The Overnight Report: CPI Optimism

This story features PERSEUS MINING LIMITED, and other companies. For more info SHARE ANALYSIS: PRU

The Australian share market is expected to open higher as AI-related stocks stabilised overnight post shellacking the day prior and as the local CPI release will be in focus.

If current predictions prove correct, CPI should undershoot versus the RBA’s projections (which at least partially explains early optimism today).

On the corporate front, quarterly reports are expected from Perseus Mining ((PRU)), Whitehaven Coal ((WHC)), 29Metals, Atlas Arteria, BCI Minerals, Boss Energy, and others.

By Chris Weston, Head of Research, Pepperstone

Good morning.

We’ve seen a better session for US tech with the NAS100 closing up 1.6%, and while questions remain unanswered, the market is voting that the innovation that DeepSeek could bring to the ecosystem will unlikely impact the AI capex cycle and could even lead to new channel of demand for GPUs.

With a number of well-traded megacap tech names due to report earnings in the Thursday and Friday after market sessions, the pullback that was presented to the world yesterday was seemingly there for buying, and the volatility spike we saw yesterday in AI single stock names was there for selling.

Nvidia fires back although near-term volatility risk remains elevated

Nvidia (up 7.9%) continues to garner solid client interest and remains at the epicentre of the broader equity market focus.

Volumes remain high with 594m shares traded, as well as some 16.9m options contracts traded the most since June.

Gains have also been seen in Meta (up 2.2%), with the technical set-up looking red hot and traders are running this hot into tomorrow’s earnings release.

The fact that Meta’s price has run so hard does sufficiently raise the bar to please the market and they will need to blow the lights out to keep the dream alive.

Apple, Microsoft, Amazon and Alphabet also find buyers, as does Tesla with traders a touch more cautious about going too hard ahead of the upcoming after-market earnings announcement.

Tech and Communication Services (Meta & Googl) aside, breadth has been poor with 70% of S&P500 stocks lower on the day a narrative that the bears will be pushing, although while rotation (among S&P500 sectors and styles) is still the prevalent theme.

To see correlations really rise towards 1 and for a blanket sell-off, with traders selling both tech/Mag7 and value, we would need to see something new emerge and a real shock to the system.

The FOMC & BoC meetings in focus

Earnings aside, we look ahead to today’s FOMC and BoC meetings, with the Fed firmly expected to leave rates unchanged, while the BoC will almost certainly cut rates by -25bp and signal a more gradual approach to easing going forward.

Traders have re-engaged with USD longs into the Fed meeting, although that flow has been driven by comments made by Trump towards universal tariffs than trader’s sensing USD upside risk from the Fed meeting, which is expected to be a low vol event.

AUS Q4 CPI offering intraday AUD volatility risk

The median estimate for trimmed mean CPI to come in at 0.6% q/q, and I would argue that if the RBA are to skew a heavier consideration on the inflation side of its dual mandate (over full employment) that today’s Q4 CPI print offers sizeable intraday risk.

By way of a simplistic playbook, my thinking is that a quarter-on-quarter trimmed mean CPI print at or above 0.7% would greatly increase the prospect of the RBA keeping rates on hold in February.

Conversely, a CPI print at or below 0.5% would validate the current market pricing and would compel the RBA to cut rates by -25bp on 18 Feb, and by way of a risk management exercise.

Turning to the Asia open, the ASX200 should open on the front foot, and while we won’t get the same boost from tech stocks that the S&P500 or NKY225 sees, crude, gold, copper and iron ore futures are all higher, so this may support resource plays.

That said, BHP Group’s ((BHP)) ADR sits -1.4%, suggesting materials plays may take a backseat, even if commodity prices are modestly higher.

With Q4 CPI in play, naturally banks, consumer plays and other interest rate sensitive equities will be front and centre as we head towards the 11:30 AEDT release.

On the calendar today:

-Australia 4Q CPI

-China Public Holiday

-US Dec Trade Balance

-US FOMC Decision

-29Metals ((29M)) Quarterly update

-Atlas Arteria ((ALX)) Quarterly update

-Aurelia Metals ((AMI)) earnings report

-BCI Minerals ((BCI)) Quarterly update

-Boss Energy ((BOE)) 2Q results

-Champion Iron ((CIA)) Dec Qtr update

-Gold Road Resources ((GOR)) Quarterly update

-Mac Copper ((MAC)) Quarterly report

-Mineral Resources ((MIN)) 4Q 2024 Production

(and more)

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

Corporate news in Australia:

-NinjaOne to acquire Dropsuite ((DSE)) for $402m

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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