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Chapter 1: What is the main topic discussed in this episode?
A listener production.
Soaring US dollar hammers commodities. US stocks muted despite further falls in tech shares. And we'll preview what's ahead for our share market today. Hello, good morning. I'm James Gruber.
Chapter 2: What impact does the soaring US dollar have on commodities?
It's Thursday, the 25th of June. This is the morning edition of the ComSec Market Update. Well, the US dollar reached a 13-month high against other major currencies overnight, as markets braced for anticipated rate hikes from the US Federal Reserve this year. That hit commodities and the Aussie dollar particularly hard.
Chapter 3: How are US stocks reacting to technology sector weakness?
Oil prices hit levels last seen before the start of the Iran war. They're now down about 39% from the peak prices reached in April. Meantime, gold hit an over seven-month low. And Bitcoin also dropped below the $60,000 mark. And the Aussie dollar slid further and is now down more than 5% over the past six weeks.
By comparison, stock market action was relatively muted as US markets continued to struggle with the tech sector again weighing on them. Let's take a deeper look at what's happened with Aussie futures, commodities and currencies. The ASX is poised to open higher with index futures up 0.2%. They were down but then moved higher after Micron reported results after market, which we'll get to later.
As for the ASX 200 yesterday, it closed 0.2% higher at $8,808. Investors took on a cautious stance after higher-than-expected core inflation in May kept bets on further policy tightening still on the table. The data showed that headline inflation cooled to 4% in the year to May from 4.2%, and that was below consensus forecasts.
However, core inflation increased by 0.4% in May, above forecasts, pushing the annual pace up to 3.6%. Today, our market is likely to see miners come under pressure after the falls in commodity prices. However, companies with US exposure may benefit from the rising US dollar, the likes of CSL, James Hardy and Cochlear.
On commodity markets, global oil prices plunged as supply concerns eased, with more stranded oil tankers exiting the Strait of Hormuz, and the rising US dollar acted as a double whammy for oil prices. Brent crude futures settled 4.3% lower at US$73.74 a barrel. Base metal prices tumbled on a stronger US dollar. Copper futures dropped 3.4%, while aluminium futures tumbled 4.1%.
Gold futures were smashed as the US dollar firmed. The futures settled 3.4% lower at US$4,009 an ounce, and gold prices are now down about 26% since late January. Meantime, iron ore prices were flat, with futures settling at US$100.56 a tonne. Let's now take a look at currencies. They were lower against the US dollar. The euro was down 0.3% to 1.1353 US dollars.
The Japanese yen dipped 0.2% to 161.82 yen. And the Aussie dollar slipped 0.4% to 68.92 US cents. Let's head to Wall Street. The Dow Jones Index finished up 0.4%, the S&P 500 was 0.1% lower, and the Nasdaq lost 0.4%.
A closer look at the trading day there, US share markets were mixed as concerns about high-flying tech stock valuations persisted, erasing morning gains that came as oil prices retreated. Six of the 11 major S&P 500 sectors moved higher, with industrials rising the most at 1.2%. Airlines and other travel stocks moved higher, with the passenger airlines index up nearly 5.2%.
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Chapter 4: What are the implications of recent commodity price drops?
Homebuilders soared after Donald Trump cancelled a planned signing of bipartisan legislation aimed at speeding up availability of affordable housing. Hovhanian Enterprises jumped 11%, while Pulte Group and Toll Brothers rose 7% each. Information technology shares fell 0.6%. Increased volatility in tech names has intensified focus on chipmaker Micron's results due after the bell.
Micron shares fell 0.4% today. And in news just in, Micron has delivered a sales forecast that topped Wall Street estimates, and the shares climbed by 10% in aftermarket trading. Meantime, Cerebras Systems tumbled 20% after the chip designer forecast full-year profit margins would drop below first quarter figures in its debut report after going public.
Also weighing on the stock, OpenAI announced on Wednesday its own in-house inference chip called Jalapeno. U.S. government bond yields fell as oil prices slid. While investors continued to weigh the likelihood of Federal Reserve rate hikes later this year, the U.S. 10-year Treasury yield lost 9 points to 4.41%, while the U.S. 2-year Treasury yield declined 5 points to 4.15%.
To the European markets, the continent-wide FTSE Euro First 300 index ended up 0.1% and the UK FTSE 100 gained 0.3%. Europe was muted as investors assessed developments in the US-Iran negotiations. Commodity-linked sectors were the biggest decliners. Miners and energy stocks fell 2.5% and 2.3% respectively, tracking a dip in metals and oil prices.
Chapter 5: How is the Australian dollar affected by the rising US dollar?
Conversely, the real estate sector rose 3%, with Segro climbing 17% after US-based Prologis took its $17 billion US bid for Segro public. The tech sector reversed gains to fall 0.3% after posting its biggest single-day drop in nearly five months in the previous session. Chipmaker Infineon fell 1.2% and chip equipment suppliers BE Semiconductor and ASML dropped 1.3% and 0.5% respectively.
Rheinmetall dropped 19% and marked its biggest one-day drop on record after Germany scrapped plans to build six F-126 frigates following delays and expected cost overruns. It's a contract the defence group was tipped to win. It's now time for the watch list. In Australia, the unemployment rate and household spending for May will be released.
In the US, the PCE price index, final GDP numbers, weekly jobless claims and durable goods orders are scheduled. And now it's time for our One More Thing segment, and we're looking at the hot topic of today, the US dollar. As mentioned, the dollar has made a one-year high against other major currencies. Most investors see that and immediately assume it's bad for stocks, but history disagrees.
Since 1971, the S&P has gained an average of 9.2% over the following 12 months after the US dollar hit a new 52-week high. And finally, a quick plug for our executive series. If you haven't heard of it, it's where we take a closer look at Australia's top companies and market themes and trends by interviewing executives or analysts, for example.
Gillian Bowen, who you would know joins me on a Monday and Friday, has published a fresh interview looking at investing across the AI value chain. You can find it on our website. We'll put a link in the episode description. And that's it for today.
The ComSec Media and Markets team is monitoring developments on today's local trading session, so check out our afternoon episode of the podcast for all the key updates. I'm James Gruber. Have a great day.
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Chapter 6: What trends are emerging in the Australian share market today?
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