US markets were up strongly overnight, despite human headline Donald Trump who began an all-out fallout with his once close compatriot, Elon Musk – the man who would usurp him and dropped an Epstein-sized bomb on his way out of Washington this week.
On the EV-powered drive to his private jet out of Washington, Musk decried the President’s “big, beautiful bill”, arguing the tax cuts would effectively send the USA broke!
Trump swiped back at his ‘buddy’, saying his intransigence was linked to the bill taking away subsidies for electric vehicle makers like Tesla. The President added that he’d ‘kill’ further government incentives related to EVs and take away Elon’s government contracts, too – just for good measure.
Only in America!
So where’s the good news in all this? Well, as the world watches two powerful and wealthy men go swing-for-swing, the market isn’t equally in revolt. Instead, it has focussed on the more important news that the US economy isn’t as close to a recession as some might have thought after a raft of data that wasn’t screaming that the growth was good.
After the private sector ADP report earlier in the week wasn’t promising for the labour market, the 139,000 jobs number that showed up in May was cheered because only 125,000 new jobs were expected by economists in the Dow Jones survey. Also, unemployment was steady at 4.2%.
“The nonfarm payrolls report came in better than expected,” Anthony Saglimbene, chief market strategist at Ameriprise, said in an interview with CNBC. “It’s showing that the labour market is holding up very well in spite of kind of some slowing growth trends.”
Despite this, President Trump reignited his public disdain for US central bank boss Jerome Powell, calling for a 100-basis point cut from the Fed. And the readings of ISM data – which tracks what businesses are buying) were both under 50, implying contraction of the business sector is happening – give good reasons for an imminent rate cut.
However, the Fed won’t come close to a 1% cut of the official rate, mainly because it must be worried about the President’s potential to create a global trade crisis, which will need big rate cuts if that happens!
Of course, the good news is that inflation is falling in the US, worldwide and here too. But some of this fall is because economies are slowing, which raises questions about why stock markets continue to rise. That will be a subject for Monday’s story from yours truly!
Clearly, there’s a belief that Trump will follow the TACO theory script i.e. Trump Always Chickens Out.
Rationally, he must pull back on his big threats because they’re irrationally too big in the first place. Clearly, Wall Street is downgrading his tariff threats and the responses of global trading partners, and looking to lower rates, AI, tax cuts and deregulation as tailwinds for stock prices that would trump Trump’s headwinds.
You have to hope this works out. It’s why Trump’s announcement on Thursday (before the Musk blowup went nuclear with the Epstein references) that he and China’s Xi Jinping had had a “very good call”, was lapped up by stock markets.
Right now, Wall Street is optimistic. It’s fantasizing that markets are getting back to a pre-April 2 position, where they knew that tariffs were coming (but thought they could be reasonable) and that inflation was on the way down, rates would be falling, and a recession wasn’t likely.
This on CNBC from Anthony Saglimbene, chief market strategist at Ameriprise sums up what US investors are thinking or hoping for: “There’s still some uncertainty about what the inflation impacts are going to be from the tariffs, [but] markets are kind of holding judgment about what all this means for growth and profitability over the next couple of quarters, so we’re kind of back to where we were in February”.
To the local story and the S&P/ASX 200 added 88.50 points (or 1.05%) to finish at 8515.70, making it a four- week tear higher for the index.
Positive winds out of Wall Street, the low growth number (that suggests a July rate cut is very possible) and China news (ranging from export controls on critical minerals and then the “very good call” between Trump and Xi) have all helped different mining stocks over the week.
I’d like to argue that local issues will determine where stocks go, but it really is all about Trump first and China second.
To the ‘star’ and ‘struggler’ stocks that were up or down by 5% or more:
To the stars…
- Lynas (LYC) up 11.31% to $9.15 on talk China will put export controls on critical minerals.
- Pilbara Minerals (PLS) also up on China export controls, rising 5.79% to $1.28.
- IGO is ditto, up 6.75% to $4.19.
- Mineral Resources (MIN) is also ditto, up 9.67% to $23.71.
- Liontown Res (LTR) up 9.57% to $0.63 on the above reason.
- Chalice Mining (CHN) up 11.35% to $1.27 — ditto!
And the strugglers…
- IDP Ed (IEL) smashed on a bad outlook report, down 53.8% to $3.59 on lower foreign student numbers and costs!
What I liked
- Wall Street was up, despite the concerns about the Musk-Trump fallout and the word “Epstein” was bomb-dropped!
- A better-than-expected US Jobs Report, with jobs up 139,000 for April when 125,000 was expected.
- Trump saying he had a good telephone call with Xi Jinping, which helped miners but hit critical minerals stocks that had been on a big surge on fears that China would place export controls on rare earths and other minerals.
- The arguments for a July rate cut are building. Westpac’s chief economist, Luci Ellis noted this week: “Soft GDP data for Q1 has again raised questions of whether the RBA is behind the curve and has left policy too tight for too long.”
- The rising dollar over 65 US cents, which is good for inflation locally, but investors should think about hedging their US investments.
- The Melbourne Institute inflation expectations index fell by 0.4% in May and was 2.6% higher over the year, down from 3.3% last year.
- This from the AMP economics team: “The most interesting part of the RBA May meeting minutes (when the Board cut the cash rate by 0.25% to 3.85%) was the discussion about whether the central banks should reduce the cash rate by 0.25% or 0.5% at that meeting. This helps the case that a July cut must be a chance after that weak economic growth number this week”.
- The Chinese Caixin report showed the services reading was better, up to 51.1 in May (from 50.7 last month)
What I didn’t like
- Annual GDP growth flatlined at 1.3%, below expectations for a pick-up to 1.5%, remaining well short of the 2.5% pace that used to be considered “normal” with the 20-year pre-pandemic average rate of closer to 3%.
- Westpac reports that a housing recovery is slowly forming but looks set to remain ‘affordability-constrained’.
- The US ISM manufacturing index for May moderated to 48.5 (from 48.7), with a number below 50 indicating contracting activity.
- The ISM services index was also poor in May, slipping into contraction at 49.9 (from 51.6 last month).
- The May Beige Book, which is a commentary on economic conditions by the various Federal Reserve districts, showed a pretty subdued outlook on the US economy, though it could help the US get a rate cut soon.
- The ECB revised down its near-term growth forecast (due to trade uncertainty) but on the plus side, it expects stronger growth in 2026.
- The Chinese Caixin manufacturing PMI fell to 48.3 in May (down from 50.4 last month), which indicates a contraction in activity.
How top stocks fared this week
Quote of the week: Trump, Musk & Impeachment
Axios.com reported that “Elon Musk unleashed a fresh round of tweets late Thursday afternoon, calling for President Trump to be impeached and declaring that SpaceX would begin decommissioning a spacecraft essential to NASA’s operation — though he later backtracked on this threat.”
This will unleash the ‘crazies’ in the US, with noted MAGA advocate Steve Bannon calling for Musk to be deported!
However, the big issue will be how Congress reacts to the Epstein accusation against the President. Ironically, if Trump was impeached, it would take away a curve ball that markets would be happy about.
I could say more but I think I only need to finish with — only in America!