The Overnight Report: Buy The Dip Rally

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European and US markets rallied, led again by BigTech and Nasdaq in New York as 'buy-the-dip' mentality led market participants to scoop up Friday's sell-off bargins.

Post a flat day yesterday, ASX200 futures are pointing to a firm rally for Tuesday's session.

World Overnight
SPI Overnight	8704.00	+ 89.00	1.03%
S&P ASX 200	8663.70	+ 1.70	0.02%
S&P500	6329.94	+ 91.93	1.47%
Nasdaq Comp	21053.58	+ 403.45	1.95%
DJIA	44173.64	+ 585.06	1.34%
S&P500 VIX	17.52	– 2.86	– 14.03%
US 10-year yield	4.20	– 0.02	– 0.47%
USD Index	98.52	– 0.41	– 0.42%
FTSE100	9128.30	+ 59.72	0.66%
DAX30	23757.69	+ 331.72	1.42%

Good Morning,

The ASX200 had a flat session on Monday, closing up by 2ppts with six of eleven sectors weaker.

Gold miners rallied on the higher gold price, helping the materials sector to a gain of 1.2%.

What happened overnight, NAB Markets Today Research extract

Markets kicked off the week with a risk-on tone, shrugging off last week’s tariff news and payroll revisions. US equities bounced back with gusto, the S&P500 posting its biggest daily gain since May up 1.47% as investors embraced dip buying amid solid earnings and rising Fed rate-cut expectations.

The Nasdaq outperformed up 1.95%, with tech megacaps leading gains. European bourses followed suit, with Euro Stoxx 600 up 0.9% and DAX up 1.4%.

US Factory Orders fell -4.8% m/m in June, matching expectations and confirming volatility driven by aircraft orders. Core durable goods orders slipped -0.8%, reinforcing the narrative of softening momentum in 2Q after front-loaded tariff-driven strength in 1Q. Shipments held up better, but the trend points to a cooling industrial backdrop.

Senior Loan Officer Opinion Survey (SLOOS) showed banks tightening lending standards, particularly for unsecured consumer credit and multifamily real estate. Demand for loans declined across most categories, suggesting slower credit growth ahead. While large borrowers saw slightly easier terms, the overall tone was cautious.

Meanwhile on tariff news, President Trump escalated trade tensions with India, vowing a “substantial” hike in tariffs on the country’s exports over its Russian oil purchases. Switzerland and the EU are scrambling to negotiate, with the latter pausing retaliatory levies for six months.

Looking at US equities in more detail, dip buyers returned in force, encouraged by strong earnings and expectations of Fed easing. About 85% of S&P500 constituents closed higher, with notable moves in Nvidia and Meta rising 3.5%-plus. American Eagle soared over 20% after a Trump-endorsed ad campaign.

US Treasuries held firm, extending Friday’s rally. The 10yr yield fell -2.5bps to 4.193%, while the 2ry was flat at 3.676%, flattening the 2s10s curve by circa 2bps. The rally was tempered by anticipation of US$125bn in new issuance this week (3yr US $58bn tonight, 10yr  US$42bn tomorrow and 30yr US$25bn on Thursday). 

Rate-cut expectations were little changed after Friday’s big move with the market pricing in a high chance of the Fed delivering a -25bps cut in September (-23bps priced) and -61bps of cuts in total over the three meetings left for the year.

The market is paying little heed to Chair Powell’s comment at the post-FOMC press conference that policy makers would be paying more attention to the unemployment rate than the jobs numbers and followed up by NY Fed President William’s comments post-jobs figures where he claimed the labour market was still solid.

The AUD eased -0.17% to 0.6468, after trading in an overnight range of 0.6459 to 0.6490.

Oil prices fell sharply. WTI dropped -1.74% to US$66.16, and Brent -1.45% to US$68.66, as traders weighed OPEC-plus’ 547k bpd output hike from September against tariff-induced volatility.

India’s Russian oil purchases remain a geopolitical flashpoint. President Trump said he would be “substantially raising” the tariff on Indian exports to the US over the Asian nation’s purchases of Russian oil, a move New Delhi slammed as unjustified in an escalating fight between the two major economies. 

Trump did not say by how much he would increase the levy. Last week, he announced a 25% rate on Indian exports and vowed more duties if India continued to buy oil from Russia.

Gold rose 0.82% to US $3375.1, supported by lower yields and macro uncertainty.

Steve Sosnick Interactive Brokers extract

One could assert that Friday’s market could have been even worse, considering everything that was thrown its way. We had already written about the implementation of tariffs and the jobs report that featured stunning revisions which led to a reassessment of the economic situation and the likelihood for imminent rate cuts.  

Then in the afternoon, we learned of the President’s intention to fire the head of the Bureau of Labor Statistics (BLS), the resignation of a Fed Governor, and the US$200bn-plus verdict against Tesla (TSLA). Put that all together, and a big decline seemed more than understandable.

Then, as if on cue, the dip buyers emerged in force this morning. We have frequently referred to momentum-driven markets as obeying Newton’s First Law of Motion:

A body remains at rest, or in motion at a constant speed in a straight line, unless it is acted upon by a force.

Friday’s market was emblematic of that effect. Stocks had been following very solid uptrends, with external factors seemingly providing insufficient forces to disrupt the upward motion.  Sure, some stocks were battered recently by unpleasant reactions to their earnings reports, but even those downdrafts were not enough to darken the market’s mood entirely. Only after a confluence of factors was that path disrupted.

But today, like so many others, seems to be obeying a modified version of Newton’s Third Law of Motion:

To every action, there is always opposed an equal reaction; or, the mutual actions of two bodies upon each other are always equal, and directed to contrary parts.

While the now-routine attempts to buy dips and then chase the bounces are not exactly equal and opposite reactions, they seem to come awfully close.

Unlike Friday’s decline, which was quite easily explained, the cause for today’s rally is a bit murkier. It could be that rate cut expectations have solidified, but the odds for a cut haven’t improved markedly since Friday, nor have we seen a significant move in 2-year rates today to reaffirm that. It could be a reaffirmation of the “Fed Put”. the thought that impending rate cuts will bolster stocks no matter what. 

That is basically a reiteration of the prior point, with the caveat the Fed Put is not really about the stock market at all – it is the Federal Reserve stepping in to protect the broader economy or money market liquidity. Besides, if that was the case we would expect to see longer-term VIX futures decline – why buy protection if the Fed will give it to you for free? Despite the plunge in spot VIX and short-term futures, the long end is relatively firm.

In this case, I think the simplest explanation is the best. Buying dips has worked so spectacularly well for active traders recently, they are loath to abandon that strategy. Who can blame them when it has worked so spectacularly well? 

It’s not a question of whether traders will attempt to buy dips, but how aggressively will they step in during the decline and how aggressively will they chase the seemingly inevitable bounce. For today at least, it is very nearly an equal and opposite reaction, with very little news and positive sentiment almost balancing out a highly consequential flow from the prior session.

Corporate news in Australia

-WiseTech Global ((WTC)) completes $3.3bn acquisition of e2open.

-Domain Holdings ((DHG)) shareholders have approved CoStar’s $3bn takeover bid with court approval outstanding.

-Netwealth Group ((NWL)) has removed SQM from its platform for failed $1bn super scheme.

-CommBank ((CBA)) is targeting Australians with up to $30m in investible assets who are seeking relatively cheap access to model portfolios, managed funds.

-Healthscope bidders enter a 12-week due diligence period before binding offers.

On the calendar today:

-AU ANZ July Job Ads

-CH July Caixin

-XX Global PMIs

-CREDIT CORP GROUP LIMITED ((CCP)) earnings report

-NEXGEN ENERGY LIMITED ((NXG)) earnings report

-PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED ((PNI)) earnings report

-RECKON LIMITED ((RKN)) earnings report

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

Spot Metals,Minerals & Energy Futures
Gold (oz)	3428.80	+ 15.00	0.44%
Silver (oz)	37.45	+ 0.37	0.99%
Copper (lb)	4.46	+ 0.00	0.01%
Aluminium (lb)	1.16	– 0.00	– 0.34%
Nickel (lb)	6.75	+ 0.13	1.92%
Zinc (lb)	1.25	+ 0.01	0.70%
West Texas Crude	66.22	– 1.11	– 1.65%
Brent Crude	68.56	– 1.11	– 1.59%
Iron Ore (t)	100.77	+ 1.20	1.21%

The Australian share market over the past thirty days…

Index	04 Aug 2025	Week To Date	Month To Date (Aug)	Quarter To Date (Jul-Sep)	Year To Date (2025)
S&P ASX 200 (ex-div)	8663.70	0.02%	-0.90%	1.42%	6.18%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
CIA	Champion Iron	Downgrade to Neutral from Outperform	Macquarie
DRO	DroneShield	Upgrade to Buy from Hold	Bell Potter
		Upgrade to Buy from Hold	Shaw and Partners
LYC	Lynas Rare Earths	Upgrade to Hold from Sell	Ord Minnett
MIN	Mineral Resources	Upgrade to Hold from Trim	Morgans
		Downgrade to Underperform from Neutral	Macquarie

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)

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