• The ASX is set to fall on Wednesday after some gloomy earnings forecast on Wall Street
  • Debt ceiling negotiations commence, with a potential US default on the line
  • UBS says last night’s Budget was “stimulatory”, adding pressure on the RBA 

 

The ASX is poised to open modestly lower on Wednesday as US indexes fell in New York. At 8am AEST, the May ASX 200 futures contract was pointing down by 0.15%.

Overnight, US indices fell on gloomy earnings forecasts – with the S&P 500 falling by 0.46%, the Dow by -0.17%, and tech-heavy Nasdaq by -0.63%.

Paypal shares plunged 13% after cutting its margins forecast.

Semiconductor firm Skyworks Solutions fell over 5% after forecasting revenue and earnings that are below analysts’ estimates.

Most other Apple suppliers like Qualcomm, Broadcom, Qorvo also fell broad-based by over 1%.

Investors’ focus is now on today’s all crucial US inflation report, with the CPI index expected to climb 0.4% in April after gaining 0.1% in March.

“The Fed won’t be raising rates on a hot report, but it will justify calls that rates will stay higher for longer,” said Oanda analyst, Edward Moya.

Meanwhile a survey released overnight shows that US small business optimism has tumbled to the worst levels in a decade, as high-interest loans are about to cripple the sector.

 

Investors sweat on debt ceiling

Today will also be the start of lengthy debt ceiling negotiations as President Biden meets with House Speaker Kevin McCarthy along with congressional leaders at the White House.

“No one is expecting any meaningful progress with this meeting,” said Moya.

“The best-case scenario is that the White House meeting paves the way for lawmakers to agree upon a few hundred billion or more in spending cuts.”

 

UBS calls Budget ‘stimulatory’

Treasurer Jim Chalmers delivered his second Federal Budget last night.

Highlights include a $15bn package for welfare, bulk-billing incentives and energy bill discounts.

Chalmers said the budget was not inflationary, but warned there would be more “difficult decisions” with more tax hikes to help fund a cost of living package.

“This Budget has been carefully designed and calibrated to take the pressure off the cost of living … without adding to inflation,” he said.

But UBS analysts are not convinced, saying that the Budget could be seen as “stimulatory”, and will push back the timeline the RBA is likely to cut rates.

UBS believes there is an increasing risk the RBA will increase rates again by 25bp either in July or August as a result of this Budget.

 

In other markets …

Crude rose by another 0.5% overnight, with WTI trading at US$73.51 a barrel.

Oil prices went on a rollercoaster ride as energy traders watched a deteriorating demand outlook countered by some bullish supply news that the US was looking to replenish its strategic reserves as soon as possible.

Prices later retreated after China data supported concerns the country’s recovery post-Covid lockdowns continues to disappoint.

The gold price was up 0.7% to US$2,034.88.

“Gold is entering a win-win scenario as a hot inflation report will justify higher rates for longer… which could trigger a stock market selloff,” said Moya.

A cooling inflation data on the other hand, could see gold price fall, he added.

Bitcoin was down 0.15% in the last 24 hours to US$27,558.

Crypto expert Nicholas Merten, the host of DataDash, has warned that Warren Buffett’s massive sell-off of US stocks does not bode well for Bitcoin and risk assets.

“Warren Buffett is usually buying when there’s blood in the streets,” Marten said.

“He is sitting on a massive pile of cash, one of the biggest piles it’s ever had before.

“And you would think that they’re going out on a buying spree. Nope, over the last quarter, Berkshire Hathaway sold billions in stocks.”

 

5 ASX small caps to watch today

Redbubble (ASX:RBL)
Redbubble says it will be implementing further cost-reduction measures to accelerate the return to cash flow positive. The online retailer is aiming to reduce its operating expenditure by a further $13 million to $15 million on an annualised basis. The majority of the cost savings will be achieved by reducing its workforce by approximately 23% or 75 roles.

Experience Co (ASX:EXP)
The company grew its sales revenue in Q2 by 69% on pcp to $28.1m. The quarter also saw another profitable EBITDA driven by a post-Covid high monthly trading performance in January. The company’s Skydiving category has achieved 50% of pre-pandemic volumes in the quarter.

Cogstate (ASX:CGS)
Cogstate announced a restructure that will see approximately 13% of the company’s fulltime workforce exit the company, reducing annual costs by approximately $2.6 million. Most of the headcount reductions will come from the Clinical Trials business unit, producing an annualised cost saving of $1.7 million.

Spacetalk (ASX:SPA)
Spacetalk says it has a new strategy that will bring clarity to its future, purpose, direction and focus. The company said its goal is to be the most trusted provider of family safety and security at every stage of life in Australia and New Zealand. To achieve this, Spacetalk says it will activate all areas of opportunity, continue its evolution to be more software centric, and build its subscription base.

PharmAust (ASX:PAA)
PharmAust says that after formally testing Monepantel tablets for 12 months in storage at a controlled temperature of 25°C with 60% humidity, the tablets remain within specifications relevant for human clinical trials. This product stability and shelf-life are important as PharmAust moves toward Phase 2 human trials and identifies potential commercial partners.

 

At Stockhead we tell it like it is. While PharmAust is a Stockhead advertiser, it did not sponsor this article.

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