The Monday Report – 29 September 2025

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US markets finished higher on Friday as we head into quarter end with increasing likelihood of US government shutdown on Oct 1.

ASX200 futures are pointing towards a positive start for the week for the local share market prior to the RBA's rates decision tomorrow, alongside quarter end.

So maybe no window dressing locally this time?

Good Morning,

Tony Sycamore, IG, extract

The ASX200 finished 14 points or 0.16% higher last week at 8787 as it snapped a three-week losing streak. Its modest gains came despite a hotter-than-expected monthly inflation report, which prompted traders to reassess expectations of multiple RBA rate cuts remaining in this cycle. 

The Materials, up 5.91, Energy up 1.53% and Utilities, up 0.26%, sectors outperformed the broader market. In contrast, the Health Care, fell -2.52%, Real Estate, down -2.46%, Consumer Staples, down 1.76% and IT down -1.32% sectors were the main drags.

The key event on the economic calendar this week is Tuesdays RBA Board Meeting. At its last meeting in August, the Reserve Bank of Australia (RBA) lowered its official cash rate by -25bp to 3.60%. The outcome was widely expected and the Board’s decision to cut rates was unanimous.

The RBA noted the progress made on inflation, with updated staff forecasts suggesting that “underlying inflation will continue to moderate to around the midpoint of the 2–3 percent range, with the cash rate assumed to follow a gradual easing path.”

Since then, the market has received two hotter-than-expected monthly CPI reports for July and August which have reinforced expectations the RBA will keep its cash rate on hold at its September meeting. This is consistent with the RBA’s cautious easing pathway this year, where a rate cut has been followed by a pause at the next meeting.

Whether the RBA then elects to cut rates by -25bps in November will hinge on the September labour force report due in mid-October and the crucial Q3 inflation report scheduled for release on October 29th. 

The RBA have acknowledged they prioritize the quarterly inflation numbers ahead of the volatile monthly numbers and will continue to do so even when full monthly inflation updates begin in October. 

Nevertheless, reflecting the impact of last week’s warmer-than-expected monthly inflation update, the Australian interest rate market starts the week pricing in -12bp or a 40% probability of a -25bps rate cut in November, well below the 70% it was pricing two weeks ago. 

The state of play in markets, Chris Weston, Pepperstone extract

We roll into the new trading week having reduced the degree of implied Fed cuts through the cycle. The implied Fed terminal rate has risen from 2.8% to 3.11%, lifting US 2-year Treasury yields to 3.64%, up 7bp WoW. 

This, in turn, has pushed the USD Index (DXY) to 98.60, where better sellers have emerged at the August range highs and the 100-day MA.

With the US government expected to temporarily shut down this week, there is a clear risk the Bureau of Labor Statistics may not have the capacity to release the September payrolls report, a key input for assessing whether high expectations for a follow-up Fed rate cut are indeed justified. 

If we hear early this week that the NFP report will be delayed (potentially until the govt re-opens), traders may re-calibrate their approach to risk and increase their sensitivity to the JOLTS report, ADP payrolls data, and the employment sub-components of the ISM services release.

Major equity markets are set to close out another solid quarter for returns, with only the German DAX currently in the red for Q3. Chinese equities have outperformed, with the CSI300 up 15.6%, alongside solid gains in the NKY225, up 12%, NAS100, up 10.4%, and Spanish IBEX, up 9.7%. 

While there have been pockets of concern about lofty valuation and the trajectory for equity risk, markets have navigated political and economic headwinds incredibly well. Few participants have seen the news flow as reason enough to dump equity, with players instead actively rotating between sectors, styles, and factors, and quick to sell volatility on any momentary spikes. 

In fact, perhaps the most impressive theme of Q3 has been the low-volatility regime—both realised and implied, and not just in equity vol, but volatility across rates, FX and Treasuries. Whether we are treated to a less suppressed vol regime in Q4 is uncertain, but until we see an increased consistency for more outsized daily percentage closing changes, buying volatility remains a tough trade given the cost (negative carry) involved and the idea that hedges that don’t work subtract from one’s performance. 

With US Q3 growth tracking around a healthy 3%, the Fed put firmly embedded in markets, and large financial institutions maintaining an ingrained bias to enhance returns via short-vol strategies, we’ll need fresh catalysts to drive a sustained shift to a higher-volatility regime.

For those seeking volatility, movement, and trend, the action has been in platinum, silver, and gold. although the gold price is now consolidated around US$3770, while a number of the FX cross rates have also been well subscribed by trend FX traders.

Crypto has also screened well by way of movement, with the recent heavy liquidations driving broad prices sharply lower, triggered by a classic flush-out of long positioning.

This week, price action suggests buyers may be stepping back in after two days of indecision, making the case for renewed short-term upside. A closing break below US$108,650 in Bitcoin or US$3823 in Ethereum would negate that view and point to further drawdown ahead.

Ed Yardeni extract, Nothing to fear but overvaluation and a shutdown

The financial markets have become jittery lately due to concerns about high valuation multiples, particularly among AI stocks, and a potential government shutdown.

President Donald Trump reportedly will meet with the top four congressional leaders at the White House on Monday as the threat of a government shutdown on October 1 looms. 

Meanwhile, investors are once again wondering whether the massive spending on AI infrastructure by the “hyperscalers” will ever pay off. It’s a reasonable concern, as AI is an application that generates increased demand for data processing and storage to infinity and beyond.

If so, that will require lots of capital spending to infinity and beyond. Alternatively, the novelty of AI might wear off once everyone has had a chance to discover its applications or to abandon its usefulness. That might leave hyperscalers with excessive data center capacity. 

Another possibility is that the next generation of GPU chips will be even faster and operate at room temperature, reducing the water and electricity demand of data centers. That means today’s state-of-the-art chips could become obsolete before they’ve generated any profits.

The hyperscalers are included in the Magnificent-7, which collectively sport a weekly Buffett Ratio of a record 8.2. They’ve driven the ratio to a record 3.2 for the S&P500. Excluding them, the ratio for the S&P493 is 2.4. As a result, we expect to see the bull market broaden, boosting the relative performance of the Impresssive 493. 

Meanwhile, the 10-year US Treasury bond yield rebounded off 4.00%, just before the Fed cut the federal funds rate on September 17, to 4.20% currently, on better-than-expected economic news this past week. We are sticking with our 4.25%-4.75% range for this yield and extending it through Q1-2026.

In the forex market, the DXY dollar index has been holding support at its uptrend line that starts in 2011. We expect that better-than-expected US economic growth and falling odds of Fed rate cuts will lift the dollar.

The weak dollar so far this year has boosted the price of gold. There are also numerous other bullish factors, including central bank buying and rising geopolitical risks. When the price rose above US$3,000 early this year, we targeted US$4,000 per ounce by the end of this year and US$5,000 per ounce by the end of next year

The S&P500’s bull market continues to be supported by S&P500 forward earnings. It did so last week, despite small dips in analysts’ consensus expectations for earnings in both 2025 and 2026. Our colleague, Joe Abbott, explains the WoW drops are misleading due to changes in the S&P500 index resulting from quarterly rebalancing. 

Finally, sentiment has turned quite bullish according to the Investors Intelligence Bull/Bear Ratio. That hasn’t been confirmed yet by the AAII Bull/Bear Ratio. However, sentiment is getting a bit frothy.

Corporate news in Australia

-Singapore listed Sembcorp is looking at Gentailer Alina Energy and conducting due diligence at Lightsource BP’s Australian assets.

-Tesoro Gold ((TSO)) was seeking $30m last Friday at 5.3c a share for pre-feasibility study at Ternera for its second equity market raising in 2025.

-Synlait Milk ((SYN)) is selling its North Island assets to Abbott for NZ$307m.

-CommBank ((BBA)) is offering Qantas reward points to encourage customers away from mortgage brokers.

-Westpac ((WBC)) is being sued for allegedly enabling a $250m Ponzi scheme by the liquidators of Chris Marco’s companies.

-EQT Holdings ((EQT)) is considering a bid for Quadrant-owned Aidacare.

-Occidental Petroleum is in talks to sell OxyChem unit for about US$10bn.

-Firmus a data centre company, valued at $1.9bn has recruited Xero’s ((XRO)) former CFO and former TPG Telecom’s ((TPG)) executive as its chairman pre IPO next year.

On the calendar today:

-NZ Aug Jobs

-CH 2Q BoP, CA

-CH Sept Caixin PMI

-CH Sept PMI

-EZ Sept Consumer Confidence

-US Aug Homes sales

-ARENA REIT ((ARF)) ex-div 4.81c

-CENTURIA INDUSTRIAL REIT ((CIP)) ex-div 4.2c

-CHARTER HALL LONG WALE REIT ((CLW)) ex-div 6.40c

-CENTURIA OFFICE REIT ((COF)) ex-div 2.53c

-CHARTER HALL RETAIL REIT ((CQR)) ex-div 6.35c

-DEXUS CONVENIENCE RETAIL REIT ((DXC)) ex-div 5.23c

-DEXUS INDUSTRIA REIT ((DXI)) ex-div 4.15c

-ENERGY ONE LIMITED ((EOL)) ex-div 7.50c (100%)

-FOS CAPITAL LIMITED ((FOS)) ex-div 1c (100%)

-GARDA PROPERTY GROUP ((GDF)) ex-div 2c

-GOLD ROAD RESOURCES LIMITED ((GOR)) ex-div 43.69c (100%)

-HOMECO DAILY NEEDS REIT ((HDN)) ex-div 2.15c

-LINDSAY AUSTRALIA LIMITED ((LAU)) ex-div 1.50c (100%)

-LIBERTY FINANCIAL GROUP LIMITED ((LFG)) ex-div 7.5c

-RAM ESSENTIAL SERVICES PROPERTY FUND ((REP)) ex-div 1.25c

-RURAL FUNDS GROUP ((RFF)) ex-div 2.93c

-SHINE JUSTICE LIMITED ((SHJ)) ex-div 3.50c (100%)

-WAYPOINT REIT LIMITED ((WPR)) ex-div 4.20c

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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