The Overnight Report: AI Trade Hits The Skids

This story features MACQUARIE GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: MQG
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

US markets retreated as Palantir led the sell-off in the AI trade and technology stocks.

ASX200 futures are suggesting the market will reverse yesterday's sell off, pointing to a positive start on Wednesday morning.

Good Morning,

The RBA kept rates on hold as expected as the market became more circumspect around future rate cuts.

On Melbourne Cup day Tuesday, the ASX200 fell -81pts or -0.9% to 8,814 with ten out of eleven sectors falling. 

What happened overnight, NAB Markets Today Research

In leaving the cash rate unchanged at 3.6% yesterday, as expected, the RBA noted the recent pickup in inflation as the key motivator for the decision. 

While not hitting the panic button, the Board Statement said, “On balance, we take some signal from recent inflation data for the inflation outlook.”

Accordingly, the inflation outlook has been revised higher, now seen above the 2-3% target range until mid-2026 before falling to 2.6% by end 2027 — which we note implies a significant reduction in the implied real cash rate, in turn highlighting the high hurdle for any further RBA easing.

One interesting addition to the Statement was an acknowledgment that the RBA now sees “…uncertainties regarding the assessment that monetary policy remains a little restrictive.”

This adds to the list of uncertainties already clouding the policy outlook, including around lags in the effect of this year’s rate cuts, around the balance between aggregate supply and aggregate demand, labour market conditions and productivity growth. 

Post the RBA, money market pricing for further easing was only slightly pared, i.e. -17bps of cuts by next May versus -18bps previously.

There is no obvious catalyst for the tech-sector led sell-off in US equities, though the 24-hour business news channels have been quick to pounce of comments from several CEO’s at a Global Investment Summit yesterday, including from Goldman Sachs, Morgan Stanley and Capital group, all warning of a pullback in equities on valuation concerns. 

More cautionary comments on Fed policy from officials in the wake of last week’s FOMC meeting and warning from chair Powell that a December cut is far from a foregone conclusion is continuing to be mentioned in dispatches. 

Recent signs of funding stress in the lead up to the Fed announcing an end to QT, has the market questioning whether liquidity will continue to be as abundant as it has been. 

Tuesday’s Fed Senior Loan Officers survey, incidentally, shows some albeit modest tightening in overall lending standards amid still strong loan demand.

Whatever the catalyst(s), the tech sector has certainly led the charge lower, with the NASDAQ –-and IT sub-sector of the S&P500– both off -2% by mid-afternoon before showing some (limited) signs of a pull-up into the close. NVIDIA lost -3%. 

European bourses earlier closed mostly lower, with the Eurostoxx600 down -0.3%, one exceptional being the UK FTSE, always a fan of a weaker GBP and which ended up 0.1%.

Fed Governor Lisa Cook spoke overnight, and while expressing her support for last week’s rate cut (evident in her vote of course) stressed her commitment to getting inflation to 2% and said she will “act forcefully” if signs emerge that point to cost pressures increasing. 

Let’s hope she has the chance, with the SCOTUS ruling on the legality of President Trump’s summary firing of Cook keenly awaited but potentially still weeks or even months away.

Other news in what was a data-less night included a pre-Budget speech from UK Chancellor Reeves in which she said she would prioritise bringing down borrowing costs and inflation and made clear that everyone was going to play their part in order to fill a fiscal hole that analysts expected to be in the order of plus -GBP30bn a year.

A clear hint that tax rises are coming and not just on the rich, Reeves refusing to reiterate Labour’s manifesto pledge against broad-based tax hikes. The Budget is due on 26 November.

The strong signal of imminent fiscal tightening saw gilt yields initially lower, though by the close 10s were only down -1bps and much in line with other European peers, and smaller falls than seen in the US Treasury market where yields come into the New York close -2 to -3bps lower across the curve.

In FX, JPY has been the strongest currency, reflecting its safe-haven characteristics, albeit it got a small lift during the Tokyo day in reaction to Finance Minister Katayama’s repeated warning about “one-sided and rapid” moves in the Yen to the downside.

AUD’s negative ‘risk-off’ characteristics are therefore still on full display, AUD/USD back below 0.65 to a low of 0.6481, though thanks to the RBA messaging it has slightly outperformed GBP, NZD, NOK and SEK on the day (the latter -1.0%)

Finally, a bad day for commodities all round, led by a -2.4% fall for ‘Dr copper’ (LMEX -1.4%) with crude oil benchmarks down about -0.75% and gold off another -1.6%.

When momentum turned into gravity, Stephen Innes, SPI Asset Management extract

By the end of the New York session, the Nasdaq 100 sell-off had deepened, closing down about -2% as AI valuation worries finally broke through the surface.

Palantir’s post-earnings drop dragged the broader complex lower, and the S&P500 followed in sympathy. There wasn’t a single smoking gun just a confluence of bearish factors weighing on a market that had been looking stranger by the day. Hyper-momentum names were suddenly out of favour, crypto was unravelling, and the Fed’s latest bout of hawkish chatter added to the unease.

The day started as a routine pullback and ended as something more symbolic, a collective sobering-up across everything that had flown too high. Palantir, a poster child of the AI narrative, had beaten, raised, and still got sold hard. A stock that had soared more than 170% this year couldn’t find another buyer at the top. 

The same tone echoed through the MAG7 and the semi names, which all traded between -1% to -3% lower, while defensives quietly inched green. It was one of those days when momentum’s invisible hand stopped supporting the tape, and price became its own gravity.

Across markets, the mood turned risk-off. Bonds and the dollar were bid, commodities were sold, and cryptos tumbled. Bitcoin slipping below US$104,000 in a clean break that erased the last month’s gains. There was no panic, just exhaustion. Traders rotated out of high beta into anything that didn’t move, like cash. It was an unwind of valuation faith, not earnings fundamentals.

Top CEOs were out in force flagging the risks that valuations had climbed too far, too fast, just as traders were taking a harder look at names like Palantir. 

They didn’t sound panicked, but there was an unmistakable caution in their tone, a recognition that equity multiples had become stretched and that a -10–15% correction wouldn’t just be tolerable, it might even be healthy.

Markets, they implied, had priced perfection into a world still full of policy risk and geopolitical noise.

Those comments didn’t trigger the selloff, but they added a new layer of sobriety to a market already wrestling with gravity.

Corporate news in Australia

-Neo-cloud operator Sharon AI is seeking a pre-IPO capital raising via promissory notes ahead of the planned listing in 1Q26.

-Macquarie Group ((MQG)) managed The Infrastructure Fund has signed an agreement to sell its 17.1% indirect stake in ElectraNet to Australian Retirement Trust.

-Private equity firm TPG has acquired a 70% stake in Kinetic for over $4bn from Canadian pension fund OPTrust.

-ASIC has warned post a review into private and public markets there are liquidity concerns about the superannuation sector, as the largest investor in private assets.

-The closure of Rio Tinto’s ((RIO)) Bell Bay aluminium smelter has been delayed for 14 months after a power supply contract extension from the Tasmanian government.

-Bain Capital has regained exclusivity in Perpetual Wealth ((L1G)) deal.

-Alliance Aviation Services ((AQZ)) halted trading after a profit warning due to higher costs.

-Cochlear ((COH)) and ResMed ((RMD)) warn President Trump’s tariff plans risks higher costs, less innovation and supply chain disruption in US healthcare.

On the calendar today:

-NZ Q3 Unemployment Rate

-NZ RBNZ Financial Stability

-US ADP Oct Employment

-US ISM Oct Services Index

-CHORUS LIMITED ((CNU)) AGM

-CSL LIMITED ((CSL)) Capital Markets Day (4-6 Nov)

-CEDAR WOODS PROPERTIES LIMITED ((CWP)) AGM

-IMUGENE LIMITED ((IMU)) investor briefing

-PM CAPITAL GLOBAL OPPORTUNITIES FUND LIMITED ((PGF)) AGM

-QUALITAS REAL ESTATE INCOME FUND ((QRI)) ex-div 0.9c

-WOODSIDE ENERGY GROUP LIMITED ((WDS)) Investor Briefing

-WESFARMERS LIMITED ((WES)) ex-div 40c (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.

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.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author’s and not by association FNArena’s – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms