The Overnight Report: Final Day Of A Drab Month

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

US markets slipped despite a fall in oil prices, as high bond yields continued to weigh on sentiment.

The Australian market brushed off the RBA's 25bps rate hike, as expected, with the August CPI print due out today at 11.30am (AEST).

ASX200 futures are pointing to a flat-to-weaker start for the final session of the month.

Good Morning,

The RBA hiked the cash rate by 25bps as expected with the ASX200 managing to rise 29.6 points or 0.34% to 8709.30.

InfoTech rose 4.61%, led by Codan ((CDA)) which rallied almost 24% on an earnings guidance upgrade.

Codan closed with a market capitalisation of $11.75bn and is now the largest in the InfoTech sector. WiseTech Global ((WTC)) has a market capitalisation of $11.04bn as at yesterday’s close.

RBA Governor Michele Bullock stated:

“Inflation is too high and has been driven by domestic capacity pressures.

“The inflation impulse from the Middle East conflict is in addition to this, domestic spending and investment have been stronger than expected.”

Moelis on Pantoro Gold’s ((PNR)) FY26 update:

“PNR delivered a mixed-quality FY26 beat. Revenue was broadly in line, while EBITDA, adjusted NPAT and operating cash flow were 14%/28%/8% above MAe, respectively.

“The EBITDA variance was driven largely by favourable cost-of-sales movements and lower expensed exploration, partly offset by higher other non-cash costs.”

For more details on major macro updates, AGM season, 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/

CBA Economics Update: RBA hikes by 25bps, November is live, Ashwin Clarke, extract

• The RBA hiked the cash rate by 25bps today to 4.6%, its highest level in 15 years. The decision was unanimous.
• Inflation is too high because of domestic capacity pressures, the war in the Middle East and the AI boom. Inflation has now been above the mid-point of the target for almost five years.
• The economy is showing clear signs of slowing and the labour market is loosening, but not fast enough to get inflation back to target in a reasonable time frame, especially given renewed pressure on oil prices.
• Inflation is the Board’s top priority, but it is cognisant of the long lags in monetary policy.
• Looking ahead, we expect the Board to remain on hold in November. Though it will be a live meeting, trimmed mean inflation at or above 1.0% in Q3 26 may trigger an additional hike. We continue to expect two rate cuts in late 2027.
• Incoming data on inflation will be the clear and primary focus of the Board. The path of the Middle East conflict will also be crucial. The labour market and household spending will also be important.

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

Oil Fell and Long-Term Rates Rose

US crude fell to about US$89. The 30-year Treasury yield still hit 5.61%, its highest since June 2002.

Bond investors are more worried about how long oil stays expensive than how high it goes.

Paramount Skydance added to the pressure with US$32 billion in new bonds for its Warner Bros. deal.

That’s the fifth largest corporate bond sale on record. Investors say some buyers are selling long-term Treasuries to make room.

The New York Fed Says There’s No Rush

This morning I said 7.2 million or more job openings would back an October hike. It came in at 7.1 million.

Consumer confidence fell to 81.9 when economists expected 89.

Then New York Fed President John Williams said “there is no need for urgency.”

The 2-year yield, which tracks the Fed’s next move, fell as he spoke.

Fed Governor Michael Barr still expects more hikes, so this isn’t settled.

Financial Stocks Are Having Their Worst Month Since 2023

Financials are the weakest sector in September. They’re on pace for their worst month since Silicon Valley Bank failed in March 2023.

Blackstone is down about a fifth this month, and Morgan Stanley has fallen six days straight.

Higher rates let banks charge more on loans.

That only helps if people still want to borrow.

ANZ Bank, Australian Morning Focus extract

Equity markets declined as US bond yields rose despite lower oil prices. The S&P500 was down -0.2%. In Europe, the EurStoxx50 rose 0.3% and the FTSE100 fell -0.5%. The yield on the 10y US Treasury note rose 1bp to 5.23%.

US consumer confidence: Conference Board consumer confidence fell sharply in September to its lowest level since early 2014. The headline index fell -6.7pts to 81.9, well below the consensus of 89.0.

Inflation concerns underscored weakness, while perceptions of the labour market also worsened. The number of consumers reporting jobs as plentiful fell -0.9ppt to 23.6%, while the number reporting jobs as hard to get rose 1.6ppt to 20.3%. That saw the labour differential narrow to 1.7pts.

US labour market: Job openings fell -256k to 7.079m in August, below the consensus and the lowest in five months. The data remain consistent with a ‘low-hiring, low-firing’ labour market that is broadly in balance.

The hiring, quits, and layoffs rates all remained broadly stable, while the ratio of job openings to unemployed persons remained around 1.0, consistent with supply and demand being in balance and with little excess inflationary pressure stemming from the labour market.

Commodities

Brent oil pared gains late in the trading session as flows recovered from Saudi Arabia despite attacks on alternative routes. President Trump resumed nuclear negotiations in exchange for the US lifting its blockade of Iranian ports.

Exports from Saudi Arabia increased to 5.8mb/d in September, the highest since February 2026. The kingdom also resumed loading vessels at the Red Sea port of Yanbu via its East-West pipeline. It is now loading 3.5mb/d of oil against total capacity of 7mb/d.

Total exports from Saudi Arabia, the UAE and Iraq have recovered to nearly 13mb/d, the highest since February and close to 80% of prewar levels, according to Kpler data.

The US will offer up to 40 million barrels from the Strategic Petroleum Reserve, completing its 172m barrel contribution to the coordinated global release since the Iran war began, said the Department of Energy. US Energy Secretary Chris Wright said some European countries were lagging the US and Japan in the IEA-led effort.

However, the spread between spot and futures stayed wide, showing a supply risk premium remains. Pressures in oil product markets persist, with the US weighing a diesel export ban and Russia preparing to extend restrictions on diesel exports through to the end of October.

European gas also fell as traders tracked diplomatic efforts to end US-Iran hostilities and restore energy flows through the Strait of Hormuz. Qatar said it will meet with the US and Iran and exchange ideas on possible solutions.

However, Iranian officials had earlier expressed doubts about reaching a deal before the US mid-term elections in November. With 20% of global LNG normally transiting Hormuz, prolonged disruption could intensify competition for cargo.

Europe’s gas storage is about 71% full, down from a five-year seasonal average of 87%. Asian gas prices moved higher to US$26/MMBtu as buying from India remained strong due to lower hydropower output.

Copper prices recovered amid mounting supply risks. Workers at the Centinela mine rejected a final wage offer, raising the prospect of a strike, while negotiations at Escondida were delayed following a fatal accident.

Meanwhile, market dislocation continues to drive prices higher, with depleting stocks in China and large volumes of refined metal accumulating in US warehouses amid expectations that the Trump administration will impose import tariffs. China’s import premium –a gauge of demand– is close to its highest level since 2022.

Iron ore extended losses ahead of the Golden Week holidays. The China Iron and Steel Association has urged mills to curb production and draw on inventories to protect margins and ease the market surplus. Mills’ weak offtake lifted inventories by 1mt to 152mt for the week to 25 September.

Gold pared some losses as traders assessed whether the Federal Reserve would continue tightening policy to curb inflation as oil prices fell. The longest-dated US Treasury yield climbed to its highest since 2002.

Persistently high energy prices risk adding to inflation and prompting further Fed rate hikes. Higher yields and a stronger USD are tarnishing gold’s investment appeal in the near term.

However, ETF holdings continued to rise despite falling prices.

Thoughts On Global Government Debt, Ed Yardeni & Elias Griepentrog, Yardeni QuickTakes extract

I. Revenge of the Bond Vigilantes?

We still have a 70% subjective probability for our bullish base-case Roaring 2020s scenario. The remaining 30% covers all the possible bearish scenarios. We monitor those possibilities closely with our Worry List.

Our main worry right now is the significant rise in bond yields worldwide this year.

The higher global bond yields may be due to higher inflation, driven by the jump in oil prices following the Middle East war that began in late February. That’s not confirmed by US breakeven inflation rates, which remain surprisingly subdued!

Nevertheless, when the war ends, oil prices should drop sharply, lowering bond yields.

A more likely explanation for the global bond market rout is that the yen-carry trade is unwinding as the Bank of Japan (BOJ) raises its policy rate, forcing carry traders to sell government bonds they bought worldwide with proceeds from cheap yen loans.

This trade allowed many governments to run budget deficits without putting upward pressure on their bond yields. Now, the chickens have come home to roost.

Governments ran large deficits and accumulated lots of debt when the BOJ and other major central banks kept interest rates abnormally low from the Great Financial Crisis through the Great Virus Crisis.

The major central banks’ quantitative easing policies rigged global bond markets. The Bond Vigilantes were subdued. Now, we may be witnessing the Revenge of the Bond Vigilantes.

II. Is Bessent getting twisted?

US Treasury Secretary Scott Bessent has been leaning on the BOJ to raise its official policy rate to bolster the yen, which has been very weak. He wants to make sure that Japan doesn’t sell its US Treasury securities to support the yen.

The problem is that a higher BOJ policy rate would probably cause the yen-carry trade to unwind faster, putting upward pressure on bond yields worldwide.

Bessent also has been gingerly implementing an “Operation Twist” in the US Treasury market by buying back bonds and issuing more T-bills to fund the purchases.

If the bond market rout turns into a US debt crisis, he might have to significantly increase the size of his Operation Twist.

III. Is the US on an unsustainable fiscal course?

Larry Kudlow, director of the National Economic Council under President Donald Trump during his first term, invited me to speak at the White House Economic Advisers’ lunch on December 12, 2018.

Joining us was Jason Trennert, chairman, CEO, and chief investment strategist of Strategas. Several of the President’s top economic advisers attended. I asked then-Treasury Secretary Steven Mnuchin why the administration wasn’t refunding the entire government debt.

Mnuchin said, “We are looking into that.” Nothing changed.

At the time, the three-month Treasury bill rate was 1.32%, and the 10-year bond yield was 2.40%. The average effective interest rate paid on the Treasury’s marketable securities was just below 2.00%.

Now the T-bill rate is at 4.08%, and the bond yield is at 5.17%. The effective rate was 3.31% in August.

Since that lunch meeting in the basement of the White House in December 2018, federal marketable Treasury debt has more than doubled, rising from US$14.4 trillion then to a record US$31.8 trillion in August of this year.

Net interest outlays on public debt held by the public soared from US$300 billion at the end of 2018 to US$1.1 trillion in August 2026. Persistently large government deficits and now higher interest rates suggest that net interest outlays are heading higher.

Net interest outlays now exceed both defense spending and income security outlays. Towering above them all, of course, is the relentlessly rising spending on health, Medicare, and Social Security.

Federal tax receipts are driven mostly by individual income and payroll tax receipts. Both have been increasing along with employment. Corporate tax receipts have been falling this year, probably because last year’s tax bill allowed 100% depreciation.

The federal budget deficit totalled US$1.77 trillion over the 12 months through August. Over that same period, net marketable Treasury securities rose US$2.42 trillion.

Meanwhile, the pace of new US corporate bond issuance has doubled since the start of 2024 to US$3.0 trillion over the past 12 months through August . Interestingly, not all of it is AI-related, since financial corporations raised US$1.6 trillion.

Yes, the US government is on an unsustainable fiscal course. But Bessent believes that our Roaring 2020s scenario will save the day: Productivity-led growth should boost federal receipts, moderate inflation, and lower interest rates.

Fed Chair Kevin Warsh believes so too. The Bond Vigilantes aren’t cooperating. That’s admittedly worrisome. Nevertheless, we expect the Roaring 2020s to prevail.

Corporate news in Australia:

• REA Group ((REA)) will acquire a 35% stake in Distilled, owner of Irish property portal Daft.ie, for -$409m, expanding its property platform into Ireland
• Roc Partners has escalated its opposition to Pacific Current Group ((PAC))’s takeover, alleging the board failed to adequately disclose potential conflicts
• Firmus has pushed its IPO bookbuild back two days to October 8 after its Meta deal prompted a revision to IPO earnings guidance
• Afterpay co-founder Anthony Eisen has sold around $67m of Block ((XYZ)) shares as he reduces his exposure and focuses on new ventures
• Thoma Bravo has appointed Barrenjoey ((MFG)) and Goldman Sachs to prepare Nearmap for a potential ASX relisting in 2027
• HLEND has marked down its loan exposure to KKR-owned Laser Clinics Australia as restructuring and sale efforts continue
• Aerometrex ((AMX)) has appointed Moelis ((MAF)) as a defence adviser amid valuation concerns and ahead of rival Nearmap’s potential ASX return
• Metrics ((PNI)) has frozen redemptions from its circa $6bn wholesale private credit fund amid valuation and audit concerns
• Centuria Capital Group’s ((CNI)) private credit funds face further pressure from exposure to insolvent WST Property Group, adding to losses associated with Bathla
• Anthropic’s confidential IPO prospectus reportedly shows surging revenue alongside a US$8.1bn operating loss and substantial future infrastructure commitments
• OpenAI is approaching a US$70bn annual revenue run rate ahead of a potential IPO

On the calendar today:

-NZ Sep ANZ business confidence

-AU Aug CPI

-CH Sep PMI

-UK 2Q GDP (final)

-US 2Q GDP (third estimate)

-US Aug Personal income

-US Aug Trade Bal

-US Sep ADP employment

-GE Sep Unemployment

-CEDAR WOODS PROPERTIES LIMITED ((CWP)) ex-div 25.00c (100%)

-GENUSPLUS GROUP LIMITED ((GNP)) ex-div 3.60c (100%)

-STAUDE CAPITAL GLOBAL VALUE FUND LIMITED ((GVF)) ex-div 3.30c (100%)

-IPERIONX LIMITED ((IPX)) FY26 earnings report

-METRICS INCOME OPPORTUNITIES TRUST ((MOT)) ex-div 1.18c

-METRICS REAL ESTATE MULTI-STRATEGY FUND ((MRE)) ex-div 0.85c

-METRICS MASTER INCOME TRUST ((MXT)) ex-div 1.30c

-NICK SCALI LIMITED ((NCK)) ex-div 39.00c (100%)

-SIMS LIMITED ((SGM)) ex-div 20.00c (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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