Australian futures cool ahead of RBA review

The ASX is poised for a soft start to the day ahead of the Reserve Bank of Australia’s policy review, which is expected to take a breather after three hikes this year.

That comes after most stock markets in Europe and the US extended the global rally as President Donald Trump signed a memorandum of understanding with Iran for a lasting peace in the Middle East.

Gains were widespread on the softer oil prices, with semiconductor and chip companies such as Nvidia back on the rise and SpaceX surging in its second day of trading, while energy majors Chevron, Exxon Mobil, Shell and BP were all weaker.

And locally, Statistics New Zealand’s latest partial inflation reading is due today, while the kiwi dollar was broadly softer as the yield on New Zealand’s 10-year government bonds remains below its US equivalent.

On hold

Australian futures are pointing to a 1.5% decline for the S&P/ASX 200 index when trading opens across the Tasman, reversing its strong gain on Monday ahead of the RBA’s policy review, which is expected to keep the target cash rate at 4.35%.

The Bank of Japan is also reviewing policy and is expected to raise its benchmark rate a quarter-point to 1%, with deputy governor Shinichi Uchida overseeing the decision due to governor Kazuo Ueda’s hospitalisation. Futures are pointing to a 3.7% gain for the Nikkei 225 when trading opens.

“The market is pricing next to no chance of a fourth consecutive rate hike by the RBA at this meeting, although the central bank is unlikely to abandon its tightening bias so soon,” Bank of New Zealand senior markets strategist Jason Wong said in a note. The Bank of Japan “will need to guide towards further tightening otherwise the yen will be vulnerable to downside pressure.”

The kiwi dollar fell to 82.35 Australian cents at 7am in Auckland from 82.69 cents yesterday and declined to 93.38 yen from 93.74 yen.

The Australian and Japanese central bank meetings are among a clutch of reviews this week, including the Federal Reserve’s first review under the new chairmanship of Kevin Warsh. The kiwi dollar fell to 58.26 US cents from 58.57 cents, with the yield on New Zealand’s 10-year government bonds at 4.41%, below their US equivalent at 4.47%.

Buoyant mood

Meanwhile, Wall Street continued the global rally in stock markets with the Dow Jones Industrial Average up 1.1% in late trading led by Boeing, Honeywell International and American Express. Brent crude oil futures fell 4.6% to US$83.44 a barrel with the peace deal set to reopen the Strait of Hormuz shipping channel.

The tech-heavy Nasdaq Composite climbed 3% with semiconductor and chip stocks such as Nvidia and Marvell Technology back on the rise, while the S&P 500 climbed 1.7%.

SpaceX remained in strong demand, surging 16% in its second day of trading, with the space and artificial intelligence conglomerate’s underwriters exercising their green-shoe option to raise an additional US$10.7 billion – taking the gross proceeds to US$85.7 billion – from an overallotment of shares to help manage the aftermarket.

Local space favourite Rocket Lab was back on the rise, up 6.4% in late trading at US$108.97.

Stock markets across the Atlantic were mixed, with the UK’s FTSE 100 falling 0.4%, while Germany’s DAX jumped 1.1% and France’s CAC 40 advanced 0.4%.

Greg Boland, market strategy consultant at Moomoo, said the drop in oil prices and strong lead from Wall Street should support the NZX, after the S&P/NZX 50 index dropped 0.3% on Monday.

“Travel stocks such as Air New Zealand, Auckland Airport and Tourism Holdings may continue to benefit, while Infratil could attract interest following the strength in global technology and AI-related shares,” Boland said in a note.

Local data today include Stats NZ’s selected prices index for May, while Chinese retail sales figures will be in view for exporters such as a2 Milk Co.

Reporting by Paul McBeth. Image from David Clode on Unsplash.