The Overnight Report: Awaiting US CPI Print

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This story features EAGERS AUTOMOTIVE LIMITED, and other companies.
For more info SHARE ANALYSIS: APE
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

Overseas markets traded down as the ECB hiked rates, as expected, and US markets declined on a suite of negative updates: higher Treasury yields, higher oil prices and a slump in the copper price.

The Australian market recovered off its intraday low at lunchtime, but still finished with a sizeable loss in yesterday's session.

ASX200 futures are pointing to a weak start again for Friday.

That would be its fourth loss for the week.

Good Morning,

The Australian market rallied off its intraday lows, down -1.9% but the ASX200 still finished down -92 points or -1.03% to 8819, the worst day in three months and -5% below the recent high five weeks ago in late July.

US August CPI print

All eyes will be on the US August CPI print due out on Friday EST.

NAB believes the August CPI report is seen to be a key input into the FOMC decision as to whether they should tighten policy at next week’s meeting.

Pre the PPI report, the OIS curve was pricing 15bps (or a 62% chance) of a rate hike. It currently prices 18bps (or a 72% chance).

RBA, two more hikes?

Citi now expects two more RBA rate hikes this year, lifting the terminal rate to 4.85%.

The change is due to stubborn inflation from supply constraints, a tight labour market and elevated services inflation.

The first rate cut is now pushed out to 4Q2027.

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

The Iran War Timeline

Advisers to President Trump have privately said the fighting may drag on through 2029, the Journal reported.

Brent traded above US$106 and West Texas crude held near US$100.

Traders are no longer pricing this as a supply blip.

The 10-Year Is Closing In On 5%

The 10-year yield hit 4.923, its highest intraday level since October 2023.

BMO analysts wrote that talk of a 5 handle is back and they would not be surprised to see it.

Every valuation model on Wall Street runs through that number.

Europe’s Gas Problem Got Worse Overnight

Dutch gas hit its highest price since December 2022 after an Ukrainian drone flew more than 1,900 miles to strike a processing plant in Siberia.

The European Central Bank raised rates anyway and said inflation will stay above target for an extended period.

Europe goes into winter short on storage and now short on confidence.

ANZ Bank, Australian Morning Focus

Equity markets fell as bond yields rose and geopolitics drove defensive trading.

The S&P500 was down -0.6%. The EuroStoxx50 ended its session down -0.7%, while the FTSE100 lost -0.6%.

The yield on the US 10y note rose around 12.6bp to 4.96%.

WTI lifted 8.2% to US$103.3/bbl. Gold was weaker at US$4,318.1/oz.

US: The headline August PPI rose 0.4% m/m, as expected, driven by a 4.2% m/m rise in energy costs. Core PPI undershot expectations, rising 0.2% m/m.

The breakdown of the data was encouraging. Final demand services inflation rose 0.1% m/m. Trade services inflation, which reflects the retail and wholesale sectors, fell 0.2% m/m. Other services were flat (0.0% m/m) versus 0.5% in July. PPI services inflation appears contained to the energy-sensitive transport and warehousing sector and airfares.

Europe: The ECB raised its policy rate by 25bp to 2.50% and remains vigilant in the current environment. While President Lagarde said there is no evidence of inflation pass-through in the euro area, the ECB expects inflation will stay elevated for an extended period.

It will follow a data-dependent, meeting-by-meeting approach to policy setting as it monitors geopolitical risks and developments.

Fed: The rise in US Treasury bond yields continued unabated as Brent crude futures prices pushed past US$107 per barrel.

There is no clarity on a path to resolution in the Middle East conflict, and its persistence is raising the risk that elevated oil prices will broaden through the price-setting framework, disrupting the encouraging underlying disinflation evident in sequential month-on-month data in recent months.

Consequently, yesterday we changed our Fed forecasts and now think a precautionary tightening will be warranted.

The persistence of negative supply-side shocks, including the recent trade dispute with Canada, is fuelling inflation uncertainty.

Importantly, the more persistent these shocks are, the greater the risk that firms will not be able to continue absorbing input price increases and will have to raise prices to protect profit margins.

Commodities

The energy sector surged higher as there remains no end in sight to supply disruptions in the Middle East. Precious metals fell on the prospect of rate hikes.

Crude oil surged higher as tensions in the Middle East worsened. A rise in attacks between the US and Iran has seen the market become increasingly concerned that the conflict could keep oil flows through the Strait of Hormuz constrained for the foreseeable future.

Both sides appear to be preparing for a protracted conflict, with little sign of a near-term ceasefire.

Bloomberg reported that Iranian officials have resolved to keep fighting despite mounting economic costs as they see the conflict as an existential threat. The country has also been able to rebuild its missile capabilities and will escalate strikes on the US and Persian Gulf assets if the US intensifies its attacks.

White House advisors have told President Trump that the conflict could drag on for the rest of his term, according to the Wall Street Journal.

The impact of the conflict is threatening to spread across the Middle East. The Iranian-backed Houthi militants have advanced towards Red Sea coastal areas, with reports that they have captured the port city of Mokha.

This could give the group a foothold, which could enable them to almost fully control the Bab al-Mandeb Strait.

They have continued to fire drones and missiles at Saudi Arabia’s southwestern town, damaging energy sites. The attacks have weighed on Saudi Arabian oil exports. The kingdom reported to OPEC that its crude oil production tumbled by -1.9mb/d to 6.238mb/d in August.

This is the lowest level since the Middle East conflict began. The shortages are causing the oil market to draw on inventories. US crude stockpiles fell by almost -400kbbl last week, the first back-to-back weekly decline since June.

US diesel exports fell to a two-month low, a sign that they may be conserving supplies as shortages mount across the world.

The escalation in the Middle East conflict is raising concerns in natural gas markets in Europe and Asia. European natural gas prices rose to their highest level since late 2022. The bloc is struggling to refill depleted storage facilities before the heating season, with levels sitting around 67%.

The situation is even more acute in Germany, where storage is only 55% full. The government has held talks with state-owned companies about how to boost inventories without outright intervention.

North Asia LNG prices topped US$28/MMBtu, a four-year high, as buying interest remains strong. Importers are continuing to seek cargoes, with no resolution of the conflict in sight.

Copper slumped after a report emerged that US officials have delayed their decision on whether import tariffs on refined metal are warranted amid inflationary concerns emanating from the Middle East conflict.

Reuters reported that they are fearful that a tariff would raise manufacturing costs, offsetting a benefit to domestic mining. This could take the heat out of the market, after US traders built up a sizeable stockpile in anticipation of the tariffs. Inventories held in COMEX warehouses have risen by 55% this year to 768kt.

Gold fell as traders increasingly price in a Fed rate hike. Swap traders now see a 70% chance at next week’s meeting. This comes after a gauge of producer inflation showed renewed pressure from rising energy prices.

The ECB also flagged inflation risks after it raised interest rates for the second time since the Middle East conflict began.

Tighter monetary policy is likely to be a headwind for the precious metal.

Corporate news in Australia:

• Morgan Stanley launches separate sale processes for National Dental Care and Dental Boutique, with each Australian dental group expected to attract a valuation above $500m
• M Resources submits a non-binding indicative bid for Pacific National’s coal haulage business
• Intellihub is evaluating a potential acquisition of Australian EV charging network Evie Networks
• Eagers Automotive ((APE)) agrees to acquire a 50% stake in luxury car dealer Zagame Automotive
• Lingbao Gold agrees to acquire St Barbara’s ((SBM)) 40% stake in PNG’s Simberi gold asset for $453m
• Tokio Marine steps up exploratory work on a potential $20bn-plus acquisition of Insurance Australia Group ((IAG)) or Suncorp Group ((SUN))
• Mirova establishes an Australian private assets team to originate energy-transition deals, targeting around 10% of its EUR2bn fund for investments in Australia and New Zealand
• Rixon Capital writes its $15m loan to collapsed Aspire42 down to zero
• Tribeca Investment Partners pauses its planned $250m ASX-listed credit LIT

On the calendar today:

-NZ Aug Mfg PMI

-JP Aug PPI

-UK July GDP, Industrial prod’n & Trade Bal

-US Aug CPI & Average hourly earnings

-US Sep Uni Mich sentiment (prelim)

-GE July Current A/C

-ARIADNE AUSTRALIA LIMITED ((ARA)) ex-div 0.50c (70%)

-CAR GROUP LIMITED ((CAR)) ex-div 43.50c (30%)

-CLEANAWAY WASTE MANAGEMENT LIMITED ((CWY)) ex-div 3.50c (100%)

-JOYCE CORPORATION LIMITED ((JYC)) ex-div 17.00c (100%)

-PM CAPITAL GLOBAL OPPORTUNITIES FUND LIMITED ((PGF)) ex-div 7.50c (100%)

-WISETECH GLOBAL LIMITED ((WTC)) ex-div 12.31c (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.

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