The Overnight Report: A New Record High

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Good morning.

Australian shares are poised to follow Wall Street higher this morning.

Later today, labour market data and a quarterly update from BHP Group ((BHP)) will have investors’ attention.

ASX futures are up 60 points, or 0.7%, tracking gains in the US, where the Dow Jones added 0.8%, the S&P500 rose 0.5% and the Nasdaq closed 0.3% higher. Technology mostly pulled back, though Nvidia rebounded.

In Europe, the Euro Stoxx 50 was down -0.8% and the FTSE100 rose 1.0%. The yield on the US 10y note fell -1.8bp to 4.0%. The WTI oil price fell to USD70.5/bbl, while gold rose to USD2,675/oz.

Softer than expected UK CPI figures (Core CPI 3.2% y/y vs 3.4% expected) set the narrative in what was mostly a quiet session devoid of major news flow for European equities.

A stronger USD weighed on investor appetite across commodity markets, with exception of precious metals.

The ECB meets tonight and is widely expected to cut the deposit rate -25bp to 3.25%.

US import price inflation fell 0.4% m/m in September, its largest monthly fall since December 2023. Inflation ex-petroleum was up 0.2% vs 0.0% in August.

US export prices fell 0.7% m/m driven by lower prices for non-agricultural exports offsetting higher prices for meat and grains.

Economists at ANZ Bank report US data over the next 24 hours will be closely watched for current momentum in consumer demand, manufacturing production and how the recent hurricane may have impacted the labour market.

September retail sales are forecast to have risen 0.3% m/m, with control group sales also up 0.3% m/m. That would leave the average monthly rise in Q3 control group sales just slightly above 0.3% m/m, unchanged from Q2 when real personal consumption in the GDP data rose 2.8% saar.

If the consensus for September is correct, that would infer real final sales of domestic product is continuing to hold up well, raising the risk that the FOMC will need to revise up its GDP estimates later this quarter for 2024 and 2025.

September manufacturing production is expected to have fallen 0.1% m/m, but there is uncertainty around the outcome given the brief East Coast port closures, Boeing strike and hurricanes.

Of more importance for markets, ANZ Bank suggests, will be the initial claims data for the week ended 12 October. That’s the survey week for the October labour market report and the expectation is that initial claims rose to 260k compared to 222k in the survey week last month.

Economists at NAB report equity and general risk sentiment today will be guided by another briefing by Chinese officials.

This time China’s housing minister, alongside officials from the central bank, the finance ministry and the National Financial Regulatory Administration, will speak around 1pm AEDT.

On the calendar today:

-Australia Sept Unemployment rate

-Japan Sept Trade Bal

-Eurozone Sept CPI, ECB rate decision

-US Sept retail sales

-Alcoa Corp ((AAI)) Qtrly update

-AMP ((AMP)) Qtrly update

-ABR Corp ((ARB)) AGM

-Arafura Rare Earths ((ARU)) AGM

-BHP Group ((BHP)) Qtrly trading update

-Cosol ((COS)) ex-div 1.39c (100%)

-Genesis Minerals ((GMD)) Qtrly Update

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

Corporate news in Australia:

-The NSW Independent Casino Commission is expected to hand down its decision on whether Star Entertainment ((SGR)) can retain its Sydney licence.

-Market speculation resurfaces about BHP Group ((BHP)) preparing for another bid for Anglo American

-Netwealth Group ((NWL)) has acquired Flux Corp for -$2.46m to target younger investors

-DUG Technology ((DUG)) is raising $30m at $1.90 per share to fund growth

-Turaco Gold ((TCG)) is raising $35m to support drilling and infrastructure at its Afema project in Cote d’Ivoire

-Monadelphous Group ((MND)) has announced contract extensions for Rio Tinto’s ((RIO)) Pilbara operations and a project at Tom Price mine

-Pro Medicus ((PME)) has announced a $32m contract extension with a major Australian radiology network

Rania Gule Senior Market Analyst at XS.com:

Crude oil prices have declined for the fourth consecutive day, trading near US$69.97/bbl on Wednesday.

However, this drop comes after bouncing back from earlier lows this week. In my view, while prices have somewhat stabilised, the emerging geopolitical factors continue to cast a shadow over the market, keeping traders and investors in a state of anticipation.

One of the key developments impacting the market has been the remarks by an opposition leader involved in a Middle Eastern conflict, calling for an immediate attack on Iranian oil fields, a move that directly challenges the U.S. administration’s calls to avoid escalation.

These calls come at a critical time when the region is experiencing heightened tensions, increasing the likelihood of a broader conflict that could severely impact the oil market, leading to sharp price fluctuations.

At the same time, the U.S. Dollar Index (DXY) has surged to its highest levels since August, further pressuring oil prices.

The inverse relationship between the dollar and oil means that a stronger dollar typically leads to lower oil prices, as the commodity becomes more expensive for holders of other currencies.

The recent dollar strength is attributed to comments by former U.S. President Donald Trump, who outlined his economic plans, boosting traders’ optimism about his potential return to the presidency. This optimism has fueled expectations of policies that could support the dollar.

Currently, West Texas Intermediate (WTI) crude is trading at US$69.97 per barrel, while Brent crude is at US$73.96 per barrel.

In my opinion, these prices reflect a market grappling with uncertainty, as numerous complex factors are at play.

On one hand, geopolitical tensions in the Middle East could lead to supply disruptions, pushing prices higher if broader conflicts emerge. On the other hand, the strengthening U.S. dollar and expectations of rising U.S. crude inventories could exert downward pressure on prices.

Moreover, I anticipate that Libyan oil production will play a significant role in shaping market movements over the next month.

Libya’s crude oil production is expected to reach 27.52 million barrels per month or approximately 888,000 barrels per day.

This increase in Libyan output comes at a time when investors are closely watching the effects of OPEC and its allies’ production cuts, which are set to last until December.

These production cuts are one of OPEC’s key tools to maintain price stability in the global market, especially amid weakening global demand due to economic slowdowns in major economies.

As the market awaits the release of the American Petroleum Institute’s report on weekly changes in U.S. crude oil inventories, investor anticipation is growing.

The report is expected to show an increase of 2.3 million barrels, significantly lower than the massive 10.9 million barrel increase recorded the previous week.

This relative slowdown in inventory growth could be interpreted as a sign of improving supply-demand balance in the U.S. market. However, the continued rise in inventories remains a bearish factor for oil prices.

In summary, the current state of the oil markets reflects a complex interplay of various influencing factors.

On the one hand, geopolitical tensions in the Middle East could result in serious supply disruptions, potentially driving prices higher. On the other hand, the strengthening U.S. dollar and rising U.S. crude inventories could help keep prices under pressure.

In the short term, oil prices are likely to remain volatile amid these challenges, with further fluctuations expected as investors continue to monitor any new developments in the geopolitical conflict or inventory data.

In my view, the oil markets may remain vulnerable to potential shocks shortly. If tensions in the Middle East escalate or an attack on Iranian oil facilities is carried out, we could witness a sharp rise in prices due to reduced supply.

Conversely, increased U.S. crude inventories and a stronger dollar could limit this upward momentum.

Therefore, keeping a close eye on geopolitical developments and changes in crude stockpiles will be essential in understanding the future trends in the oil markets.

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)

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