The Overnight Report: (More) All-Time Records

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The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

US markets responded positively to the in-line US July CPI print, boosting the S&P500 and Nasdaq to new all-time highs.

ASX200 futures are pointing to a positive start for Wednesday, following the market reaching its second consecutive high after the RBA rate cut.

Good Morning,

The RBA cut the cash rate by -25bps, as expected, which boosted the ASX200, rallying 36pts or 0.4% to 8880.80, a new record high for the second consecutive session. Nine of the ten sectors advanced, led by financials, up 0.8% with industrials slipping -0.9%.

CommBank ((CBA)) reported FY25 earnings this morning and its result too included a record full-year Cash Profit of $10.25bn, a 4% increase from FY24, broadly meeting analysts’ forecasts.

While the domestic outlook remains strong, CBA acknowledged continuing challenges from global economic uncertainties and heightened competition locally.

FNArena will be updating analyst’s first takes through the Australian Broker Call Report as they come in, at https://fnarena.com/index.php/financial-news/australian-broker-call

What happened overnight: NAB Market’s Today Research extract

in Australia, the RBA cut rates as widely expected to 3.60%. The message from the SoMP and from Governor Bullock in the presser had a dovish tinge with the assumed cash rate path that took the cash rate down to 2.9% consistent with at target inflation. Note the staff’s August SoMP had trimmed inflation at 2.5% by end 2027 and an assumed cash rate low of 2.9% by end 2026 which was based on market pricing; previously this was trimmed mean inflation at 2.6% by mid-2027 and cash rate low of 3.2%.

Governor Bullock in the presser noted going forward: “What we’ll be doing is looking at the data that come out before each meeting and each meeting…We’ll be looking at what we’ve learned since the previous meeting and judging whether or not we think that we are broadly still on track.” And quipped on neutral that “it’s somewhere between 1 and 4 per cent. It’s a very wide range. So, we don’t put a lot of emphasis on the neutral rate in terms of thinking”.

Overall, your scribe got the feeling while the RBA is not in a hurry to cut rates, it feels like it has scope to. In that vein the RBA Board again put a downward adjustment on the inflation forecasts, while it also assumed lowered productivity forecasts had no inflation implications: “we have applied some downward judgement to the inflation forecast to reflect the possibility that we are closer to full employment than our models would imply”.

That, of course, leaves the RBA vulnerable to the labour market being tighter than their downward adjustment, and lower productivity leading to higher-than-expected inflation if households and firms have not adjusted to a low productivity environment.

One reason why that might be the case is that multi-year Enterprise Bargain Agreements would not have incorporated lower productivity assessments. That suggests a full CPI is still needed to sure up the RBA’s ongoing judgements and yesterday’s NAB Business Survey still suggests some caution is warranted on cost trends.

NAB continues to see the RBA cutting rates again in November and February, bringing the cash rate down to 3.10% which we see as broadly neutral.

US July Core CPI came in at 0.32% m/m versus 0.3% consensus; to be 3.1% y/y. Details showed airfares rose 4.0% m/) being a driver, while core goods excluding autos slowed -0.2% m/m from 0.5% previously. That reinforced the notion that for now companies are not fully passing on tariff impacts. And is consistent with the latest profit reporting season which suggested firms were waiting for clarity on tariff rates before making widespread pricing decisions.

The S&P500 rose rose 1.1%, and while gains were seen across all sectors, tech continued to outperform (Comm Services up 1.8%; IT up 1.4%; NASDAQ rose1.4%. Small caps also rallied with the Russell 2000 up 3.0%). The S&P500 and Nasdaq reached new all time highs.

Fed speak was not market moving, but also highlights clear division on the FOMC. The Fed’s Schmid (2025 voter) said: “With the economy still showing momentum, growing business optimism and inflation still stuck above our objective, retaining a modestly restrictive monetary policy stance remains appropriate for the time being,”, but also with caveat that his views would change if demand starts weakening significantly.

The Fed’s Barkin (2027 voter) was more balanced, noting despite the latest jobs report, the labor market is “in relative balance” still in a low-firing, low-hiring environment. And “I do think we’re going to see inflationary pressures, but I don’t think it’s as significant as some do”.

Also grabbing some attention were four headlines, which likely added to USD weakness, and kept questions alive for those questioning the independence of US institutions.

The first was President Trump’s nominee to be the next Bureau Labor Statistics (BLS) head discussed prior to his nomination about the need to suspend the monthly jobs report: “Until it is corrected, the BLS should suspend issuing the monthly job reports but keep publishing the more accurate, though less timely, quarterly data”… “and a lack of confidence in the data has far-reaching consequences.”

The other headlines centred around President Trump’s Truth Social Account where he renewed his criticism of the US Fed chair, weighing a lawsuit over the blowout in building renovations. President Trump also criticised economists at Goldman Sachs.

Meanwhile speaking on CNBC, Fed Governor Nominee Miran noted a 3.1% inflation rate was well behaved: “I do think that inflation has been well behaved, particularly since the president took office”, but also said “I’ve always been clear that the independence of the Fed is of paramount importance”.

Across the Atlantic, UK wages growth was as expected with the key private excluding bonuses at 4.8% y/y vs. 4.8% consensus and 4.9% previously. The rest of the UK labour market data continues to have a large cloud around it given known statistical issues. For what it is worth the unemployment rate in 3month terms was as expected at 4.7%.

The German ZEW survey meanwhile fell and disappointed for the expectations component at 34.7 vs. 39.5 consensus and 52.7 prior.

Steve Sosnick, Interactive Brokers extract

This morning, in the immediate aftermath of the highly anticipated CPI report, I received a series of news alerts on my phone. One was a “glass half-full” message, another was “glass half-empty”. Any guesses about how the stock market interpreted the data?

Glass half-empty: “Core inflation rose by the most in six months in July as price pressures remained sticky.”  (Yahoo Finance)

Glass half-full: “Inflation remains at 2.7% in July.  Tariff effects are still modest.”  (Barron’s)

The instant market interpretation: “Stocks and bonds rose after the latest US inflation reading bolstered speculation the Fed will soon be able to cut rates.”  (Bloomberg)

Anyone who has been paying attention to stocks this year, or most of this decade for that matter, knows that stocks don’t need much impetus to move higher. An as-expected report was clearly sufficient. The monthly and yearly changes are reported with one digit to the right of the decimal point, so the respective 0.2% and 0.3% increases on monthly headline and core CPI were exactly in-line with consensus. 

There were slight divergences on the yearly data, with the 2.7% rise on the yearly headline data coming in better than the 2.8% consensus, while the 3.1% yearly rise in the core was 0.1% above the 3.0% consensus. If prices didn’t seem to rise faster than expected, that was a go-ahead for another leg of the rally.

Indeed, while expectations for rate cuts solidified, it’s not as though they weren’t already lofty beforehand.  According to CME FedWatch, there is a roughly 97% expectation for a -25bps cut at the FOMC’s meeting on September 17th. But that is up from about 88% yesterday. 

We went from a near likelihood to an even greater likelihood. As for the December meeting, expectations remain firm for at least two cuts, with expectations for a third rising from 29% to 45%. In a momentum-driven, somewhat euphoric market, those modestly increased likelihoods are enough for a nearly 1% rise in the S&P500. 

Short-term rates echoed the incremental change in rate cut probabilities. The 2-year Treasury yield fell by a quick -7bps immediately after the CPI report, but settled into a -4bps dip by midday.  

Longer rates offered a bit of a head-fake, however. The 10- and 30-year yields each dropped by about -3bps right after the number but reversed to 2bps and 4bps rises shortly thereafter. This further steepens the yield curve. 

The current spread between 2- and 10-year yields has widened to about 57bps today. That is below the brief spike to 74bp on April 9 and below the three 60-plus bps spikes that we have seen since then, but it is also well above the 40bp spread that started the month.  This relatively stable relationship has not moved enough to impede stocks. Then again, neither was the inverted yield curve that prevailed for nearly two years.

We have frequently noted that momentum-driven stock markets seem to be obeying Newton’s First Law of Motion, paraphrased as: A body in motion remains in motion unless it is acted upon by an external force. 

Today’s CPI report certainly was an insufficient external force to alter the current trends.

Corporate news in Australia

– WH Soul Pattinson ((SOL)) sold $140m in Tuas ((TUA)) shares after the M1 takeover announcement.

-Star Entertainment Group ((SGR)) has reached agreement with its HK based partners to sell -50% of Queens Wharf Casino.

-Pacific Equity Partners added $200m in margin loans to Chief Executive, Scott Didier, who owns 17.9% of Johns Lyng ((JLG)).

-Tyro Payments ((TYR)) was placed in a trading halt after ASX query.

On the calendar today:

-AU 2Q Lending

-AU 2Q WPI

-JP July PPI

-AGL ENERGY LIMITED ((AGL)) earnings report

-AMOTIV LIMITED ((AOV)) earnings report

-ARENA REIT ((ARF)) earnings report

-BRAVURA SOLUTIONS LIMITED ((BVS)) earnings report

-COMMONWEALTH BANK OF AUSTRALIA ((CBA)) earnings report

-COMPUTERSHARE LIMITED ((CPU)) earnings report

-DEXUS INDUSTRIA REIT ((DXI)) earnings report

-EVOLUTION MINING LIMITED ((EVN)) earnings report

-INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) earnings report

-REGION GROUP ((RGN)) earnings report

-SEEK LIMITED ((SEK)) earnings report

-TREASURY WINE ESTATES LIMITED ((TWE)) earnings report

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.

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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