The Overnight Report: Record Number 46

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US equities have started the new week on a positive tone, albeit with light volumes given US public holiday.

Reaction to China’s Ministry of Finance announcement/disappointment during the weekend has been mixed and well contained.

The USD is stronger across the board while commodities are broadly weaker with iron ore a notable exception.

SPI futures are indicating a positive follow-through for the local index.

By Chris Weston, Head of Research, Pepperstone

Good morning.

With US bond markets closed for Columbus Day a natural catalyst that often heavily influences pricing in US equity and the USD has been missing.

That said, Treasury futures have been trading, and we see the 10yr futures price sitting a touch lower (higher implied yield), but without cash bonds offline it was business as usual for other markets, with US equity pushing further higher, the USD gaining ground and breaking key resistance levels, gold -0.3% weaker and big volatility seen in the crude price (Brent sits -4.7%)    with Netanyahu telling the Biden administration that he is not looking at attacking Iranian crude facilities.

In US equity we see the S&P500 closing +0.8%, in turn, printing its 46th new all-time high of the year, with the index eyeing a test of 5900, and S&P500 futures now above the big number. 

The NAS100 also closed 0.8% – a solid enough day, although the bulls would have liked to have seen greater expansion in the daily high-low range, and the index closing at the highs, which wasn’t the case.

While all S&P500 sectors bar energy closed in the green, its big tech that has again shown leadership, with Nvidia closing at a new all-time closing high.

The USD has been given some additional legs with Fed Gov Waller suggesting the Fed should proceed with caution on rate cuts. He also offered some context on the upcoming US payrolls report (due 1 Nov), detailing that weather-related effects could reduce the payrolls count by -100k.

Most knew that recent disruptions would result in the NFP print being a messy affair, but Waller’s comment goes some way in quantifying the sort of disruption we can expect.

Essentially, with the next NFP so distorted, the market won’t have the same level of control in pricing risk into the November FOMC meeting.

The ASX200 should test the all-time high of 8285 on open, with Aus SPI futures needing to find 13 points to take out its ATH of 8334.

China reported fairly poor trade data yesterday, with export growth slowing to +2.4% y/y (from 8.7% y/y) and imports +0.3%.

We watch out for further economic data this week in the form of Q3 GDP, industrial production, retail sales and property sales however, these data points pre-date the fiscal and monetary easing measures so the market will give this data some cushion as we try to model the impact the recent measures have on future property prices and business confidence.

On the calendar today:

-Eurozone Oct ZEW survey

-UK Aug Unemployment rate

-Auckland Airport ((AIA)) Qtrly update

-Baby Bunting ((BBN)) AGM

-Hub24 ((HUB)) Qtrly update

-Harvey Norman ((HVN)) ex-div 12c (100%)

-IDP Education ((IEL)) AGM

-Region Group ((RGN)) AGM

-Rio Tinto ((RIO)) Qtrly update

-Washington H Soul Pattinson ((SOL)) ex-div 55c (100%)

-Telstra ((TLS)) AGM

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

Corporate news in Australia:

-TPG Telecom ((TPG)) seals deal with Vocus to sell its fibre network infrastructure assets and Enterprise, Government and Wholesale (EGW) fixed business (including Vision Network) for up to $5.25bn

-Clarity Pharmaceuticals ((CU6)) received FDA approval for a new prostate cancer trial

deVere Group CEO, Nigel Green:

As central banks continue aggressive buying, the US Federal Reserve cuts interest rates, and geopolitical tensions persist, the precious metal is primed for a bullish surge that could shatter previous records.

Central banks around the world are accelerating their gold purchases at a pace not seen in decades. This trend, which initially gained momentum following the start of the Russia-Ukraine war, has broadened, with many countries shifting away from US dollar-denominated assets.

Gold buying has now surged to nearly three times the level it was before 2022, and the outlook suggests continued strong demand into 2025.

This wave of buying is not just about portfolio diversificationit’s a strategic move to mitigate risks. Countries, especially those wary of US financial sanctions, are increasingly turning to gold to shield their reserves from political and economic pressures.

China, for instance, has been a key player in this trend. In 2023, China’s central bank added to its gold holdings for ten consecutive months, underscoring the nation’s intention to reduce its reliance on the dollar amidst growing geopolitical tensions with the West.

This buying intensity continued well into 2024, with net purchases of 290 tonnes recorded in the first quarter of 2024 – the fourth strongest quarter of purchases since the buying streak began in 2022.

Similarly, Turkey, Singapore, Brazil and India have also ramped up their gold reserves, driven by their need to safeguard against currency volatility and potential sanctions.

The US Federal Reserve’s shift from its aggressive interest rate hiking cycle toward rate cuts is another pivotal factor that will likely fuel a rally in gold.

Higher interest rates make gold less attractive as it doesn’t generate yield. However, with rates poised to fall, the tables are turning. Lower rates can often reduce the appeal of yield-bearing assets, drawing some investors both retail and institutional – back into the gold market.

In today’s fragile global landscape, gold’s role as a portfolio hedge remains as vital as ever.

The potential for geopolitical shocksincluding escalating trade wars, sanctions, and heightened global tensionscontinues to loom large.

Gold offers unparalleled protection in such scenarios, especially as concerns grow around issues such as Fed independence, global debt sustainability, and financial sanctions.

One scenario that could send gold prices soaring is an escalation in financial sanctions comparable to the surge seen since 2021. Another potential trigger could be worsening debt fears in the US.

Against this backdrop, and should the current momentum be maintained, we could see new all-time price highs for gold in the first quarter of 2025.

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.)

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