The Overnight Report: Fed Expected To Hike

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

US markets fell again as oil prices rose and US yields ticked higher ahead of Wednesday's FOMC rates decision, with markets pricing in a 91% chance of a hike.

Will bond and equity markets rally on a rate hike decision?

The Australian market declined again yesterday, led by Materials. ASX200 futures are pointing to a positive start

By Rudi Filapek-Vandyck

Good Morning,

The ASX200 fell -77 points or -0.88% to 8672.50 with Materials down -2.21% and HealthCare up 1.5%.

The market is down -4.43% for the month and has closed lower on nine out of the eleven trading days.

Infratil’s Investor Day presentation packs notes a FY27 EBITDA guidance upgrade, which was indicated in our latest article on Infratil https://fnarena.com/2026/09/14/infratils-investor-day-the-next-catalyst/

For more details and 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

Nobody agrees on when Saudi oil comes back

Energy Secretary Chris Wright says the East-West pipeline restarts in days. Andy Lipow looked at satellite photos of the damaged pumping station and said months. The line moves up to 7 million barrels a day, and the Saudis have already canceled some September deliveries to European buyers. West Texas crude settled at US$105.83, its best close since May.

Yields at 2007 levels leave less room for error

The 10-year touched 5.04% before easing back. Barclays says 5 is the line where rates stop being background noise and start pulling stock valuations down with them. Wells Fargo strategist Ohsung Kwon trimmed his year-end S&P500 target to 7,700 on Monday. Expensive oil is what keeps the pressure on.

Crypto’s rulebook waits for the next Congress

The Clarity Act got 49 Senate votes and needed 60 to advance. It would have settled which agency regulates what in digital assets, the question the industry has been asking for years. Coinbase closed near US$172 and bitcoin slipped under US$76,000. The bill can come back, though probably not before November.

ANZ Bank, Australian Morning Focus

Equity markets fell again, as financial markets remained unsettled. The S&P500 was down -0.4%, while the EuroStoxx-50 and the FTSE100 both also fell -0.4%. 

The yield on the US 10y Treasury note rose 1bp to 5.00%. 

Oil prices continued rising, with WTI up 2.5% to US$105.6/bbl. Gold was unchanged at US$4,293.2/oz.

NY Fed Empire Manufacturing Index for September fell -13pts to 7.6. New orders tumbled -15.3pts to 2.0, shipments fell -14.9pts to -3.2 and inventories jumped 14.1pts to 8.9. The data point to moderating regional output growth in coming months. Both input and output prices increased. Prices paid rose 5pts to 63.1 and prices received rose 5pts to 28.1.

Markets remain nervous ahead of the FOMC decision, which is widely expected to deliver a 25bp rate hike, taking the fed funds target range to 3.75%?4.0%. The Summary of Economic Projections and the dot plot are arguably of more interest to the market at this stage.

The dot plot will be closely watched for insights into the extent of tightening the FOMC thinks may be appropriate, despite the absence of a submission from Warsh.

Current market pricing has four 25bp hikes priced in by the middle of next year, with a bias towards a staggered tightening cycle. When the Fed tightens, it normally raises rates at sequential meetings, which is our current expectation despite the proximity of the October policy meeting to the midterm elections.

Commodities

Further escalation in the Middle East conflict pushed the energy sector higher. Industrial metals gained following better-than-expected economic data in China.

Crude oil prices extended their rally, as risks to supply from the Middle East mounted. Saudi Arabia issued security alerts over a range of territory following a week of attacks from Iran-aligned fighters. The Iranian-backed Houthis in Yemen have announced several major attacks on Saudi Arabia, including strikes on an air base that it said were in retaliation for airstrikes on Yemen. The Houthi group also seized a strategic port and island directly on the Bab al-Mandeb Strait at the south end of the Red Sea. This follows an attack on Saudi Arabia’s East-West pipeline, which has significantly curtailed the OPEC producer’s ability to export oil. There are still doubts as to how long the pipeline will be offline. UK officials fear it could be shut for six weeks. This has already led Saudi Arabia to delay oil deliveries to some European customers, triggering a jump in regional crude prices. This is being compounded by an attack on Libya’s Hamada-Zawiya pipeline, which could see it declare force majeure on deliveries.

The renewed supply disruptions are also weighing on product markets. US diesel futures settled at US$5.26/gallon, their highest price ever, as supply disruptions intensify. The Middle East disruptions are being compounded by further attacks on Russian refineries. Ukraine said it hit the Syzran refinery in Russia, despite Trump pushing an energy truce earlier in the week. The record-high diesel prices are rejuvenating talks of an export ban. US Senate Majority Leader John Thune said he is “open to exploring” a ban. Such export restrictions could provide near-term relief for consumers but ultimately discourage domestic refiners from producing as much fuel and worsen the global shortages.

The escalation in the Middle East conflict is causing concerns in natural gas markets in Asia and Europe. North Asia LNG prices jumped to US$30/MMBtu on the prospect of Qatar supply remaining curtailed for the foreseeable future. This is already forcing companies in the region to accelerate discussions to buy more fuel from the US. Thailand, Pakistan and Bangladesh are said to be ready to sign long-term contracts with US exporters. Despite the significant transportation cost, US LNG delivered into North Asia is trading at a discount to spot prices.

Copper led the base metals sector higher after economic data in China came in better than expected. Exports were strong in August, partly due to the rising price of technology product exports. This helped industrial production growth to rebound to 5.2% in August. This overshadowed weak domestic demand, with retail sales declining 0.4% y/y, while auto sales were down 18.5%. A sudden influx of metal into LME warehouses also failed to dent sentiment. Inflows recorded their biggest deliveries in almost four weeks. This eased concerns of tightness as US traders pare back buying following reports that the White House is delaying a decision on import tariffs on refined copper due to concerns it would worsen the inflationary backdrop. Gains in aluminium were limited after data showed Chinese aluminium production climbed to a record high. Output rose 4.7% y/y to 4mt in August. That brings year-to-date output to over 31mt, well on its way to exceeding the government-mandated cap on capacity of 45mt. This has helped offset disruption to Middle East supply.

Gold wavered around US$4,300/oz, as traders look ahead to the FOMC meeting, where a hike is expected amid inflationary concerns.

Macro Talking Points, Benoit Anne, MFS Investment Management

A hike is easy; the message is hard. The Fed appears likely to deliver a 25bp hike this week – its first since July 2023 – with markets now pricing a 91% probability. Kevin Warsh, the new Fed Chair and no fan of forward guidance, still used Jackson Hole to hint that some tightening may be needed. With inflation still sticky, the case for action is not hard to make.

The harder question is what comes next. This is where the Fed will be tested. Is this a one-off recalibration, or the start of a proper tightening cycle? Either way, political pressure could quickly return if the direction of travel is not what the White House had in mind. Communication is another vulnerability. This Fed has not exactly excelled at clarity, and delivering a hike while refusing to map the future policy path risks leaving global investors even more confused than they already are.

The Summary of Economic Projections, the Fed’s own set of forecasts, adds another wrinkle – before it may be binned after the task force work that is. The Fed could revise up its core inflation forecast and, potentially, the long-run Fed funds rate. That should not be especially shocking. We are still early in the business cycle, not flirting with recession. For investors, the message is straightforward: duration is likely to be a difficult alpha lever while policy uncertainty remains this high. We need more clarity from the Fed, but we may not get it. The silver lining is valuation. For long-term investors able to absorb near-term volatility, market rates still look attractive by historical standards.

Lagarde or laggard? The ECB is clearly of the first variety, having delivered its second rate hike in the matter of just a few months, more than most other central banks. But the key question is now what happens next. As noted by Peter Goves, our Head of DM Strategy, the ECB is likely to follow a data-dependent and meeting-by-meeting approach in the period ahead. In other words, there is no pre-commitment to a particular rate path. The market has taken all this as a hawkish signal and there is now some major tightening priced in, specifically 113bp of hikes over the next 12 months.

Now that is quite a lot, and we feel that if the ECB went ahead and matched market expectations, this could well be a policy mistake. According to Peter Goves, the hike premia is here to stay for now but there is a possibility that the backdrop for long EUR duration may improve at some point. Of course, this is mainly predicated on the geopolitical situation to de-escalate.

Should the BoE follow the crowd? The UK has been caught at the center of the global bond sell-off. Brent crude has climbed to around US$109/bbl, reviving concerns about another energy-led inflation shock, while 30-year gilt yields have risen to 5.93%, their highest level since 1998.

Markets have reacted by aggressively repricing the Bank of England (BoE) path, with 47bp of additional tightening priced by year-end and 108bp by July 2027. That looks too hawkish relative to the domestic backdrop.

The BoE is still expected to leave Bank Rate unchanged at 3.75% this week, with markets attaching only a 29% probability to an immediate hike. That leaves it looking out of step with a more hawkish global policy backdrop, following last week’s ECB hike and with both the Fed and BoJ expected to tighten this week. Policymakers will likely acknowledge the renewed upside risks from energy. But the case for a sustained hiking cycle is far less compelling. Headline CPI was 2.9% year-on-year in July—above target, but still well below the peaks reached during the 2022 energy shock. More importantly, there is little evidence that higher energy prices are feeding into broader domestic inflation pressures.

The equity rally: Still cyclical, less forgiving. Since mid-year, leadership has shifted from higher beta toward value. That still looks more like early-cycle broadening than late-cycle retreat. Financial conditions remain supportive, activity is holding up and earnings participation is improving, so the equity signal remains broadly constructive. But the margin for error is narrowing.

Higher energy prices, a wider fiscal risk premium or renewed inflation pressure would test that signal by pressuring margins, consumers and valuations at the same time. The cycle still supports risk, but the rally is becoming less even. That argues against abandoning cyclicals too early, while being more selective about companies that can keep compounding in a tougher backdrop.

Healthcare is a reminder that market signals are rarely clean. It is typically defensive and would normally rally later in the cycle, yet it has already caught a bid. That does not break the cyclical case: low valuations, better pipelines and less disruptive policy outcomes help explain the move. The next test is whether defensiveness spreads.

Utilities outperforming, or credit spreads widening, would suggest investors are moving from cyclical confidence toward capital preservation. AI remains the offset, but also the dependency risk. The build-out now supports US activity and earnings beyond technology, through datacenters, power, equipment, cooling, software and services. We still see it as durable and less rate-sensitive than most capex cycles.

But if AI spending slows faster than expected, the effect would reach well beyond the obvious beneficiaries, challenging earnings breadth, market leadership and valuation support across risk assets. That makes discipline matter more than enthusiasm: separate companies converting AI spend into durable earnings and resilient margins from those whose growth is being pulled forward by the capex boom (Contribution from Ross Cartwright, Lead Strategist – Strategy and Insights Group).

Corporate news in Australia:

• ·Netwealth Group ((NWL)) will acquire AI-enabled advice workflow platform Paradino for $20m upfront, with up to $9m in additional earn-out and retention payments
• ·EQ Resources ((EQR)) has signed a US tungsten deal worth more than $105m and will take a 10% joint venture stake
• Ingenia Communities Group ((INA)) is resisting Warburg Pincus’ hostile $2.9bn takeover bid, arguing the $4.75-per-share offer undervalues the company and its proposed acquisition of Peet
• Baiada Poultry has rejected private equity approaches and intends to remain family-owned while investing $600m in a new NSW processing plant
• Partners Group and Quadrant Private Equity are in exclusive talks to merge Guardian Childcare and Affinity Education into a childcare group valued at around $2bn
•  JANA Investment Advisers is reportedly in negotiations to be sold to London-based consultancy Lane Clark & Peacock
• Cue Clothing and Veronika Maine have entered receivership, with Hilco Capital appointing receivers to restructure the businesses and pursue a sale
• ·Northleaf Capital has reportedly made the final two bidders for NZ ferry operator StraitNZ, valued at NZ$500m-NZ$1bn, after Basalt exited the auction
• Rio Tinto ((RIO)) is considering a $2bn-$3bn selldown of its Pilbara infrastructure assets, with Apollo, KKR, Brookfield and Blackstone among private capital groups assessing the opportunity
• Zip Co ((ZIP)) has commenced its on-market share buyback of up to $50m
• Hancock Prospecting is investing $8.8m in White Cliff Minerals ((WCN)) via a placement, taking a 13.5% stake and becoming the company’s largest shareholder
• Wiluna Mining has launched a $180m IPO at $0.65-$0.85 per share, targeting an ASX relisting at a market capitalisation of up to $539.4m
• Pacific Equity Partners may ultimately seek an ASX listing for an enlarged Healthe Care

On the calendar today:

-NZ 2Q BoP

-NZ 3Q Westpac consumer confidence

-JP Aug Trade Bal, July core mach orders

-JP BoJ Deputy Governor Himino speech

-EZ ECB’s Vujcic speaks in Frankfurt

-EZ July Industrial prod’n, 2Q labour cost

-UK Aug CPI & PPI

-US Aug Retail sales

-US FOMC rate decision

-US MBA mortgage applications

-US Sep NAHB Housing Market Index

-AUCKLAND INTERNATIONAL AIRPORT LIMITED ((AIA)) ex-div 5.61c

-AURELIA METALS LIMITED ((AMI)) ex-div 1.00c (100%)

-BELLEVUE GOLD LIMITED ((BGL)) FY26 earnings report

-BKI INVESTMENT CO. LIMITED ((BKI)) ex-div 1.95c (100%)

-CAPRICORN METALS LIMITED ((CMM)) ex-div 5.00c (100%)

-DYNO NOBEL LIMITED ((DNL)) investor briefing (New York)

-INFRATIL LIMITED ((IFT)) investor briefing

-IMDEX LIMITED ((IMD)) ex-div 1.75c (100%)

-INGHAMS GROUP LIMITED ((ING)) ex-div 6.10c (100%)

-PWR HOLDINGS LIMITED ((PWH)) ex-div 5.00c (100%)

-SERVCORP LIMITED ((SRV)) ex-div 16.00c (10%)

-SERVICE STREAM LIMITED ((SSM)) ex-div 3.50c (100%)

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

The Australian share market over the past thirty days…

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