake in First Tin, total investment of $4.6m or ~23% of the company (MLX) 

 WHAT TO WATCH TODAY

• Gold: Gold prices rallied almost 2% overnight and closed above the key US$2,400 level. The VanEck Gold Miners ETF added 2.8% to finish at levels not seen since April 2022. NYSE-listed Newmont shares up 3.8% to a 15-month high. This should draw a strong response for local goldies.

• Real Estate, Utilities: These were the two best performing S&P 500 sectors overnight, up 2.6% and 1.8% respectively. Will be interesting to see if our REITs and utilities experience a similar rotation/outperformance.

• Homebuilders: The SPDR Homebuilders ETF rallied 5.8% overnight in response to falling yields and lower mortgage rates. NYSE-listed James Hardie shares finished the session up 2.4%. Beyond JHX, we've pretty much lost all of our major building and construction names like ABC, CSR and BLD.

BROKER MOVES

• Ampol upgraded to Neutral from Sell; target cut to $37.40 from $38.30 (Goldman Sachs)

• Beach Energy downgraded to Sell from Neutral; target cut to $1.50 from $1.54 (Goldman Sachs)

• Netwealth Group downgraded to Underperform from Hold; target increased to $18.60 from $18.15 (Jefferies)

• Regis Resources upgraded to Buy from Neutral; target remains $2.30 (BofA)

Companies trading ex-dividend: 

• Fri 12 July: Prestal Holdings (PTL) – $0.07

• Mon 15 July: None

• Tue 16 July: Metcash (MTS) – $0.085 

• Wed 17 July: Turners Automotive (TRA) – $0.069

• Thu 18 July: None

Other ASX corporate actions today: 

• Dividends paid: None 

• Listing: None

• Earnings: None

• AGMs: None

Economic calendar (AEST):

• 1:00 pm: China Balance of Trade (Jun)

• 10:30 pm: US Producer Price Index (Jun)

• 12:00 am: US Consumer Confidence (Jul)