The Overnight Report: Rotating Into Small Caps

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US markets gained overnight led by healthcare stocks and rotational funds flowing back into the Dow Jones, as oil prices eases.

The Russell2000 had its best day in more than two months, recording a six-day winning streak, as investors moved out of AI-related stocks into small caps.

After slipping yesterday the ASX200 futures are pointing to a positive start ahead of RBA  Deputy Governor Andrew Hauser speaking at Citi’s Australia conference.

World Overnight
SPI Overnight	8866.00	+ 32.00	0.36%
S&P ASX 200	8816.90	– 28.80	– 0.33%
S&P500	7712.57	+ 21.84	0.28%
Nasdaq Comp	26424.82	– 6.07	– 0.02%
DJIA	52495.88	+ 529.85	1.02%
S&P500 VIX	17.31	– 1.13	– 6.13%
US 10-year yield	5.12	– 0.02	– 0.37%
USD Index	101.73	– 0.27	– 0.26%
FTSE100	10733.00	– 31.69	– 0.29%
DAX30	25304.42	– 15.35	– 0.06%

Good Morning,

Yesterday, the ASX200 slipped -28.8 points or -0.33% to 8816.90 with Materials weighing on the market, led by BHP Group ((BHP)) post a disappointing 1Q27 trading update.

Investors continued to rotate into defensive sectors with Staples up 1.14% and Healthcare up 0.87%, led by CSL ((CSL)). Wesfarmers ((WES)) was also well bid.

Citi on Car Group ((CAR)):

“New vehicle sales growth in Australia has outperformed used vehicle sales for five consecutive months, with new vehicle sales up +1% yoy in September (flat yoy in August), while used vehicle sales were down 1% yoy in August.

“While used vehicle transactions are typically more resilient in a weak economic environment, this cycle, new vehicle sales are being supported by rising EV demand, higher fuel costs, and novated leasing benefits.

“We view stronger new car sales and the growing number of brands in Australia as positives for Carsales’ media business (16% of Australia revenue) and forecast ~9% yoy growth in FY27e. While the Dealer and Private businesses are more skewed towards used vehicles, our analysis shows used car transactions have recovered from 4Q26 weakness, which combined with price increase and depth growth should support FY27e growth.

“Overall, we expect CAR to reiterate guidance at its AGM next week.”

For more details and to stay in touch with which companies are reporting, AGMs and going ex-dividend, check out the FNArena Calendar https://fnarena.com/index.php/financial-news/calendar/

Market Overview, J.L. Bernstein extract

An Iran Report Flipped the Market

Stocks opened lower, then turned on an unverified report that mediators had a plan to restart U.S.-Iran talks.

Brent crude backed off a five-month high above US$111 to around US$109.

Late in the day, about three of every four S&P500 stocks were up, the broadest rally since June. Small caps led.

AI Stocks Bounced, AI Debt Didn’t

CoreWeave $CRWV hit its lowest price since May 2025 before the open, then bounced into the green.

It borrowed heavily to build data centers, and insurance on that debt still trades at distress levels.

Insuring Oracle $ORCL debt costs the most since at least 2021.

Stock buyers have moved past last week’s AI scare, and the debt market hasn’t.

Pending Home Sales Hit a Record Low

Signed deals that haven’t closed yet fell to the lowest level since records began in 2001.

Economists expected a small dip, and housing starts missed forecasts too.

Blame mortgage rates, which have climbed from the 6s to the mid-7s since early September. L

awrence Yun, chief economist for the National Association of Realtors, thinks rates could be close to topping out.

CBA Economics Daily Alert, Lucinda Jerogin, extract

US sharemarkets mostly rose overnight as a surge in healthcare stocks and softer oil prices supported risk appetite, extending the recovery from last week’s technology-led selloff.

The Dow rose 1.0%, the S&P500 gained 0.3% and the Nasdaq was flat, with healthcare reaching a record high.

European equities edged lower amid unrest in France. Several major European sectors were trading lower, with industrials leading declines.

The continent-wide FTSEuro first 300 index ended -0.1% lower and the UKFTSE 100 lost -0.3%.

US Treasury yields were mixed, with the 10-year yield down -3bp to 5.11% and the 2-year yield up -2bp to 4.78%.

Brent crude eased to US$108.79/barrel, as traders weighed Iran diplomatic developments against ongoing Houthi attacks on Saudi infrastructure.

Expectations for a rate hike of a 25 basis points from the Federal Reserve at its meeting next week is at 17%, down from 32% mid last week.

The US 10-year Treasury yield finished down -3 point to 5.11% while the US 2-year Treasury yield closed 2 points higher to 4.78%.

Currencies were mostly stronger against the US dollar. The Euro edged up, despite lingering worries about unrest in France, to US$1.1235, the Japanese yen firmed with one US dollar buying JPY158.24 and the Aussie dollar is trading at USD70.01 cents.

Iron ore futures eased on a jump in global shipments and rising arrivals at Chinese ports.

Looking Ahead:

In Australia, RBA Deputy Governor Andrew Hauser will speak at Citi’s Australia & New Zealand Investment Conference in Sydney.

In the UK, September inflation data is scheduled.

ANZ Bank, Commodities extract

Crude oil prices moved around as traders pondered renewed peace talks in the Middle East and Russia. Bloomberg reported that the US and Iran were close to an agreement.

This followed efforts by Pakistan to revive negotiations, with its Chief of Army Staff, Asim Munir, travelling to Tehran for consultations with Iranian officials. Prices settled after the report was confirmed to be inaccurate by Iran.

Ukraine’s President Zelensky said he had a constructive dialogue with the US in Oslo. A US envoy is now set to fly to Russia to meet with officials for talks. The Trump administration has been keen to dampen hostilities in the Middle East and Russia, leading into the mid-term elections, as energy prices are a key issue for voters.

Attacks on vessels in the Strait of Hormuz continued. Iran’s IRGC said that two “non-compliant” oil tankers struck mines in Hormuz. At least 18 vessels have been hit over the past two weeks, according to ship tracking data from Kpler.

Yemen’s Iran-aligned Houthis said they launched several attacks on Saudi energy, airport and military targets over the past 48 hours. While Persian Gulf oil flows improved in the second week of October, the recovery looks under threat amid the increased attacks, with preliminary data pointing to another slowdown,

Natural gas prices in Europe and Asia fell following reports of negotiations in the Middle East. This was exacerbated by some traders taking profits following the recent rally. Nevertheless, prices remain significantly higher than prior to the Middle East conflict, as there appears no clear end to the supply disruptions.

The intermittent attacks on LNG tankers in the Persian Gulf are keeping producers such as Qatar from ramping up exports despite rising demand. The lack of LNG is prompting some countries to lean towards alternative fuels. South Korea’s energy minister said the country would use more coal and nuclear power this winter due to the lack of natural gas.

Copper gained, as the market faces supply side issues just as demand appears to be rising. Chile, the world’s largest copper producer, is facing its lowest output in 23 years. Its finance minister expects output to fall -7% this year, with only a minor recovery in 2027.

Operational issues are increasing as aging mines are battered by extreme weather and accidents. At least seven workers have died at Chilean mines over the past month. Labour disputes are rising, as workers seek a larger share of the boom in prices. This and a strong outlook for demand may leave the market tight.

Commodity trader, Trafigura, said the hyperscaler spending plans suggest copper demand for AI infrastructure would reach as much as 3mt in two years. That’s up from about 1mt this year.

Nickel found some support after reports that Chinese producers are looking to cut output after the -20% fall in prices over the past five months.

Gold was under pressure, as investors ponder the outlook for monetary policy. The precious metal initially found some support as energy prices sold off on reports of peace talks.

Those gains were quickly given back, as the USD and bond yields pushed lower after oil prices recovered.

Traders are currently pricing in a 15% chance of another 25bp increase at the Fed’s October meeting.

Oxford Economics, AI euphoria meets a reality check

• Hot inflation readings for September may nudge the Fed to hike rates at its upcoming meeting on October 27-28, although the consensus view is that it will hold off until December. That view was strengthened following Fed Chair Warsh’s speech on Thursday, in which he avoided giving any signal supporting a looming increase. Actions speak louder than words, and we believe the odds of an increase are higher than perceived in the markets.
• The war-induced surge in energy prices continues to be the primary force driving up inflation, but that can no longer be viewed as a one-off shock that the Fed can patiently wait to subside. The war shows no sign of ending and higher fuel prices are bleeding into prices of a broader swath of goods and services. While the hot inflation readings are not received kindly in the bond market, a bigger unsettling influence is coming from building anxiety over AI borrowing, particularly among the smaller, less recognized, companies in that universe. Chip stocks have been hit hard and may be spurring a flight to safety, arresting the climb in Treasury yields.
• Following the expected pending rate increase, we expect the Fed to move to the sidelines next year, as consumers are running out of steam. Real earnings have declined for six consecutive months, workers are taking on multiple jobs to make ends meet and household spirits are in the doldrums. AI spending will continue to prop up growth but, importantly, it should also be delivering the productivity improvement that will help tame inflation – and keep the Fed’s finger off the rate-hiking trigger.

The State of the Australian Investor 2026, Sharesight extract

• Investors are cautious, but remain pragmatic and continue to take advantage of perceived opportunities.
• A structural shift in retail portfolios continues with Exchange Traded Funds (ETFs) becoming the core building blocks of investor portfolios while individual shares are transitioning to satellite holdings.
• Retail investors have generated strong average returns but behaviour influences results with investors who trade more frequently earning lower median returns.
• Income remains a priority for individual investors with recent changes to capital gains tax likely increasing the appeal of income strategies.
• Home bias is persistent in Australian portfolios but there is evidence to suggest its prevalence may be overstated given the limited data on the asset allocation of ETFs which are increasingly used to gain global exposure.

Corporate news in Australia:

• Ingenia Communities ((INA)) advances takeover talks with Warburg Pincus, targeting a process deed by 23 October, while its proposed Peet ((PPC)) acquisition creates a potential conflict and -$10m break fee risk
• Christian Brothers offers its heritage-listed Parkville headquarters for sale with a $25m price guide amid $774m in liabilities and compensation claims
• Challenger ((CGF)) expected to reject Dai-ichi Life’s $7.8bn takeover bid, while FIRB chair Bruce Miller recuses himself from the review due to his board role at Dai-ichi Life
• Pacific Equity Partners defeats Orix and Sumitomo to acquire FleetPartners ((FPR)) for around $1.12bn
• Pacific Equity Partners and Bain Capital target undervalued ASX-listed industrials as AI investment diverts capital from traditional sectors, creating private equity opportunities
• Morgan Stanley prepares $2bn-plus sale of EDL Energy, attracting EQT, Igneo, Stonepeak, GIP and other infrastructure investors
• Five V Capital agrees terms to acquire a majority stake in First AML, potentially providing an exit for Blackbird and other early investors, alongside an $80m secondary share transaction
• Blackstone and IFM Investors bid for Rio Tinto’s ((RIO)) energy infrastructure assets in WA and Canada, valued at approximately $7bn
• Morgan Stanley markets Melbourne-based SMSF administrator Esuperfund for more than $500m amid growing demand for self-managed super funds
• Firmus signs multi-year AI infrastructure agreement with Thinking Machines Lab to train and host next-generation AI models across Asian data centres following its withdrawn IPO
• PLS Group ((PLS)) proposes US$700m senior unsecured notes offering to fund capital expenditure, corporate requirements and growth
• ASIC makes routine inquiries into Firmus’s withdrawn ASX IPO regarding disclosure concerns, confirming no formal investigation has commenced
• NextDC ((NXT)) faces scrutiny after the Jinks family reportedly sells $100m in shares ahead of a data centre sector sell-off, while the company is in a trading halt over power supply issues at its Melbourne facility

On the calendar today:

-AU RBA Deputy Governor Hauser at Citi A&NZ Investment Conference

-JP Sep Trade balance

-JP Sep Trade balance adjusted

-UK BoE Governor Bailey fireside chat

-UK Sep CPI

-UK Sep CPI core

-UK Sep CPI m/m

-UK Sep CPI services

-UK Sep CPIH

-UK Sep PPI

-UK Sep PPI input

-UK Sep PPI output

-US MBA mortgage applications

-BEGA CHEESE LIMITED ((BGA)) AGM

-BEACH ENERGY LIMITED ((BPT)) Qtrly update

-EBOS GROUP LIMITED ((EBO)) AGM

-EQT HOLDINGS LIMITED ((EQT)) AGM

-FLETCHER BUILDING LIMITED ((FBU)) AGM

-NORTHERN STAR RESOURCES LIMITED ((NST)) Qtrly update

-SIGMA HEALTHCARE LIMITED ((SIG)) AGM

-SERVICE STREAM LIMITED ((SSM)) AGM

-TRANSURBAN GROUP LIMITED ((TCL)) AGM

-TRANSURBAN GROUP LIMITED ((TCL )) Qtrly update

-VULCAN STEEL LIMITED ((VSL)) AGM

-WOODSIDE ENERGY GROUP LIMITED ((WDS)) Qtrly update

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

Spot Metals,Minerals & Energy Futures
Gold (oz)	4120.36	– 21.57	– 0.52%
Silver (oz)	57.74	+ 0.65	1.14%
Copper (lb)	6.57	+ 0.02	0.31%
Aluminium (lb)	1.37	+ 0.00	0.17%
Nickel (lb)	6.93	+ 0.05	0.66%
Zinc (lb)	1.71	+ 0.02	0.98%
West Texas Crude	98.28	– 5.23	– 5.05%
Brent Crude	109.16	– 0.17	– 0.16%
Iron Ore (t)	90.95	0.00	0.00%

The Australian share market over the past thirty days…

Index	20 Oct 2026	Week To Date	Month To Date (Oct)	Quarter To Date (Oct-Dec)	Year To Date (2026)
S&P ASX 200 (ex-div)	8816.90	0.12%	0.31%	0.31%	1.18%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ARF	Arena REIT	Upgrade to Buy from Neutral	UBS
BOQ	Bank of Queensland	Downgrade to Trim from Hold	Morgans
BSL	BlueScope Steel	Upgrade to Buy from Lighten	Ord Minnett
CGF	Challenger	Downgrade to Neutral from Buy	UBS
CWY	Cleanaway Waste Management	Downgrade to Hold from Buy	Morgans
DNL	Dyno Nobel	Upgrade to Overweight from Equal-weight	Morgan Stanley
FPR	FleetPartners Group	Downgrade to Neutral from Outperform	Macquarie
JIN	Jumbo Interactive	Upgrade to Buy from Hold	Bell Potter
MSV	Mitchell Services	Upgrade to Speculative Buy from Accumulate	Morgans
PDN	Paladin Energy	Upgrade to Buy from Accumulate	Morgans
RHC	Ramsay Health Care	Downgrade to Neutral from Outperform	Macquarie
SIG	Sigma Healthcare	Downgrade to Hold from Buy	Bell Potter

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

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