The Overnight Report: Onwards & Upwards

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The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

Equities overnight had another positive session, both in the US and in Europe, and the local bourse is expected to open higher on the back of it.

World Overnight
SPI Overnight	8263.00	+ 33.00	0.40%
S&P ASX 200	8187.40	+ 10.50	0.13%
S&P500	5792.04	+ 40.91	0.71%
Nasdaq Comp	18291.62	+ 108.70	0.60%
DJIA	42512.00	+ 431.63	1.03%
S&P500 VIX	20.86	– 0.56	– 2.61%
US 10-year yield	4.07	+ 0.03	0.84%
USD Index	102.90	+ 0.38	0.37%
FTSE100	8243.74	+ 53.13	0.65%
DAX30	19254.93	+ 188.46	0.99%

By Chris Weston, Head of Research, Pepperstone

Good morning.

As we look towards the US CPI print in the session ahead, and a more formal start to Q3 US earnings tomorrow, we see US assets attracting and absorbing an increased share of global flows.

New all-time highs have been seen in the S&P500 (cash and futures), with the Dow settling at a new all-time closing high, and NAS100 futures closing at the best levels since 17 July.  

 US equity aside, we also see good upside momentum building in the DAX40 and EUStoxx50, with the NKY225 also looking like it wants to kick higher and bull trend.

We’re not too far off the all-time high in the ASX200 either, although the price action is a grind, and the buyers need to do more to push the sell side of the order book to thin out more to promote a more defined trend.

It’s the US indices that get the lion’s share of client flows though, and while some will be looking to fade the strength, for me, this is a trend which I would align to, as the bar for US companies to beat consensus expectations in this reporting quarter seems lower than has been the case in other quarters.

We also see the US economy in a relatively solid position, while underpinning the positive flows remains the Fed put’, although traders are questioning if we do indeed need/get another -25bp cut in the November FOMC meeting.

 Another factor that is emerging is one of a political nature, with Trump starting to pull ahead in the betting markets implied probability.

We can also see the average of the polls (source: RealClear Politics) showing Trump now ahead in 4 of the 6 key battleground states (Pennsylvania, Michigan, Georgia, and Arizona), with the weight of punters capital pushing Trump to a 9pp lead in PA (source: Polymarket).

This dynamic, while it could easily shift back in the days ahead, does bring in trades aligned to tariff risk, as Trump if he indeed does get the White House can push through increased tariffs, without the blessing of the House (I assume the REPs will get the Senate).

That said, with Trump’s odds of becoming president increasing, in turn sees the probability of the REPs winning the House also increasing.

So, while tariffs can be passed without the blessing of Congress, if the market starts to believe in a Red Wave’, then it brings in tax cuts, increased fiscal spending, and deregulation into the mix, and these policies are undoubtedly positive for US equity and the USD.

US election dynamics aside, we see relative interest rate expectations driving USD buying flows on the day.

We saw the largely expected outsized -50bp cut from the RBNZ yesterday, but the market is now debating if the NZ central bank cut by -50bp or even -75bp in the next meeting on 27 November.

The BoC meet on 23 October, and the CAD swaps markets price a 60% chance of a -50bp cut here, with the ECB firmly expected to ease -25bp next week.

 Contrast this to the market pricing of implied Fed cuts, where the swaps market prices a -25bp cut in November at a 75% chance, with cuts being priced out in future months. A hot CPI print today hypothetically, we see US core CPI prints above 0.3% m/m and the market will throw increased doubt that we see a cut play out at all in November, although that call will be more heavily influenced by the October US nonfarm payrolls report (due 1 November).

In the commodity space, the moves in the USD and the rise in US Treasury yields has been a headwind for gold and we see price settling -0.5% lower.

The technicals and price action look heavy, and this will keep many of the would-be buyers out for now, with a test of US$2600 and US$2585 looking more probable.

Crude settles modestly lower, as is the case with copper, while iron ore futures have lifted 0.9% in overnight futures trade.

It all sets us up for some interesting trading, with equity seeing upside momentum building, the USD looking solid, with traders running short US treasury positions into CPI and the US election starting to creep more intently into traders’ thinking.

On the calendar today:

-Japan Sept PPI

-US Sept CPI

-US Sept PPI

-Aurizon Holdings ((AZJ)) AGM

-Netwealth ((NWL)) Sept qtr trading update

-The Lottery Corp ((TLC)) investor briefing

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

Corporate news in Australia:

-Rio Tinto ((RIO)) to become the world’s number three lithium producer now Arcadium Lithium ((LTM)) has accepted its take-over offer

-EQT Holdings ((EQT)) and Quadrant reportedly interested in acquiring Apiam Animal Health ((AHX))

-Newmont Corp ((NEM)) is selling Ghana’s Akyem mine to Zijin Mining for up to US$1bn

-Treasurer Jim Chalmers is reforming competition laws, requiring mandatory reviews for supermarket mergers and greater scrutiny on private market transactions

Spot Metals,Minerals & Energy Futures
Gold (oz)	2626.20	– 14.50	– 0.55%
Silver (oz)	30.72	– 0.17	– 0.55%
Copper (lb)	4.41	– 0.06	– 1.36%
Aluminium (lb)	1.15	– 0.01	– 0.97%
Nickel (lb)	4.56	– 3.44	– 42.99%
Zinc (lb)	1.36	– 0.02	– 1.62%
West Texas Crude	73.40	– 0.49	– 0.66%
Brent Crude	76.81	– 0.66	– 0.85%
Iron Ore (t)	106.53	+ 0.23	0.22%

FED’s FOMC Minutes Analysis, by Quasar Elizundia, Expert Research Strategist at Pepperstone

During the recent Federal Open Market Committee (FOMC) meeting held in September, the U.S. Federal Reserve decided to cut its benchmark interest rate by -50 basis points, setting it within a range of 4.75% to 5%.

This cut marked the beginning of a monetary normalization cycle, following the highest interest rates in decades. The decision was primarily justified by a perceived better balance between its inflation and employment objectives, although some recent data suggest that, had the central bank had access to more up-to-date metrics, it might have reconsidered the magnitude of this adjustment.

Prior to the September meeting, the labor market had shown signs of weakening, which led FOMC members to take a more aggressive stance to support the economy.

Projections presented during the meeting indicated a slowdown in job creation and a slight increase in the unemployment rate.

However, the non-farm payroll (NFP) figures released afterward surprised to the upside, with significant job creation and a reduction in the unemployment rate. While these results could have prompted the Fed to act more cautiously, this data was not available at the time of the decision.

In terms of inflation, the Federal Reserve expressed greater confidence that progress is being made toward its 2% annual target, although it remains above the desired level.

The central bank’s projections suggest that inflation could continue to decrease gradually, justifying the start of this rate-cutting cycle. Nonetheless, the bank continues to closely monitor labor market conditions, recognizing the importance of this component within its mandates.

The minutes also highlight that the rate cut decision was made to sustain economic growth and prevent further deterioration in employment. The FOMC emphasized the importance of continuing to adjust monetary policy based on incoming data rather than following a predetermined course.

Thus, while the Fed has begun to ease its restrictive stance, members noted that any future moves will depend on the evolution of both inflation and the labor market. Additionally, it was noted that the risks to economic activity are tilted to the downside, while inflationary risks are considered relatively neutral.

Finally, the minutes reflect concerns about the risks associated with a potential global economic slowdown and its impact on the United States.

In this context, the Federal Reserve will seek to balance its objective of returning to price stability with maximizing employment. As economic conditions normalize, the Fed will adjust its policies gradually, but without losing sight of the challenges that could arise in the coming months.

The Australian share market over the past thirty days

Index	09 Oct 2024	Week To Date	Month To Date (Oct)	Quarter To Date (Oct-Dec)	Year To Date (2024)
S&P ASX 200 (ex-div)	8187.40	0.46%	-1.00%	-1.00%	7.86%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
LTM	Arcadium Lithium	Downgrade to Hold from Buy	Bell Potter
MFG	Magellan Financial	Upgrade to Neutral from Underperform	Macquarie
SGR	Star Entertainment	Downgrade to Reduce from Hold	Morgans
SHV	Select Harvests	Upgrade to Accumulate from Hold	Ord Minnett

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)

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