The Overnight Report: Cats & Dogs & Equity Bulls

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By Chris Weston, Head of Research, Pepperstone

Good morning.

Markets reprice Fed cut expectations for the September FOMC meeting, with a -50bp cut essentially taken largely off the table, while prediction markets remain modestly skewed in favour of a Harris win in the November US Election. Two important developments, and we now look ahead to today’s ECB meeting, with a -25bp cut all but assured, with the central bank likely to be purposely vague on cutting again in the October meeting.

While the US core CPI report has been a talking point for clients, many acknowledge the hotter-than-expected 0.3% m/m lift was largely impacted by a 50bp m/m increase in owners’ equivalent rents a factor that really doesn’t reflect anyone’s circumstances. The Fed, for whatever reason, do put weight on this input within the CPI basket, so it’s no surprise that we have seen a reduction in September cut expectations, with -28bp of cuts now priced for that meeting and -102bp of implied cuts for December. US 2-year Treasury yields settled +5bp at 3.64%.

We wanted answers to help settle the -25bp vs -50bp Fed rate cut debate on Friday, but now it seems the market has made its own mind up. We are now comfortable with calling a -25bp cut for September, but also open-minded to the idea that a weak US payrolls report on 4 October would fully open up a -50bp cut in the November FOMC meeting (there is no meeting in October). This would conveniently align with any Fed members who would be concerned that a -50bp cut before the election may influence the election outcome, which seems a tough one to reconcile.

We have seen some pockets of partial unwinding of legacy Trump Trades’, and some expressions of Harris trades’ in various parts of the market. However, the big talking point on the day was the outsized moves in US tech names, with the AI-rated feeling some real love.

Nvidia got the full attention of clients, and it was an out-and-out trend day. Having initially traded to US$107.42, the buyers stepped in hard, and it was on, with the share price rising 9% off the low the NAS100 futures subsequently rallying and an impressive 3.8% off its respective low.

At an index level, both the NAS100 and S&P500 futures closed firmly above Friday’s high (5532.5 in the S&P500 futures), and both look strong. The renewed bull case is growing, at least in the price action, but the bears will again point to the fact that there is little fundamental reason to chase the AI names here, and outside of tech, we’ve seen fairly poor participation in the rally, with only 46% of stocks rallying on a day when the S&P500 gained 1.1%, with energy, financials and staples closing in the red.

As we’ve seen throughout much of 2024, the S&P500 and NAS100 do some of their best work when participation is low.  

In commodity markets, we’ve seen good buying crude, with Brent crude closing +2.2% at US$70.73/bbl but while the buyers have stepped in, the price failed to challenge Tuesday’s high of US$72.28. Gold saw choppy intraday trade, trading a range of US$2528 to US$2501/oz and closing little changed. Copper closed +1.7% with price closing on session highs, which bodes well for the session ahead.

Turning to Asia, our respective opening calls look constructive and the screens will be lit up by a gentle rolling sea of green on the open. The question, of course, is whether the buyers can build on the gains after the markets are open.

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About THAT Debate:

Yesterday’s televised debate between the two main contenders for the US presidency has triggered an almost universal assessment of Harris outperforming Trump. Bloomberg puts it as follows:

“Vice President Kamala Harris hammered home her argument that Donald Trump is unfit to lead the US in their televised debate. Trump allowed himself to be baited, ending up on back foot. Pop icon Taylor Swift told her huge fanbase that she is backing Harris’ run for the White House.”

Even before the debate had finished, internet platforms got swamped by memes about cats and dogs being eaten by Haitian immigrants, as claimed during the debate.

On the agenda today:

-Australia Aug unemployment rate

-ECB policy decision

-BHP Group ((BHP)) ex-div 109.21c (100%)

-Breville Group ((BRG)) ex-div 17c (100%)

-Brambles ((BXB)) investor briefing

-IGO Ltd ((IGO)) investor briefing

-Mader Group ((MAD)) ex-div 4c (100%)

-McMillan Shakespeare ((MMS)) ex-div 78c (100%)

-Nine Entertainment ((NEC)) ex-div 4.5c (100%)

-Perpetual ((PPT)) ex-div 53c (50%)

-PWR Holdings ((PWH)) ex-div 9.20c (100%)

-Spark New Zealand ((SPK)) ex-div 12.78c

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

Corporate news in Australia:

-ANZ Bank ((ANZ)) may revive a sale of its 38.8% stake in Indonesian lender Panin Bank in a bid to streamline operations, Bloomberg reports

-REA Group’s ((REA)) bid to acquire UK property portal Rightmove was rejected

-The regulator has extended its review of Lendlease’s ((LLC)) sale of 12 residential communities to Stockland ((SGP)), with the ACCC yet to accept Stockland’s proposal

-Namoi Cotton ((NAM)) directors have advised shareholders to accept Louis Dreyfus Company’s takeover offer, following regulatory approvals from the ACCC and Foreign Investment Review Board

-National Storage REIT ((NST)) is raising $300m via convertible notes

-The AFR reports, Star Entertainment’s ((SGR)) lenders have offered to give the wagering group an extra $150m to help it survive a cash crunch caused by cost blowouts at its new Brisbane casino and a slowdown in patrons visiting its gaming floors

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.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

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