Good morning. US equities rallied on Friday, the S&P 500 up 1.1% to 7,501 and the Nasdaq up 1.9% to 26,518, with the AI chipmakers doing most of the lifting. The move came despite a hawkish turn from the Federal Reserve. At Kevin Warsh's first meeting as chair the Fed held at 3.50% to 3.75%, but its updated projections now point to possible rate rises this year rather than the cut officials had pencilled in, with inflation running near a three-year high. The front end repriced accordingly, the two-year Treasury yield up 15 bps to 4.20% and the US dollar up 0.8%.
What let equities look past the Fed was oil. Brent ended Friday at US$80.59, up 0.9% on the day but down 7.7% over the week, after an Israel-Hezbollah ceasefire and signs the Strait of Hormuz could reopen took the supply premium out of the price. Cheaper energy eases the petrol-driven inflation the Fed is worried about, and matters more for the rate path than one day's tick higher. The AI build-out is doing the rest. Micron reports on 24 June with its high-bandwidth memory sold out for the year, the cleanest read available on whether the chip cycle is still tightening.
The ASX 200 closed the prior session down 0.9% at 8,829, with BHP and Rio Tinto the main drag as iron ore held near US$101 but Chinese steel demand stayed soft. Closer to home for the reader, ASIC has put private credit on notice ahead of 30 June valuations, warning the sector faces its first real test as liquidity tightens and borrower stress emerges. That lands as KKR, a manager on the arcpoint HCL, curbs redemptions in a retail private-credit fund offshore. Valuations and the ability to meet withdrawals, not headline yields, are where that asset class will be judged this reporting season.
This bears directly on the HCL's private-credit shelf. The 30 June cycle will test valuation governance and redemption terms, not the headline yields the funds advertise.
The Australian and US rate paths are diverging, with the local front end anchored. That divergence has weighed on the Australian dollar, down 0.9% over the week.
Higher-for-longer at the front end lifts the discount rate under every risk asset, even as equities chose to look through it on the day.
Cheaper energy is the relief valve on the inflation the Fed is worried about, and it matters more for the rate path than the single day's move up.
The price today keeps the majors comfortable on cash flow. The swing factor for the thesis is whether Chinese steel demand fades slowly or stalls, not the spot level.
The read-through is to a slow rotation in who buys the Pilbara's output. It supports volumes if Chinese demand keeps fading rather than collapsing.
Goodman is the most direct ASX exposure to the AI build-out lifting Wall Street. The risk is converting that power bank into signed, paying contracts on the timeline implied.
Reaffirmed guidance and a running buyback give the defensives appeal on a session where the cyclicals led the market lower.
A fatal crash revives the regulatory and reputational risk around autonomous driving, the part of Tesla's story that carries the richest valuation.
The rally stayed narrow and chip-led, which concentrates both the upside and the risk in a handful of names a diversified book already owns heavily.
Whether that margin holds is a cleaner read on the AI cycle than the revenue line, because memory pricing softens first when supply starts to loosen.
KKR sits on the arcpoint HCL. The offshore redemption curbs and ASIC's local scrutiny point at the same pressure, valuations and the ability to meet withdrawals.
A franchise-record opening is a rare clean read on discretionary spending holding up even as higher rates and dearer petrol bite.
“Markets were holding out hope that Chair Warsh would throw them some kernels of real dovishness that they obviously felt they didn't get.”
“We've missed on inflation for five years and we're going to fix that.”
“We will start to see physical shortages. Demand needs to move to meet supply, and economies are going to have to slow.”
“In the AI era, memory has become a strategic asset for our customers, and we are investing in our global manufacturing footprint to support their growing demand.”
“The sector is facing its first real test. Tighter liquidity, emerging borrower stress and signs of credit deterioration are testing valuations, governance and investor disclosures.”
“The US economy continues to be resilient, with consumers still earning and spending, though with some recent weakening.”
General advice only. This note does not consider your objectives, financial situation or needs. Consider its appropriateness and seek advice before acting. Past performance is not a reliable indicator of future performance.
Sources: Yahoo Finance, FRED, RBA, company filings.