The Overnight Report: AI Shines Yet Again

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Confusion in Korea, a French government in crisis, weak economic data in the US and an upbeat Jerome Powell… US traders piled into technology stocks once more.

SPI futures are suggesting today should see positive follow-through locally.

World Overnight
SPI Overnight	8508.00	+ 23.00	0.27%
S&P ASX 200	8462.60	– 32.60	– 0.38%
S&P500	6086.49	+ 36.61	0.61%
Nasdaq Comp	19735.12	+ 254.21	1.30%
DJIA	45014.04	+ 308.51	0.69%
S&P500 VIX	13.45	+ 0.15	1.13%
US 10-year yield	4.18	– 0.04	– 1.02%
USD Index	106.30	– 0.02	– 0.02%
FTSE100	8335.81	– 23.60	– 0.28%
DAX30	20232.14	+ 215.39	1.08%

By Chris Weston, Head of Research, Pepperstone

Good morning.

If signs of buyer’s fatigue in equity markets were a prevalent theme seen yesterday, well, the bulls have found a new lease of life and have been re-energised, taking equity risk further higher, with tech finding real form.

We see new all-time highs in the S&P500, NAS100 and in Europe, the German Dax rips higher and looks the goods.

Participation in US equity hasn’t been great, with 55% of S&P500 companies lower on the day, but the late session push into 6089 (S&P500 cash) highlights that subdued breadth and concentration risk is fine (at an index level) if everyone is chasing the high beta, high momentum, large market cap plays.

While tech and consumer discretionary have fired up, funds have rotated and cut back on energy and materials exposure, with some taking some length out of a punchy long position in financials.

At the heart of this move was Marvell (+23.2%) which reported solid earnings which have resonated with the street, and the stock is flying, and in turn, lifting the mega-cap AI plays, with Nvidia +3.5% and putting in big points into the NAS100.

Salesforce (CRM) is the pick for me, and while we may not be seeing the same sort of performance on the day as Marvell (CRM closed +11%) , they have delivered an important psychological boost that has swept through software plays, and other AI/semis plays. 

With such incredible levels of investment being placed into AI and AI infrastructure, the focus for much of 2025 will be how this investment can be monetised, and the levels of returns can start to be generated.

Salesforce, through AgentForce, is showing the world that if there is any company already offering shareholder value from its investment, its CRM who are delivering and leading.

Naturally, Salesforce has the data ready to go and can achieve returns in a far more efficient manner than many other plays.

However, if the big concern from investors was whether the investment in AI/AI infrastructure would pay off, CRM offers guidance that it can be done.

Perhaps taking the wind out of the more cyclical plays and promoting a bid in US Treasuries (UST yields are -4bp-5bp lower across the curve) was the reaction to the weaker-than-expected US ISM services report, with the headline print coming in at 52.1 (vs 55.7 eyed).

The employment sub-component fell back to 51.5, which still suggests expansion in service-side employment, but not at the levels the street had expected.

Whether this is any sort of guide for Friday’s nonfarm payrolls is debatable, and so often market players get hellbent on looking at other US employment data points, only to see an NFP print that significantly diverges, and offers a different perspective on the US labour market.

The USD hasn’t been overly impacted by the decline in UST yields, nor has it on anything Fed chair Jay Powell had to say, with his tone suggestive that after a cut in the December meeting the bar to ease going forward will be sufficiently raised.

We’ve also seen no noticeable reaction to the French no-confidence vote passing, with EURUSD remarkably unscathed.

AUDUSD has been at the forefront of clients’ minds, with AUD being the weakest link in G10 FX on the day.

I have been impressed by the extent of the downside reaction to the Aus Q3 GDP print and sat in the camp that it was likely to be a low volatility event, given GDP is such a backwards-looking data point.

What’s clear is the GDP print was sufficiently weak and boosted to such an extent by govt investment that Aus swaps pricing has shifted, and the debate falls on whether February is now the possible starting point for an RBA easing cycle.

We shall see, and the RBA have some convincing to do, and there is decent stretch until February, with two employment reports, and the Q4 CPI print (29 Jan) to influence that call.

Turning to Asia, the ASX200 sits just off all-time highs, but with S&P500 materials and energy under pressure, the banks will need to fire up to get the ASX200 into new highs.

While tech should work, its low weighting on the index will limit the effect of any solid rise in the individual equity plays.

On the calendar today:

-Australia Oct Trade Balance

-Eurozone Oct Retail Sales

-US Initial jobless claims

-US Oct Trade Balance

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

Corporate news in Australia:

-Worley ((WOR)) has won a contract to design new gas processing facilities in Abu Dhabi

-Rio Tinto ((RIO)) and Sumitomo Metal Mining have partnered to develop the Winu copper-gold project in Western Australia

– recycling company Close the Loop ((CLG)) received a $2.35m grant to build a new recycling facility in NSW

– Westgold Resources ((WGX)) has significantly increased the ore reserve at its Bluebird-South Junction mining operation

Spot Metals,Minerals & Energy Futures
Gold (oz)	2674.29	+ 9.68	0.36%
Silver (oz)	31.83	+ 0.32	1.02%
Copper (lb)	4.20	+ 0.01	0.15%
Aluminium (lb)	1.19	+ 0.01	1.23%
Nickel (lb)	7.24	– 0.01	– 0.09%
Zinc (lb)	1.39	– 0.01	– 0.39%
West Texas Crude	68.84	– 1.14	– 1.63%
Brent Crude	72.53	– 1.11	– 1.51%
Iron Ore (t)	106.08	+ 0.76	0.72%

By Quasar Elizundia, Expert Research Strategist at Pepperstone

Oil prices are once again under pressure due to uncertainty surrounding OPEC-plus production plans, a factor that has caused a bearish sentiment among investors and could continue to exert downward pressure on crude prices.

The U.S. benchmark blend, for instance, is losing more than one percent in today’s session, trading around US$69 per barrel.

This movement also stems from mixed data on U.S. oil inventories, which have failed to dispel traders’ doubts, as they remain focused on demand and its future levels.

Concerns over demand are further fueled by weaker-than-expected U.S. economic data.

The ISM services PMI for November showed a sharper decline than anticipated, falling to 52.1 from 56 in the previous month, underscoring the slowest growth in the sector over the past three months.

This indicator is also feeding doubts about a potential slowdown in energy demand, which could translate into additional pressure on crude prices.

Meanwhile, the Energy Information Administration (EIA) report revealed that refinery activity averaged 16.9m barrels per day, while gasoline production fell to 9.5m barrels per day, consistent with seasonal demand changes.

Additionally, U.S. crude imports increased to 7.3m barrels per day, highlighting the relative dependence on external sources. This factor, notably, could benefit oil-exporting economies like Mexico and Colombia in the LATAM region.

From a broader perspective, 2025 appears to be a challenging year for the oil market.

The potential pursuit of increased oil production in the U.S., as suggested by Scott Bessent, Secretary of the Treasury-elect, could add further pressure on prices, complicating the situation for global producers.

Traders will undoubtedly keep a close watch on OPEC+-plus’s next moves and policy decisions in Washington, both of which will play a key role in determining the trajectory of oil prices in the coming months.

The Australian share market over the past thirty days

Index	04 Dec 2024	Week To Date	Month To Date (Dec)	Quarter To Date (Oct-Dec)	Year To Date (2024)
S&P ASX 200 (ex-div)	8462.60	0.31%	0.31%	2.33%	11.48%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
CCX	City Chic Collective	Downgrade to Sell from Hold	Bell Potter
DEG	De Grey Mining	Downgrade to Speculative Hold from Speculative Buy	Bell Potter
GQG	GQG Partners	Upgrade to Add from Hold	Morgans
		Downgrade to Neutral from Buy	UBS
IGO	IGO Ltd	Upgrade to Neutral from Sell	UBS
IMD	Imdex	Downgrade to Neutral from Buy	UBS
JDO	Judo Capital	Downgrade to Hold from Add	Morgans
MTS	Metcash	Upgrade to Buy from Neutral	Citi
NST	Northern Star Resources	Downgrade to Neutral from Buy	Citi
QBE	QBE Insurance	Downgrade to Hold from Buy	Bell Potter
SDF	Steadfast Group	Upgrade to Overweight from Equal-weight	Morgan Stanley
SHV	Select Harvests	Upgrade to Buy from Accumulate	Ord Minnett
		Upgrade to Buy from Neutral	UBS
WBC	Westpac	Upgrade to Buy from Neutral	UBS
		Downgrade to Reduce from Hold	Morgans

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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