The Overnight Report: Oil, Muse & RBA Rate Hike

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This story features MIRVAC GROUP, and other companies.
For more info SHARE ANALYSIS: MGR
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

US equity markets fell as higher bond yields weighed on stocks.

Markets continue to look for a resolution to the Middle East crisis to ease pressure on diesel prices, inflation and bond yields, as the US midterm elections come into focus.

The Australian market was buoyed by Healthcare, Staples and Banks yesterday.

Ahead of the 2.30pm (AEST) RBA rate decision, with a 25bps hike expected, ASX200 futures are flat to slightly positive.

Good Morning,

The Australian market rose 14.7 points or 01.7% to 8679.70 led by Healthcare, up 1.49% and staples, up 0.83%, ahead of today’s RBA meeting with the rates decision to be handed down at 2.30pm (AEST).

The market is priced for a 25bps hike plus more hawkish commentary from the RBA.

For more details and to stay in touch with which companies are reporting 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 10-Year Yield Hits a 19-Year High 

The 10-year Treasury yield hit its highest level since 2007. The 30-year sits a hair below its 2004 peak.

Traders are betting on Fed rate hikes while the Iran war keeps energy expensive.

Still, the S&P500 now trades at 19 times expected earnings, down from 22, as profit estimates rise.

Trump Puts Sanctions Relief on the Table

A US official told CNN and Axios that Trump would ease sanctions and release Iran’s frozen funds for “concrete progress” on its nuclear program.

Oil fell fast on the news, then won some of it back.

The two sides are still far apart, since Iran wants the Strait of Hormuz and the US blockade dealt with first.

November Brent still trades more than US$7 over December, a sign buyers are scrambling for oil now.

Software Stocks Fall as Meta Moves In 

Software stocks fell after Meta launched a business selling Muse and its other AI tools straight to companies.

MongoDB took the biggest hit after Meta hired away its CEO, CJ Desai, to run it.

MongoDB reaffirmed its guidance, so the selling was about losing its leader.

Meta slipped too, giving back a little of a big September.

ANZ Bank, Australian Morning Focus extract

Geopolitical developments underpinned price action to start the global trading week.

A lack of progress in US-Iran peace negotiations drove oil prices and bond yields higher, while US equity markets declined.

The S&P500 was down -0.77%. The EuroStoxx50 was unchanged, and the FTSE100 was down -0.1%.

The yield on the 10y US Treasury note rose 2.3bp to 5.23%. The active WTI future fell -1.1% to US$93.3/bbl, having traded at higher levels earlier in the session. Gold fell -1.6% to US$4,114.3/oz.

US: The Dallas Fed’s headline manufacturing index eased -1.8pts to 9.8 in September, remaining significantly above the long-run average of 0.3. The survey’s subindices corroborated the solid demand picture.

Production rose 13.4pts to 29.5, capacity utilisation rose 11.1pts to 23.9, and new orders rose 8.7pts to 30.7. All were well in excess of their respective long-run averages. September’s regional Fed surveys point to a rise in the ISM manufacturing index in September, due Thursday, which has been trending higher through 2026.

RBA meeting today: We expect the RBA to raise the cash rate by 25bp today, and a 25bp rate hike in November, which would take the cash rate to 4.85%, its highest level since 2008.

The vote is likely to be split across the Monetary Policy Board, reflecting its apparent preference to typically move at Statement on Monetary Policy meetings (February, May, August and November) and following the quarterly inflation data.

As was the case in March, any split would be less about the direction of rates and more about the timing and that apparent preference.

The ongoing escalation of the conflict in the Middle East and the tendency of the RBA to view the resultant increase in oil prices as much more of an inflation shock than a growth shock, combined with our expectation that the Q3 trimmed mean inflation print will come in solidly above the RBA’s August SMP forecast, make us view two rate hikes (September and November) as more likely than one.

Energy and metals prices diverged as renewed supply risks supported oil and gas, while rising expectations of rate hikes and a rally in US 10y yields weighed on metals.

RBC’s Markets In Motion, Lori Calvasina, extract

We spent some time reviewing trends in major economic, sentiment, and financial market indicators with major drawdown periods which did a better job than our bar chart of reminding us what the more severe periods of market stress have in common.

Problems on the earnings front are a clear and repeat offender, with declines in corporate profits growth broadly and, in recent decades, extended periods of downward revisions to bottom-up consensus (sell-side) earnings forecasts.

P/E multiples tend to compress as well, exacerbating the drawdown. Sentiment gauges tend to fall sharply, while economic uncertainty tends to rise sharply.

Layoffs and/or job losses tend to materialise, though the latter often occur later on in extended drawdowns. Real GDP tends to contract or come close to doing so, even when a recession is avoided, and other business cycle/capex-related indicators like ISM manufacturing, ISM new orders, and industrial production growth tend to move down.

All of this is well known, but seeing it in chart form and comparing trends in place today versus the trends in place during and around these periods of turmoil helped to clarify some of the reasons why equity markets may have been resilient of late.

Most notably, corporate profitability is on the upswing, and earnings forecasts are still being revised to the upside. Consumer confidence has already been hit quite hard, and investor sentiment is already well off its highs and never made it back to typical highs in recent years.

Industrial barometers like ISM manufacturing, ISM new orders, and industrial production growth are also in the early innings of recovery, even though capex spend in dollar terms for the S&P500 has been near past peaks.

Could these indicators weaken, particularly in the wake of a new hiking cycle by the Fed and the move up in bond yields that’s been seen, helping spark something more nefarious than the -5% to -10% drawdown we’ve been anticipating?

Absolutely. But for now, the stock market is taking an innocent-until-proven-guilty approach. As noted last week, we are keeping a close eye on all these indicators going forward as hikes get underway.

Trump’s diesel gamble could detonate a global inflation shock weeks before midterms, Nigel Green, deVere Group, extract

A US ban on diesel exports could ignite a global inflation firestorm and send it roaring straight back onto American forecourts just as voters head to the polls.

President Trump has rejected Iran’s conditional proposal to reopen the waterway and resume nuclear talks within seven days, a deal that hinged on Washington lifting its naval blockade and releasing frozen Iranian assets.

He’s reported to have told aides he expects US strikes to resume once November’s midterms are over.

Tensions escalated further as the Saudi-led coalition in Yemen reported intercepting projectiles fired by Iran-backed Houthi rebels.

Now the White House is openly weighing curbs on diesel exports, with a 90-day ban reportedly among the options.

Trump himself has conceded the move could nudge gasoline prices higher.

Washington has its hand on the most dangerous lever in the entire energy system. Diesel moves the world. It fuels the lorries, the tractors, the freight trains and the factory generators. Choke it off and every price tag on the planet feels the shockwave.

US retail diesel is hovering around US$6.50 a gallon, a whisker below the record US$6.53 set on 22 September. Global markets are already missing at least -1.3mbbls a day of diesel from Russia and the Gulf, leaving America as the supplier of last resort. It’s provided roughly half of Europe’s diesel imports in recent months.

The mere threat of a ban sent Europe’s diesel premium over Brent rocketing above US$95 a barrel last week, a record in data going back to 2011.

Would Trump really pull this trigger five weeks out from the midterms?

He’s admitted himself it could push gasoline higher. Farmers are already buckling under record diesel costs. Truckers, households and swing-state voters feel every cent at the pump.

A ban that backfires in late October would be a political own goal of historic proportions. And yet the pressure to be seen doing something is ferocious. Desperate politicians do desperate things, and markets would be reckless to rule it out.

He argues the short-term appeal is obvious. Keep the fuel at home and pump prices might ease for a few weeks. Then refiners rebalance, gasoline gets squeezed, and the spike boomerangs back across the Atlantic onto American drivers.

Europe sits directly in the blast zone. Eurozone inflation hit 3.3% in August, its highest in three years, with energy prices up 14.3% on the year.

The European Central Bank has already resumed raising rates and has slashed its growth forecast for the bloc to just 0.8%.

The US energy industry has pushed back hard, with its main lobby group warning restrictions would deepen refining problems and ultimately hurt consumers. European traders, for their part, largely doubt a ban will materialise.

Energy relief is being pinned to an election date. The conflict is supposed to wind down after November and oil is supposed to follow. If strikes resume instead, as reported, today’s prices could prove to be only the opening act.

Portfolios built on falling inflation and a steady run of rate cuts need stress-testing against a world where energy stays brutally expensive for much longer.

Proper diversification, resilience, and a clear-eyed view of inflation exposure count for far more than trying to guess Washington’s next move.

Diesel is the fuse on this crisis, and Washington is holding the match. Election nerves could strike it before November. Renewed strikes on Iran could strike it after.

Either way, every major economy on earth is exposed to the potential fallout.

Corporate news in Australia:

• Mirvac Group ((MGR)) is in talks to acquire two Brisbane build-to-rent properties from a Canadian pension fund
• Northern Star Resources ((NST)) has rejected a more than $36bn takeover proposal from South Africa’s Gold Fields, which remains open to discussions
• EQT has reconfirmed its $9.4bn takeover proposal for Cleanaway Waste Management ((CWY)) and is working towards an implementation deed following due diligence
• Warburg Pincus has raised its third takeover proposal for Ingenia Communities Group ((INA)) to $5.25 per share, subject to due diligence and other conditions
• Potentia Capital is running a sale process for software company Rex, with Gresham and RW Baird advising
• Alceon is assessing distressed Bathla land for potential acquisitions or new lending opportunities after exiting its $460m exposure in December
• Merchant Wealth Partners is investing $255.9m for a 25.9% stake in Soul Pattinsons’ ((SOL))-backed Ironbark Financial
• Metrics’ ((PNI)) three ASX-listed funds face material NTA downgrades after KPMG’s audit increased credit-loss provisions and reduced valuations for some private assets
• Chobani is investing $20m to expand its Melbourne factory into flavoured milk production
• Regal Partners’ ((RPL)) Phil King has promoted the Firmus IPO investment case to Morgans brokers ahead of the proposed listing

On the calendar today:

-AU RBA cash rate

-AU Aug Household spending

-JP Aug Retail sales

-CH 2Q BoP (final)

-US July HPI

-ACROW LIMITED ((ACF)) ex-div 1.42c (100%)

-ARENA REIT ((ARF)) ex-div 4.50c

-CADENCE CAPITAL LIMITED ((CDM)) ex-div 3.00c (100%)

-CADENCE OPPORTUNITIES FUND LIMITED ((CDO)) ex-div 7.50c (100%)

-CENTURIA INDUSTRIAL REIT ((CIP)) ex-div 4.33c

-CHARTER HALL LONG WALE REIT ((CLW)) ex-div 6.38c

-CROMWELL PROPERTY GROUP ((CMW)) ex-div 0.78c

-CENTURIA OFFICE REIT ((COF)) ex-div 2.25c

-CHARTER HALL SOCIAL INFRASTRUCTURE REIT ((CQE)) ex-div 4.50c

-CHARTER HALL RETAIL REIT ((CQR)) ex-div 6.60c

-DPM METALS INC ((DPM)) ex-div 4.20c

-DEXUS CONVENIENCE RETAIL REIT ((DXC)) ex-div 5.23c

-DEXUS INDUSTRIA REIT ((DXI)) ex-div 4.15c

-DEEP YELLOW LIMITED ((DYL)) FY26 earnings report

-EVZ LIMITED ((EVZ)) ex-div 0.55c (100%)

-GRYPHON CAPITAL INCOME TRUST ((GCI)) ex-div 1.31c

-GARDA PROPERTY GROUP ((GDF)) ex-div 2.25c

-HOMECO DAILY NEEDS REIT ((HDN)) ex-div 2.15c

-KKR CREDIT INCOME FUND ((KKC)) ex-div 1.67c

-MA CREDIT INCOME TRUST ((MA1)) ex-div 1.34c

-NUFARM LIMITED ((NUF)) investor briefing

-PERPETUAL CREDIT INCOME TRUST ((PCI)) ex-div 0.60c

-RAM ESSENTIAL SERVICES PROPERTY FUND ((REP)) ex-div 0.95c

-RURAL FUNDS GROUP ((RFF)) ex-div 2.93c

-360 CAPITAL MORTGAGE REIT ((TCF)) ex-div 5.00c

-TASMEA LIMITED ((TEA)) ex-div 8.50c (100%)

-360 CAPITAL REIT ((TOT)) ex-div 0.90c

-WAYPOINT REIT LIMITED ((WPR)) ex-div 4.32c

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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