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ASX Live Coverage Summary – Tuesday, May 19
Join us as we provide ongoing updates throughout the day on the Australian Securities Exchange (ASX). We aim to conclude our coverage around 2:00 pm AEST. Your feedback is invaluable; let us know how we can improve our service.
Morgan Stanley Warns of Equity Correction from Bond Selloff
[8:36 am] Mike Wilson’s team at Morgan Stanley has highlighted potential risks to the recent AI-driven equity rally due to rising long-end bond yields.
- They foresee a significant equity correction if bond market volatility persists and long-term rates continue to rise.
- The US 30-year bond yield has approached three-year highs, while Japanese yields are at multi-decade peaks. Simultaneously, the S&P 500’s equity risk premium is nearing zero.
- Morgan Stanley maintains a 12-month S&P 500 target of 8,300, buoyed by robust earnings growth not seen in over 20 years, excluding major market recoveries.
- This earnings strength extends beyond AI-focused companies; however, investor positioning is yet to align with this broadening market trend.
- Key factors that could unlock a market rotation include a decline in oil prices and interest rates, contingent upon a stable resolution in Iran.
[Source: Bloomberg]
China’s Economic Data Underwhelms Amidst Iranian Conflict
[8:35 am] China’s economic recovery faced setbacks in April, with several key indicators falling short of expectations, likely impacted by geopolitical tensions.
- Retail sales grew by just 0.2%, significantly lower than the 2% expected; this marks the weakest performance since December 2022.
- Industrial output increased by 4.1%, but again, this was below the anticipated 5.9%, showing a deceleration from March’s growth.
- Year-to-date urban fixed asset investment declined by 1.6% compared to expectations of an increase, largely due to a 13.7% plunge in property investment.
- A positive note was found in exports, which rose by 14.1%, driven by international buyers stockpiling products in anticipation of rising costs related to the conflict.
- Factory-gate prices have resumed inflation, hitting a three-year high as the Producer Price Index outpaces the Consumer Price Index since July 2022.
Intensifying Oil Export Challenges for Iran
[8:34 am] The US blockade is deepening congestion for Iranian oil exports, as evidenced by satellite imagery revealing numerous tankers idle near Iran’s main oil export hub.
- There were 23 tankers spotted around Kharg Island recently, a significant increase from just four in mid-April when the blockade commenced.
- The US Central Command has intercepted and turned away numerous commercial vessels since the blockade implementation.
- As oil storage fills up at Kharg Island, Iran has been compelled to reduce crude production due to its inability to offload tankers.
[Source: Bloomberg]
Trump Suspends Planned Strike on Iran for Diplomatic Efforts
[8:33 am] Former President Trump has called off a proposed military strike on Iran following requests for more time from Gulf allies, aiming to explore diplomatic avenues.
- Gulf leaders believe a potential deal is close and requested an additional 2-3 days without setting a formal deadline for further military action.
- The US rejected Iran’s recent proposal for negotiations, citing insufficient detail regarding uranium containment and enrichment.
- Amidst the escalating tensions, the US Treasury extended a sanctions waiver for Russian oil by another month to alleviate global supply concerns.
- Trump has also indicated the possibility of lifting sanctions on Chinese firms that import Iranian crude, which previously accounted for a significant portion of Iran’s oil exports.
[Source: Bloomberg]
US Equities Close Lower Amidst Tensions and Market Adjustments
[8:27 am] Major US stock indices concluded the previous session mostly lower, influenced by ongoing geopolitical tensions and readjustments in the technology sector.
- The equal-weighted S&P 500 outperformed its capitalisation-weighted counterpart, highlighting a positive breadth across most sectors.
- Leading sectors included software, energy, and finance, while technology hardware, automotive, and biotechnology lagged behind.
- Volatility was fuelled by news of Trump’s decision to cancel military actions against Iran after discussions with Gulf allies.
- The US 10-year yield saw a brief spike to 4.60% but ended slightly lower at 4.58%. Market sentiment remains cautious, influenced by rising global bond yields and a hawkish stance from the Federal Reserve, with expectations of further rate hikes.
Morning Update from the ASX
[8:20 am] Good morning! ASX 200 futures have risen by 92 points (+1.07%).
Here’s a quick summary of the previous night’s trading:
- US indices displayed mixed results: the S&P 500 remained steady while the Nasdaq fell by 0.51% due to tech sector weakness, particularly in memory chips and semiconductors. The Dow rose by 0.32% as defensive stocks gained traction.
- Attention remains on bond yields, with rising rates prompting concerns about the resilience of the ongoing equity rally.
- Trump’s announcement to postpone military action against Iran reflects a broader effort to navigate geopolitical tensions through diplomacy.
Stay tuned for further updates as the market continues to evolve.
