The Overnight Report: Oracle Lights AI Fire (Again)

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US markets moved higher, tickling near all time high levels despite a downward revision in jobs data and pending the upcoming PPI and CPI reads.

After another weak day yesterday for the Australian market, ASX200 futures are pointing to a flat open.

Good Morning,

Tuesday registered yet another down day for the ASX200, falling -46pts or -0.5% to 8,803. Banks were the largest drag on the index, with gold miners and technology stocks in favour.

For lithium fans, Albemarle’s stock fell -11.5% on a FactSet report that Chinese EV battery maker CATL will restart its Yichun lithium mine, which represents around 8% of global lithium supply. 

Shares in US tech giant Oracle are trading up 26% in the US aftermarket, after reporting multi-cloud database revenue from Amazon, Google and Microsoft grew 1,529% in the last quarter, due to demand for AI servers.

What happened overnight: Chris Weston, Pepperstone extract

Despite reasons to see US equity roll over and for the volatility buyers to step up, once again the buyers have shown their hand and supported the intra day weakness, with volume increasing and accumulation becoming clear on the move (in S&P500 futures) below 6500. 

Sensing the change in flows as the futures were pushed back above 6500, the sellers stood aside, and the net buying pressure, across discretionary, algo, and options dealer hedging flows took control and drove the equity market higher into the close, and within touching distance of new all-time highs.

We can attribute an element of the 0.3% close higher in the S&P500 to Alphabet, which has been on fire of late, with shares pushing to US$240, with shareholders highly receptive to its partnership with Broadcom and its rollout of TPUs that could take market share from Nvidia. 

Tactically, it’s hard to put new money to work and to chase Google at US$240, but those who are set long will be happy to ride this train, trailing stops and perhaps looking to the options market to hedge the risk that price rolls over in the near-term, as fast money look to lock in some of the recent gains. 

S&P Utilities, healthcare, and energy have also added points to the index, with energy stocks getting tailwinds from the geopolitical headlines that Israel had gone after Hamas leadership in Qatar. That saw Brent prices rise to US$67.38 and WTI to US$63.67, although the upside in crude eventually gave way and sellers, perhaps with crude traders sensing a low risk of escalation in the region, took levels lower as US trade wore on.

The big talking point on the day was the record revisions lower in the Bureau Labor Statistics (BLS) payrolls data from April 2024 to March 2025. The consensus call from economists was for -682k net revisions (lower), so it’s hard to say they had this one nailed. Either way, the street was expecting massive downward revisions to what was essentially old data, and we got that, with total payrolls growth through this period taken down by -911k jobs in total.

The punchy revision will only accelerate the pressure on the Fed to ease in September, and throughout the balance of 2025. While pricing for next week’s FOMC meeting in US interest rate swaps was largely unchanged on the day, one must consider that a -25bp cut at next week’s FOMC meeting was already priced as a sure thing.

Perhaps more interestingly, the BLS revisions haven’t raised market expectations for a -50bp cut from the Fed next week. That perhaps reflects market players seeing upside risk to the consensus call for the core PPI and CPI prints, which are released over the next two sessions, and the view that a -50bp cut next week is still a bridge too far given other US growth metrics are holding up well.  

While expectations could evolve if we get a benign core CPI print, at this stage the Fed is far more likely to cut by -25bp and to guide with a strong bias that more cuts are to come in the months ahead. 

It is somewhat surprising to see US interest rate swaps imply -66bp of cumulative Fed cuts by December, with -5bp of implied cumulative cuts taken out of pricing by year-end. 

It’s hard to see this as a “sell the fact” reaction to the BLS revisions, but traders have weighed in and lifted its implied terminal pricing for the Fed funds rate up by 7bp, resulting in the US 2yr Treasury yield up 7bp to 3.55%. 

While we’ve seen less pronounced selling in long-end Treasuries, the wash-up has been a bear flattening of the 2s vs 30s differential by 4bp. A solid US$58b 3yr Treasury auction may have even limited the upside in yields on the day, and the bond market now looks to the US$39b 10yr reopening in the session ahead, which comes after the US PPI inflation release.

The USD was trading heavy through Asia and EU trade, with the DXY trading to a low of 97.25, the weakest level since 24 July but as US 2yr Treasury yields moved higher, the USD was pulled higher in sympathy, mitigating a close below Monday’s low and the recent range lows. 

Meanwhile, developments on the French political front with President Macron appointing ally Sebastian Lecomu as the new PM, went some way to alleviating the risk of a snap legislative election. Still, risk remains given the France OAT-German bund 10yr spread widened by 4bp to 81bp and French assets still navigate the upcoming budget talks and Fitch’s rating outcome on Friday.

Gold remains front and centre on clients’ radar, with flows from the more aggressive faction of the client base skewed in positions to capture near-term downside in the gold price.

The move into session highs US$3674 has been well faded as the USD kicked up from the lows, leaving us with an ominous daily candle. Like most in the market, I feel gold remains a strong place to hang out over the medium-term, but if sellers can now take price through the day’s low of US$3625, the risk is that selling pressure could build, with fast-money traders not wanting to surrender profits.

That suggests a move back to US$3540 could be possible, and one where would-be buyers could look to reload longs.

Yardeni Quick Takes Research extract 

There was a lot of news today that, on balance, didn’t move the needle much in the financial markets, which are marking time until August’s PPI and CPI reports are released on Wednesday and Thursday, respectively. Let’s review all the non-events today:

Gold & geopolitics. The nearby futures price of gold jumped to yet another record high of US$3,707 per ounce this morning on news that Israel attacked the leadership of Hamas in Doha, Qatar.

Profit-taking pared some of the gain by early afternoon. The gold spot price is on track to reach our US$4,000 target by the end of this year. That has been our target since the price rose above US$3,000 earlier this year. We turned bullish on gold when it rose above US$2,000 last year.

On September 6, Bloomberg reported that the People’s Bank of China increased its gold holdings in August for a 10th month, in a continued push to diversify its reserves away from US dollars.

Uncertainty. There has been considerable uncertainty since Donald Trump won the 2024 presidential election in November. Uncertainty remained high after he imposed tariffs earlier this year.

The Uncertainty Index, compiled by the National Federation of Independent Business (NFIB), reached a record high of 110 in October 2024, just before the election. It has remained elevated but was down to 93 in August.

Apparently, many of us are learning to live with high uncertainty resulting from Washington’s erratic policy making. As we’ve observed many times before, it is impressive how well the US economy and stock market perform despite Washington’s meddling.

Labor market. The US economy likely created -911,000 fewer jobs in the 12 months through March than previously estimated, according to the preliminary annual benchmark revision produced by the Bureau of Labor Statistics (BLS). It implies that nonfarm payroll gains averaged about 71,000 per month instead of 147,000. A final benchmark revision will be released in February along with the BLS’s employment report for January.

The negative spin is obvious: The labor market is weak, and so is the economy. Our positive spin is that the revisions confirm that the monthly “breakeven” payroll gain may be 75,000 rather than 150,000. This revision won’t change the unemployment rate, which had been running around 4.0% during the revision period.

Furthermore, the benchmark revision implies a significant upward revision in productivity over the past few quarters!

August’s NFIB survey showed that the percentage of small business owners reporting job openings and plans to hire over the next 12 months remained above their historical averages

Then again, the NFIB job openings series suggests that the JOLTS version of this series continued to fall in August.

Global stocks. The forward earnings of the S&P 500 LargeCaps continue to soar in record-high territory. It has been driving the bull market since August 2020.

The forward earnings of the S&P400 MidCaps and the S&P600 SmallCaps have been flat-lining since late 2022. They might finally be showing some signs of life. Stay tuned.

The Stay Home investment strategy remains on an upward trend relative to Go Global. The US accounts for 65% of the market capitalisation of the All Country World MSCI. 

Corporate news in Australia

-Telix Pharmaceuticals ((TLX)) has reached an agreement with US FDA on the re-submission of its brain cancer imaging agent, TLX101-CDx.

-Macquarie Group ((MQG)) is trialling digital workers for back-office roles and human resources as part of the investment in start up Future Secure AI.

-Final approval conditions for Woodside Energy’s ((WDS)) North West Shelf facility are yet to be agreed four months after provisional Federal Government approval.

-Wollemi Capital is acquiring MPower ((MPR)) for $19m as part of its $100m investment in solar and battery projects to be added to national grid.

-BHP Group ((BHP)) has agreed to pay Australian shareholders $110m as compensations over the Brazil tailing dam disaster.

-Ango American is merging with Canada’s Teck Resources to create a US$543bn copper giant.

-Lifestyle Communities ((LIC)) sells Ocean Grove for $46.2m to reduce debt.

-Perpetual ((PPT)), L1 Capital and Washington Soul Patts ((SOL)) bid for News Corp ((NWS)) stock in settlement deal.

-Westpac ((WBC)) exits Star Entertainment Group ((SGR)) $430m loan and sells debt to another lender.

-Woolworths Group ((WOW)) is considering the sale of Big W, with multiple potential buyers touted.

-Brookfield exits Australian coal with the sale of of its $527m stake in Dalrymple Bay.

On the calendar today:

-NZ July net migration

-CH Aug CPI, PPI

-US Aug PPI

-ADAIRS LIMITED ((ADH)) ex-div 4.00c (100%)

-BRAMBLES LIMITED ((BXB)) ex-div 32.00c (30%)

-CUE ENERGY RESOURCES LIMITED ((CUE)) ex-div 0.50c

-EVT LIMITED ((EVT)) ex-div 22.00c (100%)

-IDP EDUCATION LIMITED ((IEL)) ex-div 5.00c (50%)

-KIP MCGRATH EDUCATION CENTRES LIMITED ((KME)) ex-div 0.50c (100%)

-MEDIBANK PRIVATE LIMITED ((MPL)) ex-div 10.20c (100%)

-NAOS EX-50 OPPORTUNITIES CO. LIMITED ((NAC)) ex-div 1.50c (50%)

-REGIS RESOURCES LIMITED ((RRL)) ex-div 5.00c (100%)

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

The Australian share market over the past thirty days…

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