The Overnight Report: Optimism Fades

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US and European markets fell overnight as tariff and economic uncertainty resurfaced. ASX200 futures are pointing to a weaker start on Friday

Good Morning and Happy Friday,

US markets failed to generate follow up buying as uncertainty around US tariffs undermines confidence.

The ASX200 futures are tipping a weaker start for the end of the week, post-Thursday’s firm rally, with investors buying sold-down growth, technology stocks, and banks. A surprise fall in Australia’s February jobs data by -52,800 jobs increased hopes for a May interest rate cut by the RBA. Money markets are pricing in a 78% chance of a cut, up from 66%.

The AUD traded down in overnight trade by -0.82% as a risk-off tone gripped US markets again, with US Treasury yields falling. The 10yr note dropped to an overnight low of 4.17% at one stage before moving higher to 4.21%, and the USD strengthened.

US indices fell across the board, with Nasdaq leading the decline, down -0.33% in what was (yet again) a volatile session. The Dow Jones finished down a slight -11pts, basically unchanged on the day, but question marks remain about the outlook for the US economy, earnings growth, and the upcoming April 2 reciprocal tariffs. Uncertainty remains the key narrative.

Energy and utilities sectors were the best-performing sectors, while materials was the worst-performing sector.

The information technology sector, the market’s most heavily weighted sector, ended the day down -0.5%, not assisted by Accenture, which fell -7.3% following its earnings report, noting falling US Government contract works, and weakness in Apple on reports the company has shaken up its AI leadership ranks, as well as weakness in semiconductor stocks.

There was some positive macro news, with existing home sales showing surprising strength in February as buyers responded to an increase in inventory. It was a good sign, along with no real change in weekly initial jobless claims, which continue to run at levels consistent with a solid labour market.

Overseas, the People’s Bank of China left its 1-yr and 5-yr loan prime rates unchanged; the Swiss National Bank cut its policy rate by -25bps to 0.25%; Sweden’s Riksbank left its policy rate unchanged at 2.25%; Brazil raised its policy rate by 100bps to 14.25%; the Bank of England left its policy rate unchanged at 4.50%; and ECB President Lagarde suggested the 25% tariff on imports imposed by the US could subtract approximately -0.3 percentage points from euro area growth in the first year.

European markets fell after four positive sessions, with European banks down -1.7% and auto and parts shares declining -2.2%.

Gold continued to edge higher by US$2.60 to US$3,043.80, with copper briefly exceeding the US$10,000/t level as traders assess the possible impacts of trade tariffs. President Trump ordered the US Commerce Department to investigate imports of copper, likely as a precursor to levies. Since then, US prices have spiked as traders rushed to move metal into the US ahead of any announcement.

Crude oil prices moved higher as the US increased efforts to curtail Iranian oil exports. Brent crude oil rose 1.7% to US$72 a barrel.

The US Treasury Department sanctioned a Chinese oil refinery and its chief executive officer for allegedly buying Iranian oil, as well as multiple vessels linked to a shadow fleet of ships that carry the OPEC member’s crude. President Trump has said he will use a “maximum pressure” strategy to force Iran to come to the table on a new nuclear deal.

Extract from Dilin Wu Research Strategist at Pepperstone

With the tech sector surging and lifting related assets, market sentiment on China’s economy is shifting from the inevitability of “Japanification” to the potential for breakthroughs in AI.

However, as economic data sends mixed signals and structural challenges remain prominent, the key question is whether the stimulus measures introduced by the National People’s Congress will deliver real results.

China: Economic Landscape: Mixed Signals, Stalled Recovery

 Driven by the strong performance of the tech sector, Hong Kong stocks and other China-related assets have delivered impressive gains. The Hang Seng Index has surged as much as 30% year-to-date, largely pricing in the tailwinds from the rise of AI companies. However, recent economic data paints a more complex picture, revealing that China is currently in a painful transformation phase, with a full recovery still a long way off.

On one hand, consumer and production data have exceeded market expectations, indicating resilience in some sectors of the economy. Supported by “trade-in” subsidies, retail sales of consumer goods in January-February grew by 4% year-on-year. Meanwhile, export-oriented industries, spurred by a “front-running” effect before the US tariff adjustments, helped industrial production grow by 5.9% over the same period.

On the other hand, structural issues continue to weigh on overall growth momentum, with deflationary pressures becoming increasingly evident. Although the data may be distorted by the timing of the Chinese New Year, the 0.7% year-on-year decline in February’s CPI indicates weak domestic demand.

Additionally, the trade data is disappointing, with imports falling by -8% in February, well below the expected -1% decrease. More concerning is the fact that, despite some businesses accelerating shipments to avoid potential tariff hikes, cumulative export growth for January-February was only 2.3%, significantly below the market consensus of 5%. This suggests that external demand is not stable, and after the policy front-running, exports may face more significant downside risks in the second quarter.

Moreover, the real estate market remains sluggish, with declining new home sales, falling property prices in major cities, and a drop in real estate investment. This has led to a sharp decline in new household loans to the lowest level in 20 years, further dampening consumer and investment confidence.

Overall, while some economic data shows resilience, there are still doubts about whether the current growth drivers can sustain momentum. Deep-seated structural issues clearly require more robust policy support to drive a genuine economic recovery and sustain the stock market’s upward momentum.

Corporate news in Australia

-ACCC investigation concludes little can be done about the market dominance of Coles Group ((COL)) and Woolworths Group ((WOW))
-Bain is restarting conversations for Virgin Australia’s IPO post the 25% stake sale to Qatar Airways at a $4bn valuation.
-Nanosonics ((NAN)) received US regulatory approval for its tool designed to clean endoscopes.
-Arafura Rare Earths ((ARU)) entered into a supply deal for 100t p.a. of neodymium-praseodymium oxide with mining group Trazys for five years.
-Cleanaway Waste Management ((CWY)) is acquiring Contract Resources for -$377m.
-TPG Telecom ((TPG)) received approval for the sale of its fibre networks to Vocus Group for $5.25bn.
-NRW Holdings ((NWH)) secured a 12-month contract for $100m at Rio Tinto’s ((RIO)) seawater desalination plant.
-CoStar has been advised by Nine Entertainment’s ((NEC)) bankers that the 60% stake in Domain Holdings ((DHG)) is worth $4.65 per share.
-CommBank ((CBA)) and the rest of the Big 4 are looking towards AI agents to utilise data generated from machine learning and GenAI.

On the calendar today:

-NZ Feb trade balance

-JP Feb CPI

-EZ Jan CA Balance

-LATITUDE GROUP HOLDINGS LIMITED ((LFS)) ex-div 3c

-PREMIER INVESTMENTS LIMITED ((PMV)) earnings report

-VITA LIFE SCIENCES LIMITED ((VLS)) ex-div 6.5c (100%)

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

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.

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