The Overnight Report: Brent Tops US$100/bbl

Array
(
    [0] => Array
        (
            [0] => ((ASB))
            [1] => ((GSS))
            [2] => ((MAP))
            [3] => ((BPT))
            [4] => ((NXT))
            [5] => ((AMA))
            [6] => ((BRG))
            [7] => ((BUB))
            [8] => ((CLX))
            [9] => ((FRW))
            [10] => ((GLB))
            [11] => ((IFN))
            [12] => ((KGN))
            [13] => ((MMS))
            [14] => ((NAC))
            [15] => ((NEC))
            [16] => ((NSC))
            [17] => ((NZM))
            [18] => ((PPT))
            [19] => ((RRL))
            [20] => ((RRL))
            [21] => ((SFR))
            [22] => ((SGH))
            [23] => ((SKT))
            [24] => ((SPK))
            [25] => ((TOP))
            [26] => ((VMC))
            [27] => ((XRF))
        )

    [1] => Array
        (
            [0] => ASB
            [1] => GSS
            [2] => MAP
            [3] => BPT
            [4] => NXT
            [5] => AMA
            [6] => BRG
            [7] => BUB
            [8] => CLX
            [9] => FRW
            [10] => GLB
            [11] => IFN
            [12] => KGN
            [13] => MMS
            [14] => NAC
            [15] => NEC
            [16] => NSC
            [17] => NZM
            [18] => PPT
            [19] => RRL
            [20] => RRL
            [21] => SFR
            [22] => SGH
            [23] => SKT
            [24] => SPK
            [25] => TOP
            [26] => VMC
            [27] => XRF
        )

)

This story features AUSTAL LIMITED, and other companies.
For more info SHARE ANALYSIS: ASB
The company is included in ASX200, ASX300 and ALL-ORDS

Markets fell as President Trump stated oil prices would remain high until after the US midterm elections.

US Treasury yields rose ahead of the upcoming August PPI and CPI prints this week.

The Australian market traded down slightly yesterday, with ASX200 futures pointing to a more pronounced down day for Thursday.

Good Morning,

The Australian market slipped -9.4 points or -0.11% to 8911.40 on Wednesday on weakness in Healthcare, Staples, InfoTech and Telcos.

Materials rallied 1.5%.

The CBA Wage and Labour Insights and Melbourne Institute’s inflation expectations report will be released today.

In the US, the PPI, existing home sales, and weekly jobless claims are out. 

In Europe, the ECB will make its decision on interest rates.

To stay in touch with which companies are going ex-dividend, check out the FNArena Calendar https://fnarena.com/index.php/financial-news/calendar/

Today’s Big Picture, J.L. Bernstein extract

Trump Says No Oil Relief Until After The Midterms

Brent settled at US$101.21, its highest close since May, after the U.S. destroyed five more Iranian tankers.

Trump told reporters oil won’t come down until “right after” the November election.

Diesel now averages US$5.94 a gallon, and the EIA expects stockpiles to fall below 100 million barrels this month for the first time since 2003.

Truckers and farmers are paying for this war before anyone else.

The Bond Market Wanted More From Bessent

Treasury tripled tomorrow’s long-term debt buyback to US$6 billion.

Bessent had called US$4 billion the floor last month, so plenty of traders were braced for US$7 or US$8 billion.

Yields rose instead of falling, and the 10-year finished near 4.84, its highest since late 2023.

Apple Prices The Fold At US$1,999

Apple $AAPL unveiled the iPhone Duo at John Ternus’s first launch event.

Memory and storage chip costs have quintupled since last fall, so prices rose across the lineup, though by less than analysts feared.

The stock trailed the S&P on launch day for the sixth year running.

Bank of America says it usually looks better 60 days out.

ANZ Bank, Australian Morning Focus

Equity markets declined and bond yields rose sharply following continued escalation in the Middle East.

The S&P500 was down -0.5%. In Europe, the EuroStoxx50 was down -1.6% and the FTSE100 was down -1.3%.

The yield on the 10y US Treasury note rose 5bp to 4.84%.

In commodities, the active WTI futures contract rose 3.2% to US$96.9/bbl. Gold was a little weaker at US$4,395/oz.

US: The four-week average of ADP private payrolls rose from 10k to 12k in the week ended 22 August. The downtrend in weekly hiring that had been in place since early May (when the four-week moving average peaked at over 40k) is now showing signs of stabilisation.

Middle East: The situation in the Middle East continues to worsen. Oil prices rose sharply following attacks on tankers, with Brent trading above US$100/bbl.

Our monetary policy framework through this conflict has been that well-anchored inflation expectations could afford central banks space to look through the first-order inflation effects of higher energy prices, whilst monitoring for the development of second-round effects.

While we have not seen evidence of inflation broadening beyond energy, that framework is now being brought into question following the recent escalation and our limited confidence that a resolution to the conflict can be achieved in the near term.

As the duration of the shock extends, the risk that firms pass on higher input costs and that current inflation uncertainty becomes embedded in higher inflation expectations is increasing.

China: Headline CPI edged higher to 0.8% y/y in August from the previously recorded 0.5% y/y, and PPI rose to 3.8% y/y from 3.5% y/y. China’s cost-push inflation cycle has not ended.

The 2026 inflation profile will likely follow an M-shaped pattern, with another peak expected in H2. Thus, we maintain our forecast of CPI at 1.2% and PPI at 2.0%. Food and energy prices are likely to support CPI inflation in H2 2026.

In addition, El Nino is likely to reinforce expectations of higher food inflation.

On the energy side, market expectations of continued tightness in the global oil market remain elevated. The rebound in inflation should provide policymakers additional policy flexibility and reduce the urgency of a near-term interest rate cut, in our view.

Policymakers will likely focus on supply-side reforms. The anti-involution campaign is likely to take time to translate into meaningful reductions in excess capacity.

The Pulse of the Market, Lori Calvasina, RBC Capital Markets

Despite our attempt to unplug from financial markets in late August and early September, one thought that we ruminated on over the past few weeks was the difficulties some financial market participants seem to have in separating out near-term views on the outlook for stocks from longer-term ones.

With this in mind, we wanted to be clear in this edition of Pulse where we stand on each.

When it comes to the near term, we think it’s fair to say that risks of a tier 1/garden variety pullback of -5%-10% have grown for a few reasons. 

First, the US equity market is in the middle of a seasonally difficult stretch. Indeed, September has been a down month in 5 of the past 10 years for the S&P 500. 

Second, the US midterm elections are coming up. 

As we pointed out in our last edition of Pulse on August 20, the S&P500 has been volatile in the back half of the past two midterm election years.

Additionally, AI backlash has emerged as a campaign issue in some races, while betting markets are also continuing to suggest that expectations for a Democratic sweep (which our analyst survey work has suggested is less stock-market friendly than a Republican sweep or a split Congress scenario from a policy perspective) have been picking up. 

Third, the lack of a resolution in the Iran war remains a headwind for stocks. 

One ripple effect seen so far is that while these indices are not hitting new lows, the improvement in consumer confidence/sentiment that we’d gotten some hints of early in the summer has faded. 

Fourth, investor angst over the path of inflation, the Fed, and interest rates broadly is stubbornly sticking around.

Aside from the broader wobble in stocks that has accompanied the recent increases in Fed hike expectations, one of the clearest stock market impacts we’ve seen from this has been with Small Caps, which have been underperforming Large Caps since late June. 

Another risk on our radar is the potential need for the Street to pull down bottom-up consensus 2027 EPS forecasts, though this one for the moment seems elusive as 2027 EPS growth forecasts have started to move up again. 

Note that while each of these are concerns to be taken seriously, our four tiers of fear framework reminds us that in the post-GFC era, pullbacks in the S&P500 tend to be contained in the -5%-10% range (peak to trough, intra-year) unless serious concerns about a recession or interest rate shock (similar to the major moves up in 10-year yields and Fed funds in 2022) emerge.

When we refocus on the longer term, and on the models that we use to derive our S&P500 price target, we still see a number of reasons to stay optimistic and so are sticking with our 8,150 forecast, which represents a gain of slightly more than 6% from the September 8 close. 

Note, our price target is a 12-month forecast and (unlike those of most other strategists) is not an articulation of where we expect the S&P500 to be on December 31 of this year. As our regular readers are well aware, we utilize five different models to come up with our S&P500 price target. 

At the moment, all five are pointing to upside in the year ahead. Our sentiment model is currently sitting at a level (moderately bearish) that tends to be followed by a gain of more than 10% in the S&P500 over the next 12 months. 

Meanwhile, our GDP model also suggests that if RBC Economics’ and consensus forecasts for yr/yr growth in the low-2% range in the middle quarters of 2027 come to fruition, the index should also be expected to rise more than 10%. 

While our earnings yield gap model does acknowledge that the appeal for US equities has eroded relative to bonds, this indicator is still at a level that has tended to be followed by healthy gains in the stock market over the next 12 months (more than 14%).

And when it comes to the Fed, our analysis shows that stocks tend to perform well (gaining more than 13% on average) when the Fed hikes up to 100 basis points in a 12-month time frame, but that it’s not until the Fed moves more than that that we start to see equity returns suffer. 

Note, according to our Rates Strategy team, market pricing anticipates 2-3 hikes over the next 12 months.

Despite the bullish signals that these models are sending, this month –-in an effort to be extremely conservative-– we’re keeping our price target linked to the math of our valuation/EPS model, which allows us to fine-tune our assumptions on some of the things some financial market participants are ruminating on today –- the path of inflation, interest rates, and the Fed, and whether there’s too much optimism baked into the AI earnings story. 

In the latest update to this model, we’re trimming the bottom-up consensus trailing four-quarter S&P500 EPS estimate for 2Q27 by -10% (to account for the idea of excess earnings optimism) while baking in 2.75% CPI, 3 hikes, and 10-year yields of 5% into our P/E assumption (the CPI and 10-year yield assumptions are higher than both RBC and consensus forecasts).

That math points to a fair value estimate of 8,158 for the S&P 500 in mid-2027, and our 8,150 target is an approximation of that number.

Quick Hits: What Else Jumps Out

• US equities still look slightly attractive relative to non-US equities on forward P/E using a 5-year time frame, which leads us to give the US a slight edge over non-US going forward.
• Also on US/non-US, US equity flows have weakened while European equity flows have improved, but it is a stretch to say we’re seeing rotation from US to Europe on our flow work.
• With 2Q stats now mostly in, the recovery in capex growth for the non-top 10 market cap names in the S&P500 has become more apparent, but still appears to be early innings.
• Among the S&P500 sectors, Financials now looks slightly expensive with median forward P/Es on both an absolute and relative basis a bit above their long-term average. We remain overweight this sector but do see this as a yellow flag to keep an eye on.
• Small Caps remain challenged by rate hike angst, but we do see Friday’s strong NFP print as a positive data point for this segment of the US equity market.

Corporate news in Australia:

• Wildcat Infrastructure offers US$1.25bn–US$1.35bn for Austal’s ((ASB)) US business, topping Hanwha’s US$1.2bn proposal
• Goldman Sachs Alternatives agrees to acquire a controlling stake in NOJA Power from Ellerston Capital at a valuation of more than $1bn
• PEP emerges as the exclusive bidder for Perth Radiological Clinic while separately continuing to pursue QScan
• BCAL Diagnostics is pursuing a three-way merger with Genetic Signatures ((GSS)) and Sonic Healthcare-backed Microba Life Sciences ((MAP))
• Beach Energy ((BPT)) is reportedly in talks to take majority ownership and operatorship of Elixir Energy’s core Taroom Trough gas acreage in Queensland
• Ausbil CIO Paul Xiradis backs Firmus Technologies’ $280m pre-IPO raising after making an earlier personal investment in the Australian neocloud company
• Alceon Private Equity invests in Australian AI implementation business Engage Squared, the first investment from its $100m PE Access Fund
• NextDC ((NXT)) launches a $1.1bn convertible notes raising to fund its expanding Australian data centre development pipeline and strengthen liquidity
• Google plans to invest EUR13bn in Finnish data centres and clean energy infrastructure, including three new data centres and long-term nuclear power purchases

On the calendar today:

-EZ ECB rate decision

-US Aug Existing home sales

-US Aug PPI

-US July Wholesale inventories (final)

-GE Aug CPI (final)

-AMA GROUP LIMITED ((AMA)) ex-div 0.50c (100%)

-BREVILLE GROUP LIMITED ((BRG)) ex-div 19.00c (100%)

-BUBS AUSTRALIA LIMITED ((BUB)) investor briefing

-CTI LOGISTICS LIMITED ((CLX)) ex-div 8.00c (100%)

-FREIGHTWAYS GROUP LIMITED ((FRW)) ex-div 19.93c (42%)

-GLOBE INTERNATIONAL LIMITED ((GLB)) ex-div 13.00c (100%)

-INFRAGREEN GROUP LIMITED ((IFN)) ex-div 0.50c (100%)

-KOGAN.COM LIMITED ((KGN)) ex-div 8.00c (100%)

-MCMILLAN SHAKESPEARE LIMITED ((MMS)) ex-div 70.00c (100%)

-NAOS EX-50 OPPORTUNITIES CO. LIMITED ((NAC)) ex-div 1.60c (50%)

-NINE ENTERTAINMENT CO. HOLDINGS LIMITED ((NEC)) ex-div 3.00c

-NAOS SMALL CAP OPPORTUNITIES COMPANY LIMITED ((NSC)) ex-div 1.25c (50%)

-NZME LIMITED ((NZM)) ex-div 2.50c

-PERPETUAL LIMITED ((PPT)) ex-div 63.00c

-REGIS RESOURCES LIMITED ((RRL)) ex-div 15.00c (100%)

-REGIS RESOURCES LIMITED ((RRL)) ex-div 5.00c (100%)

-SANDFIRE RESOURCES LIMITED ((SFR)) ex-div 35.00c (100%)

-SGH LIMITED ((SGH)) ex-div 32.00c (100%)

-SKY NETWORK TELEVISION LIMITED ((SKT)) ex-div 14.08c

-SPARK NEW ZEALAND LIMITED ((SPK)) ex-div 6.15c

-THORNEY OPPORTUNITIES LIMITED ((TOP)) ex-div 1.65c (100%)

-VENUS METALS CORPORATION LIMITED ((VMC)) ex-div 16.97c (80%)

-XRF SCIENTIFIC LIMITED ((XRF)) ex-div 4.50c (100%)

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

The Australian share market over the past thirty days…

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author’s and not by association FNArena’s – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms