The Overnight Report: Relief & Anxiety

This story features RIO TINTO LIMITED, and other companies. For more info SHARE ANALYSIS: RIO

US equities have staged a relief rally and SPI futures are indicating investors locally are in wait and see mode with the ASX projected to open with minor gains on Thursday morning.

It wasn’t looking too flash during US President Trump’s 100 minutes long speech to Congress, but news that car tariffs for Mexico and Canada have been delayed by one month has proved sufficient to trigger a relief rally for US equities.

For how long one can but guess at this stage.

Over in Europe, equities continued their rally as countries are committing to increased spending on defense.

European bonds are moving rapidly too.

As reported by economists at ANZ Bank, German bonds had their worst day in 35 years, and 10y yields in France, Italy and Spain were all up more than 25bp (that’s one hell of a move for one single trading session).

The UST 10y bond yield rose merely 3bp to 4.27%.

The Euro Stoxx 50 and the FTSE 100 indices closed up 1.9% and unchanged respectively.

Locally, eyes remain focused on Queensland where cyclone Alfred is expected to cause mayhem, also implicating the north of NSW.

Yesterday, the release of December quarter GDP delivered unexpectedly good news for the Albanese government with growth estimated at 0.6% for the quarter, above forecasts.

Commodity investors would have been enthused by China targeting 5% GDP growth for 2025, as it signals possible new stimulus for an economy in the doldrums, not to mention fresh US tariffs.

The active WTI oil future was down -3.1% at USD66.2/bbl, while gold traded little changed at US$2,918.6/oz despite a still fragile looking US dollar.

The prospect of further stimulus measures in China boosted sentiment across the metals sector.

Iron ore prices fell after China said it will push the country’s steel industry to cut output.

As also indicated by FNArena’s The Short Report, Rio Tinto ((RIO)) is now the 19th most shorted stock on the ASX with 7.81% of its outstanding capital positioned for a weaker share price.

One thinks someone is banking on a much weaker price for iron ore?

By Chris Weston, Head of Research, Pepperstone

For those who choose to actively follow and even react to the barrage of headlines, I salute you, as one can only say we’ve reached peak noise if not outright chaos.

Obtaining any kind of reliable signal from the headlines is almost impossible, but while we consider those who manage market risk through this lively dynamic, one must truly feel for those businesses that need to plan ahead – with tariff policy changing almost daily, the ability to have any sort of confidence to make strategic decisions is currently almost impossible this will have implications.

The market senses this uncertainty building within the US corporate sector, and compounding the concerns was a focus on targeted aspects of the US data flow.

Notably, we saw a further uplift in the Prices Paid’ sub-component in the US ISM Services release, that was later backed by commentary from the ISM detailing that US companies were struggling to pass on the costs to customers due to weak demand.

There was also a passage in the Fed’s Beige Book (released in late US trade) that portrayed a similar message, detailing that firms in multiple districts were having difficulty passing costs onto customers.

This reads negatively for US corporate margins, and one could also argue that it was another factor that kept would-be USD buyers at bay.

But FX traders have seen news outside of the US and wholly positive developments in other jurisdictions that have given them choice and FX markets have ripped, with the USD taken out to the woodshed, with the DXY -1.2% and having its second-worst day of the year. 

It’s been a while since so many analysts were outright positive on the EUR, but it’s not every day we get a “Whatever it takes” fiscal moment for Germany, with a total fiscal package in the works set to push EUR1trn in total.

The explosion higher in German 10-year bund yields, both in absolute terms but relative to US Treasuries, the green light to push EURUSD just shy of 1.0800.

Not that EUR assets needed it, but a solid sell-off in Brent crude and EU Nat Gas would have only added to the tailwinds in EU assets.

The ECB meeting in the session ahead does pose some risk to EUR exposures, but one questions how much visibility the ECB will have in the near-term, with tariff risk still a known unknown and the fiscal measure still needing to pass.

Hence, it may be challenging for the ECB to offer any surprising insights, and the statement may be purposely vague on any long-run guidance.

We also turn to China, and while the fiscal impulse and macro targets seen in the NPC meeting met market expectations, the core message and the central focus fell on driving innovation and consumption, and that message is one that has been and will continue to be taken well by investors.

Chinese AI and consumers should remain well supported in this development and it seems feasible to think they’ll rip higher today.

Either way, the USD is being taken to task, a factor which will no doubt please the Trump Administration, but then they would also be pleased to see a move lower in crude, and the bid return to US equity too.

If USD traders took issue with the pricing components of the ISM services, and select commentary in the Beige Book, the headline ISM Service numbers were solid enough and with Trump walking back tariffs on autos, after a period of chop in the early throws of US cash equity trade, the buyers stepped in hard, with shorts covering in AI and discretionary large caps, with solid buying seen in materials and industrial equity plays.

The bulls have once again defended the 200-day MA in S&P500 and NAS100 futures and used it as a platform to push higher.

It remains the line in the sand for risk, and just as we saw in August 2024, the market knows that nothing good happens below the 200-day MA but are we out of the woods for risk?

US payrolls will influence that call, as will US CPI next week. However, I would be placing additional consideration on the NFIB Small Business Optimism survey (10 March) and retail sales (17 March) as key event risks that could move the risk dial. 

So, big moves playing out in EU assets, US equity findings buyers through trade and the USD and crude lower the question is which of these moves to trust, and which should be countered.

On the calendar today:

-Australia Jan Building approvals

-Eurozone ECB rate decision

-Eurozone Jan retail sales

-US Jan Trade Balance

-ARN Media ((A1N)) ex-div 1.10c (100%)

-Australian Finance Group ((AFG)) ex-div 3.80c (100%)

-Air New Zealand ((AIZ)) ex-div 0.96c

-AUB Group ((AUB)) ex-div 25c (100%)

-BHP Group ((BHP)) ex-div 78.51c (100%)

-Beacon Lighting Group ((BLX)) ex-div 4.10c (100%)

-Engenco ((EGN)) ex-div 0.50c

-Freightways ((FRW)) ex-div 17.09c

-G8 Education ((GEM)) ex-div 3.50c (100%)

(and more)

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

Corporate news in Australia:

-CommBank ((CBA)) sells final 4.4% stake in VIB for $170m, fully exiting Vietnamese bank to refocus on Australia and New Zealand

-Shares in Arcadium Lithium ((LTM)) will be suspended from trading today after a court waved through its acquisition by a subsidiary of Rio Tinto ((RIO))

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.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author’s and not by association FNArena’s – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms