The Overnight Report: Copper Surges, Rally Pauses

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US markets continued to slip on ongoing AI-stock related selling.

Post a weak day yesterday, ASX200 futures are signalling another soft start for Thursday.

Good Morning,

The ASX200 fell -81.4pts or -0.92% to 8764.50 on Wednesday, the steepest decline in three weeks.

A hotter than expected August CPI print weighed on the market with Energy and Utilities the only sectors to rise.

What happened overnight, NAB Markets Today Research extract

The big news in Australia yesterday was the Monthly CPI Indicator for August which rose 3.0% yoy, near expectations for 2.9%, but the detail showed broad based strength, notably through market services prices.

The outcome of the August Indicator suggests there is meaningfully more inflation pressure in the domestic economy than we, and the RBA, had expected. The RBA forecast 0.64% qoq for that quarterly trimmed mean measure in their August SoMP. It looks on track to print 3 tenths above that. Headline inflation is also likely to print hot, around 1.2% qoq.

The rise in headline inflation over the past couple of months to 3.0% is not the story, that is on the back of the anticipated reversal in electricity rebates. The annual trimmed mean fell to 2.6% yoy from 2.7%, but that is due to base effects (particularly travel) and should not be seen as good news. The annual trimmed mean is a different, less contemporaneous, signal of underlying inflation pressure than the RBA’s preferred quarterly trimmed mean measure.

The detail of the services indicators in today’s release is much more instructive. Market services prices had been running at a thoroughly benign pace over recent quarters. They are going to be hot in Q3, muddying the RBA’s assessment of the supply and demand balance in the economy and shifting their assessment of the balance of risks as they look forward.

Elsewhere, new dwelling construction costs continue to look threatening. Over the past two months they have risen a little stronger than the modest re-acceleration we have been expecting..

That will muddy the RBA’s assessment of the supply and demand balance in the economy and shift their assessment of the balance of risks as they look forward. Considerably less certainty that inflation has settled near 2.5% highlights the likelihood it will take a period of modestly restrictive policy for inflation to settle at 2.5%. NAB pared our rate cut expectations, now seeing the RBA on hold until May. 

Today in Australia, Job Vacancies will provide additional context in a forward-looking sense, to the labour force data released this week. After rising 3% in Q2, the starting point for vacancies is they remain circa 50% higher than pre-pandemic but have fallen around -30% from their Q2 2022 peak. Job ad-based measures have stabilised over recent months and continue to point to ongoing healthy labour demand.

Overseas, there was little data or news flow to note overnight. US yields were pushing higher from early in the European session and end the day higher across the curve. The 10yr yield is 4bp higher at 4.14%. The US dollar is stronger, up 0.6% on the DXY. In US equities, the S&P500 fell 0.-3% and the Nasdaq was also -0.3% lower. Energy stocks outperformed alongside a 2.2% gain in the oil price.

Data was second tier, but new US house sales did leap more than 20% in August, well above expectations. That is an uncommonly large monthly move and is at odds with a backdrop of broadly weaker housing market data. The leap pulled the three-month average sales sharply higher, after trending lower over the past year.

San Francisco’s Daly said she “fully supported” the decision to cut. She said “it is likely that further policy adjustments will be needed” but that “these are projections, not promises, and making good decisions will require us to anchor on our objectives, assess the tradeoffs and decide, again and again.”

Chicago’s Goolsbee told the FT he is “uncomfortable with overly front loading a lot of rate cuts” and that “we’ve still got a mostly steady and solid jobs market.”

In currencies, the US dollar was 0.6% higher on the DXY to the index’s highest since 11 September. The AUD jumped on local inflation data from around 0.6593 to 0.6623 and touched an intra-day high of 0.6628 before the broad based USD strength saw it fall back to 0.6582. The AUD is down -0.3% on the day against the USD but the strongest G10 currency on the day.

Germany’s IFO business survey for September showed the expectations index falling nearly 2pts to 89.7 against the consensus expecting a small lift and breaking a run of more positive figures. The current assessment index also fell back to 85.7 from 86.4, after a period of stability.

The US overnight lowered tariffs on auto imports from the European Union to 15%, retroactive to August 1, cementing the terms of the framework trade agreement struck almost two months ago, providing some support to shares of German automakers.

Commodities Update, ANZ Bank Australian Morning Focus, extract

Copper surged higher amid renewed supply side concerns. LME three-month copper futures surged past US$10,000/t after Freeport-McMoRan declared force majeure on contracted supplies from its Grasberg mine in Indonesia.

This comes as it continues rescue efforts after a flow of 800kt of mud into the underground levels of the mine. The Grasberg mine accounts for about 3.2% of world copper supply and makes up more than 70% of Freeport’s total copper production. The company has subsequently cut its expected output for Q3 by -4% from previous estimates, while 2026 output could be -35% lower than pre-incident estimates.

This latest event highlights the copper market’s sensitivity to supply disruptions. It also raises concerns about future growth in supply. As a share of overall production, unplanned supply disruptions have increased from just under 5% of world production in 2014 to 5.7% last year. We expect it to exceed 6% this year. Over the longer term this will constrain supply growth, creating ongoing tightness in the copper market.

Iron ore futures were relatively unchanged as the market ponders the impact of a contract dispute between China and BHP Group ((BHP)). China’s state-run trade, China Mineral Resources Group has urged mills to suspend purchases of BHP’s Jinblebar blend fines.

This is one of BHP’s key iron ore mines and supplies ore with about 60% iron content that is widely used in Chinese sintering blends. The edict comes amid demands for better pricing due to the volumes it purchases. Recent gains have also been supported by China’s anti-involution campaign. However, with no prospect of further stimulus measures, the upside to demand looks limited.

Gold retreated from its record highs as investors took profits. The move was triggered by a stronger USD after Fed Chair Powell warned inflation remains a concern as it continues to run above the central bank’s 2% target. This has clouded the outlook for rate cuts.

Crude oil pushed higher as President Trump’s hawkish rhetoric raised concerns about supply disruptions. He said NATO nations should shoot down Russian aircraft that violated their airspace. This comes after he also reiterated the US is ready to impose a strong round of tariffs on Russia, but only if European countries stop buying its fuel. This has seen investors cut their bearish positions, triggering a short covering rally.

WTI futures also crossed their 100-day moving average, supporting further buying from momentum traders. Prices were also supported by a stronger than expected drawdown in US inventories. The weekly inventory report released by the Energy Information Administration showed that crude stockpiles fell by -607kbbl last week.

This was the second consecutive weekly decline, putting inventories at their lowest levels since January. Inventories of gasoline stockpiles fell -1,081kbbl while distillate was down -1,685kbbl.

European gas futures held steady in early trading amid rising geopolitical tensions. Traders were also contemplating the impact of weather forecasts that are pointing to colder-than-usual temperatures in coming weeks.

The region has been successful in meeting goals to refill storage levels. However, they remain lower than in previous years.

North Asia LNG futures fell amid concerns that lower temperatures in Japan could lower electricity demand for cooling, thus curtailing LNG demand. 

Corporate news in Australia

-Macquarie has agreed to repay -$321m in super investments into Shield for around 3,000 clients using its wrap platform between 2022 and 2023.

-Deterra Royalties ((DRR)) sells gold assets to Vox for $91m.

-AngloGold Ashanti points to possible WA mine sales for $2.2bn within 2-3 years, pending new asset acquisitions.

-La Trobe Financial’s sale is up in the air after CVC exits and Warburg Pincus delays the bid.

-Super Retail Group ((SUL)) has settled claims over ex-CEO affair for under -$50m.

-Murray Cod Australia ((MCA)) is looking to raise $15m equity, under the shareholder approval threshold.

-Blackstone has withdrawn from the $1bn auction for NOJA Power, an electronic switchgear manufacturer.

-Sircel, a Sydney based electronics recycler, is raising $10m in a private round of funding, pre IPO in 2026.

-I-Med is looking to a potential IPO after its $3bn sale falls through.

On the calendar today:

-AU Aug Job Vacancies

-JP Aug PPI services

-US 2Q GDP

-US Aug Inventories

-US Sept Jobless Claims

-AMBERTECH LIMITED ((AMO)) ex-div 0.60c (100%)

-PREMIER INVESTMENTS LIMITED ((PMV)) earnings report

-PRL GLOBAL LIMITED ((PRG)) ex-div 2c (100%)

-SALTER BROTHERS EMERGING COMPANIES LIMITED ((SB2)) ex-div 2.00c (85%)

-SUNCORP GROUP LIMITED ((SUN)) AGM

-TEAMINVEST PRIVATE GROUP LIMITED ((TIP)) ex-div 1.5c (100%)

-VERBREC LIMITED ((VBC)) ex-div 0.10c (100%)

-WISEWAY GROUP LIMITED ((WWG)) ex-div 0.60c (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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