The Overnight Report: Friday Pause

This story features AUSTRALIAN FINANCE GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: AFG

By Chris Weston, Head of Research, Pepperstone

Good morning.

US equity never really found a rhythm and despite solid earnings from TSMC, which initially flowed through into improved sentiment towards Nvidia and other AI/tech plays, the S&P500 and NAS100 couldn’t kick into gear.

As those that traded our US indices intraday will attest to, price action and the broad tape moved in a range for most of the session, before tailing off into the close, with both indices unchanged on the day.

Energy and tech closed +0.4% respectively, with financials also holding up well, with selling seen in utilities, comm services and REITS.

In the after-market session, we saw numbers drop from Netflix drop and while we haven’t seen the -/+7% move implied in options pricing, the stock trades 3.5% higher, with pockets of interest from clients in our Netflix 24-hour CFD.

The market likes the story, and despite increasing competition, Q3 streaming paid increased by 5.07m and well above the streets forecast of 4.52m, with Q4 and 2025 guidance on EPS, sales and operating margins also coming in nicely above expectations.

While the stock has had a good run YTD, this result justifies the returns and after a mini pullback into US$687, new highs now look probable.

The ASX200 is expected to open weaker. BHP’s ADR sits -1.1%, which may offer some indication of the direction of travel on open for resource names.

But with the ASX200 closing at an all-time high yesterday, valuation may be working against the risk-to-reward trade-off, but there is real momentum here and it feels that dips will be bought at least, on the news flows we’re seeing.

****

Further evidence of diverging growth dynamics across geographies resonates once more, and we see that prominently in the FX channels, with the AUD and USD the performers on the day.

The strong Aussie employment data seen yesterday pushes the AUD to the top of the pack, gaining ground vs all major currencies and notably vs JPY in G10.

A -25bp cut from the RBA in February 2025 is still the base case in market pricing, but as we increase the probability of various G10 central banks step up the pace of easing with some feeling the RBNZ cut by -75bp in November, the BoC cut -50bp on 23 October, and if the ECB step up to -50bp in the December meeting – the RBA and the Norges banks, and to a lesser extent the Fed, are the clear outliers.

We watch for the Aus Q3 CPI print on 30 Oct, but when the Australian labour market is tightening, with the last six consecutive employment reads well above market consensus, the Aussie household shouldn’t be factoring in rate cuts into their budgets just yet.

A subtle but important shift in the ECB’s thinking

The ECB meeting lacked any major new substance to get EUR traders fired up. They cut by -25bp, as was fully expected, and gave off a dovish message, which should hardly surprise given recent inflation and growth trends.

The ECB acknowledged the disinflationary process was well on track and that price pressures have eased due to weakness in indicators of real activity, where a focus towards more forward-looking aspects of data indicators does present a present a subtle, but potentially important, change in their thought-process.

If the ECB are putting increased weight on the output gap and where growth is tracking relative to potential, then there is a clear argument for the ECB to move away from its gradualist approach to easing, and to move away from its continued guidance of keeping “policy rates sufficiently restrictive for as long as necessary”.

Subsequently, EU interest rate swaps pricing shows that traders have increased their implied probability of a -50bp cut in December, with -38bp of cuts now priced here essentially, it’s a line ball call if they ease by -25bp or -50p in December (the ECB don’t meet in November), but that view could be cemented as receive the next set of PMI’s and other activity data points.

EURUSD has traded lower on the day with spot hitting 1.0811 but that was not driven to the ECB meeting, but rather the US retail sales report, which at 0.4% in the advanced read, and 0.7% in the control group’ element, were hotter than consensus and again feeds into the economic divergence thematic.

The control group element came in more than double market consensus, and it’s not a surprise that the Atlanta Fed Nowcast model implies that the US economy is tracking at an impressive 3.41%.

US Treasuries responded off the bat, with yields on the 10-year rising from 4.03% to a session high of 4.10%, while short-end yields rose 4bp, as further rate cuts were repriced out of the rates curve.

A -25bp cut in November is still offered an 85% probability, but the odds of a further -25bp cut in the December meeting have been modestly reduced. We also saw the yield premium on US 10-year Treasuries over German 10-year bunds rise 5bp to 1.88% and this has been the backbone of EURUSD selling.

Gold eyeing a test of US$2700 higher levels favoured

Screening for market movement, we see that gold may not have had an explosive net percentage change, but in a backdrop of a stronger USD and a 4bp lift in US 10yr real rates, the fact we’re still eyeing a move into US$2700/oz is impressive.

Gold is higher on the day in all G10 currencies, which speaks to real demand for the yellow metal, and one where the path of least resistance remains to the upside.

On the calendar today:

-Japan Sept CPI

-China 3Q GDP, Sept Retail sales

-UK Sept retail sales

-US Sept Housing starts, Building permits

-Australian Finance Group ((AFG)) AGM

-Atlas Arteria ((ALX)) Operational Update

-Beach Energy ((BPT)) Operationally Update

-EVT Ltd ((EVT)) AGM

-PWR Holdings ((PWHAGM

-RPM Global Holdings ((RUL)) AGM

-Yancoal Australia (YAL)) quarterly update

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

Corporate news in Australia:

-Trade officials are investigating Woolworths Group ((WOW)) and Coles Group ((COL)) for selling imported Italian tomatoes at prices that may harm local growers

-Board of Nine Entertainment ((NEC)) issues apology after review uncovers widespread bullying and harassment culture throughout all business units

-NextDC ((NXT)) to buy a new Sydney site for -$353m

-Warburg Pincus has committed $490m to MA Financial Group’s ((MAF)) real estate credit fund to address Australia’s housing market funding gap

-UniSuper launched a $500m sell-down of its stake in APA Group ((APA)) after market close on Thursday

-Apollo Global Management is set to sell $450m in Challenger ((CGF)) shares

-Atlas Arteria ((ALX)) has expanded its business in France with a concession for the A412 Thonon-Machilly motorway in Eastern France

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