The Overnight Report: CPI Powers New Highs

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US markets powered higher to new record highs on August's CPI print which was not too hot and higher jobless claims. 

After a lacklustre trading day on Thursday, ASX200 futures are pointing to a positive start for the week's end.

Good Morning,

The ASX200 closed down -25pts or -0.3% to 8.805. Six of eleven sectors fell with heathcare and financials down, led by CSL and banks.

Energy and gold miners were stronger.

What happened overnight, NAB Markets Today Research extract

US August core CPI was 0.3% mom (though within 1bp of rounding to 0.4%) and 3.1% YoY, as expected. The headline read was 2.9% YoY, also as expected, though the MoM rates was a tenth higher at 0.4% mom.

Core goods prices were up 0.28%, the highest gain since May 2023, and supported by new and used vehicles, apparel, and video and audio products. Tariff impacts are supporting higher price gains in goods categories, but the pass through so far has tended to be gradual.

On the services side, there was a rebound in some of the more volatile categories, including airfares and accommodation, while rents price increases were stronger than their recent trend. Food prices supported the headline, with higher beef prices on factor, but tariff impacts through food also likely to have been a support.

Inflation is not getting closer to the Fed’s target, but with risks as labour market concerns grow more pressing, fears price pressures will be persistent fade. There is nothing to stand in the way of Fed cuts this year even as further weakness in activity and the labour market are needed to justify the extent of easing priced through 2026.

With the CPI data near expectations, there was some focus on the surprise jump in initial jobless claims. Initial claims spiked to 263k from 236k, well above 235k expected. That’s the highest in years, but the usual caveats about week to week volatility in claims apply.

Seasonal adjustment around the labour day holiday may have played a role, and there was a sharp 15k rise in Texas, which had a storm-related filing deadline. Concerns layoffs are rising would build if claims don’t reverse next week. Continuing claims for the prior week were flat at 1939k.

No unexpected bad news on inflation, combined with the jump in claims, saw US yields lower. The 10yr slipped to 3.99%, but is now back around 4.02% and -2bp lower over the day. The 2yr yield lost -7bp on the release of the data, getting as low as 3.48%, but has retraced to be little changed at 3.54%. Fed pricing for this year is also little changed, with -27bp priced for next week, and -72bp over the 3 remaining meetings of the year.

The ECB held rates for a second consecutive meeting, as widely expected. There was little change to inflation projections compared to three months ago, with headline CPI expected to average 1.7% next year and 1.9% in 2027 and core figures of 1.9% and 1.8% respectively.

ECB President Lagarde said risks to economic growth have become more balanced and the outlook for inflation remains more uncertain than usual. She described the ECB as being “in a good place,” declaring the process of disinflation as over.

The usual post-meeting sourced report from Bloomberg said “ECB policymakers are convinced that no further interest rate cuts are needed to deliver 2% inflation, despite the projected undershoot over the next two years.” 

Markets price -5bp of cuts by year end and -13bp by mid next year. The European curve flattened, with Germany’s 2-year rate up 3bps for the day, against a flat 10-year rate.

In FX, the USD showed broad based declines, down -0.3% on the DXY and lower against all G10 currencies. The AUD was 0.8% higher, the move coming alongside the strong gains in US equities. 

The AUD made an intraday high of 0.6665, a new YTD high, and remains near that level. AUD (and NZD) are up 2.2% over the past week.

Oracle’s AI Earthquake, Stephen Innes, SPI Asset Management 

The ground just shifted under Wall Street’s feet, and the old valuation compasses are spinning wildly.

Oracle, the grizzled veteran of Silicon Valley, suddenly erupted like a dormant volcano that everyone assumed had gone cold. In the space of a single earnings call, a company written off as yesterday’s news morphed into a frontline AI infrastructure play, leaving the sell-side gasping for air.

For decades, “Ivory Tower” analysts have sworn by the same navigational charts: discounted cash flows, forward P/E ratios, earnings multiples. They’ve used these tools like sextants on the open sea. But now, the waves of artificial intelligence are swelling in non-linear surges, currents that defy the linear assumptions baked into those models. Oracle’s sudden 36% melt-up isn’t just about one stock; it’s about the broader realization that Wall Street’s cartography is out of date.

Larry Ellison, the old sea-dog at the wheel, pointed the ship toward “AI inference”, taking pre-trained models and embedding them into the daily workflows of global enterprise. That’s not speculative vaporware; it’s practical monetization, and it slots directly into Oracle’s bread-and-butter business.

Contracts are piling up like container ships outside a crowded port, US$455 billion in obligations, four times last year’s tally. The old guard, with their price targets and tidy spreadsheets, never saw it coming despite 47 sets of “coverage.” It’s like being a weatherman who misses a hurricane because the instruments don’t measure storms of this new magnitude.

The bigger issue isn’t just the stock. It’s credibility. If analysts keep low-balling the earnings power of companies tied to the AI boom, their numbers lose meaning. Multiples, the bedrock of equity valuation, crumble into sand when the market stops believing in the anchor. What’s the point of a forward P/E if forward itself is impossible to define? The market starts discarding the map and sailing by instinct, a dangerous but inevitable adaptation.

This is déjà vu from the dot-com days, when Oracle itself rode an 80% plunge after the bubble burst. Back then, it was easy to dismiss wild multiples as froth. But today, the AI revolution is already laying track, every enterprise CIO is under pressure to board the train before it leaves the station.

The adoption rate may be only 10% economy-wide, but the marginal buyer is already willing to pay monopoly-tax valuations for companies like OpenAI. That soft US$500 billion private valuation is less a price tag than a declaration that valuation orthodoxy is a relic.

So where does this leave the market? The traditional spreadsheet math, neat rows of projected earnings, can’t capture the convexity of technological leaps. When disruption arrives in quantum jumps rather than arithmetic progressions, the models must evolve. The option-pricing lens treating every AI platform like a call option on the unknown upside might finally graduate from the ivory tower into the analyst playbook. Because ignoring the blue-sky optionality is no longer conservative; it’s malpractice.

In the end, Oracle’s eruption is a reminder that we’re entering an era where the old anchors of valuation are breaking free. The market is adrift in a sea of technological unknowns, and the only certainty is that yesterday’s tools won’t steer tomorrow’s trades.

The charts need redrawing. The compass needs recalibration. And investors who don’t adapt will find themselves navigating with broken instruments, while those who recognize the new cartography may discover entire continents of value hiding just beyond the visible horizon.

Corporate news in Australia

-Origin Energy ((ORG)) has placed its $8bn Gippsland offshore wind project on hold with the project no longer planned to be operational by 2032.

-Family-owned AC Industries which provides ventilation ducting to underground miners is seeking a private equity buyer for over $100m valuation.

-David Di Pilla bought $2m of shares in HMC Capital ((HMC)) after further previous buys of $5m through his personal corporate entities.

-Reece ((REC)) may consider its US operations with booming corporate activity.

-Boss Energy ((BOE)) will complete its Honeymoon project review by the end of 2026.

-Pacific Equity Partners & Brookfield near $3bn debt financing deal for Intellihub expansion.

On the calendar today:

-NZ July Mfg PMI

-JP July Industry Prod’n

-UK July GDP

-UK July Indust Prod’n

-UK July Trade Bal

-US Sept U of Mich sent

-ARIADNE AUSTRALIA LIMITED ((ARA)) ex-div 0.50c (60%)

-CAR GROUP LIMITED ((CAR)) ex-div 41.50c (40%)

-CLEANAWAY WASTE MANAGEMENT LIMITED ((CWY)) ex-div 3.2c (100%)

-EXPERIENCE CO LIMITED ((EXP)) ex-div 0.25c (100%)

-G8 EDUCATION LIMITED ((GEM)) ex-div 2.00c (100%)

-WISETECH GLOBAL LIMITED ((WTC)) ex-div 11.88c (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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