Market Highlights: China to benefit from a possible US default, and 5 ASX small caps to watch today

The ASX is set to open modestly higher on Tuesday
China is set to benefit from a possible US default as debt ceiling deadline looms
US lawmakers urged to stick to categorising cryptos as securities, not commdities

The ASX is set to open slightly higher on Tuesday as stocks in New York climbed. At 8am AEST, the near-dated ASX 200 futures contract was pointing up by just 2 points.

Overnight, all major indexes on Wall Street closed modestly higher – the S&P 500 by +0.3%, the Dow Jones by +0.14%, and tech heavy Nasdaq by +0.66%.

There was lots of Fedspeak, with two officials suggesting that interest rates would remain on hold until inflation comes down and the labour market softens.

Yields on US treasury bonds rose (bond prices down) after the comments.

To stock news, Microsoft’s US $69 billion takeover of Activision Blizzard finally got approval from the European Union.

AI stock C3.ai rallied 23% after it raised its outlook, citing that interest in applying predictive analytics “has never been greater.”

Retailers Walmart, Target and Home Depot will report their earnings this week, along with China’s tech giants Alibaba and Tencent.

Now read: Tech-Heavy: Major US retailers to report as consumer sentiment crashes and credit card debt nears US$1trn

China to benefit from a US default

Meanwhile, President Biden announced plans to meet with congressional leaders for the second time later today (US time), to resolve the debt ceiling crisis that’s been spooking the markets.

Wall Street is preparing for an unprecedented default on US government bonds.

Experts believe that a US default would quickly spread to the derivative, mortgage and commodity markets, because Treasury bonds are widely used as collateral for securing trades and loans in those markets.

Others says that a US default, which could happen as soon as June 1st, would be the “ultimate gift” for China.

“A default would up-end the global financial system and would likely be worse than the 2008 crash,” said deVere Group CEO, Nigel Green.

“However, there would be a major beneficiary of the economic and financial fallout: China.”

Green believes that if US defaulted, China would move to position itself as a more stable and attractive investment option, attracting more international investment and capital inflows.

“This would boost the Chinese economy and financial markets,” Green said.

He added that a US default would see a depreciation of US asset prices, including real estate, companies, and infrastructure.

“China, with its significant foreign exchange reserves, would likely take advantage of the situation by purchasing these assets at discounted prices.

“Also, the US dollar’s status as the world’s primary reserve currency could be undermined in the event of a default.

“This would be an opportunity for China to promote the internationalisation of its own currency,” Green said.

In other markets ….

Crude prices lifted 1.5% overnight, with WTI trading at US$71.10 a barrel.

The US dollar has softened however, which should provide some local relief for crude prices.

“If the economy shows further signs that growth is plunging, oil prices could remain heavy,” said Oanda analyst, Edward Moya.

Gold remained flat, trading now at US$2,015.97 an ounce.

Gold might be ready to make another run to record high territory as investors flock to safety and prepare for a possible US default.

“What might complicate gold’s gains is if stagflation signs grow and the risks of more Fed tightening get justified,” said Moya.

Bitcoin meanwhile rose 1.5% in the last 24 hours to US$27,351.

A leaked US government document revealed that US lawmakers are considering to categorise all cryptocurrencies as securities, as opposed to commodities.

This matters because if a cryptocurrency is a security, crypto issuers and exchanges must seek the necessary licenses from their securities regulators, which is often difficult to do.

Because of that, there’s been a lot of effort by the industry trying to ensure that cryptocurrencies avoid securities laws.

5 ASX small caps to watch today

Sezzle Inc (ASX:SZL)
The US-based payments company said total income for Q1 rose 25.5% YoY to US$34.7m. For the second quarter in a row, Total Income less Transaction Costs set a new quarterly high as it reached US$214m in Q1. As of 31 March, Sezzle had cash and equivalents in bank of US$60.6m.

Jaxsta (ASX:JXT)
The world’s only official music credits database, Jaxsta, has launched VINYL, an extensive music catalogue consisting of over 49,000 vinyl records available at the iconic URL, vinyl.com. Jaxsta’s Official Music Credits have been employed to power this collection, making it a unique offering for vinyl enthusiasts and music lovers alike. Jaxsta says the vinyl revival continues its resurgence with vinyl album sales in the US growing for the 16th consecutive year.

Immutep (ASX:IMM)
The immunotherapy biotech company has received positive feedback from the US FDA regarding its plans for a trial on its LAG-3 protein and MHC Class II agonist, eftilagimod alpha (efti), for the treatment of 1st line non- small cell lung cancer (NSCLC). The FDA is supportive of a registrational trial to evaluate efti in combination with an anti-PD-1 therapy based on the encouraging data from the Phase II TACTI-002.

Australian Strategic Materials (ASX:ASM)
ASM has has commenced a strategic partnership with US based rare earth magnet manufacturer Noveon Magnetic, with the signing of an agreement for the sale of neodymium iron boron (NdFeB) alloy from the Korean Metals Plant (KMP). The agreement provides for the sale of 100 tonnes of NdFeB alloy from the KMP, to be delivered to Noveon in accordance with an agreed schedule during the period up to end of March 2024.

Australian Rare Earths (ASX:AR3)
AR3 says highly successful metallurgical tests are pointing to significantly lower processing costs. A breakthrough testwork shows that removing larger ore particles before processing increases head grade significantly for little reduction in total recovered rare earths. This resulted in 90% of the magnet rare earths being contained in 64% of the ore. Further work is underway on this approach in parallel with the drive to continue growing the Koppamurra Resource.