The Overnight Report: Post-Rally Pullback

This story features CHARTER HALL LONG WALE REIT, and other companies. For more info SHARE ANALYSIS: CLW

Yesterday, it seemed some institutions might previously have taken too much money off the table and decided to hurry that money back into the local share market.

It’s pure speculation, of course, but a gain of 1.23% on no specific catalyst suits the narrative.

SPI futures are suggesting today the local index will give back some of those gains.

The day’s calendar shows less than a handful corporate events. That will change from next week onwards.

World Overnight
SPI Overnight	8466.00	– 18.00	– 0.21%
S&P ASX 200	8520.70	+ 103.80	1.23%
S&P500	6083.57	+ 22.09	0.36%
Nasdaq Comp	19791.99	+ 99.66	0.51%
DJIA	44747.63	– 125.65	– 0.28%
S&P500 VIX	15.31	– 0.46	– 2.92%
US 10-year yield	4.44	+ 0.02	0.41%
USD Index	107.53	+ 0.06	0.06%
FTSE100	8727.28	+ 103.99	1.21%
DAX30	21902.42	+ 316.49	1.47%

Good morning.

As expected, the Bank of England cut by -25bp but with 2 dissents among Monetary Policy Committee members in favour of -50bp, and that came as a surprise.

Over in the USA, Treasuries and US equities traded cautiously ahead of Amazon earnings and Payrolls data.

Shares in Amazon have come under pressure in the aftermarket as the company forecasts net sales to fall in the range of US$151bn and US$155.5bn, missing expectations for US$158.64bn in sales.

Declines in Energy and Healthcare were offset by gains in financials and consumer staples. Shares in Hershey and Eli Lilly both rose after reporting quarterly results.

As for US data, initial jobless claims rose 11k to 219k, and continuing claims rose to 1.89 million in the week ended January 25, each within ordinary volatility and doing nothing to shift assessments of the labour market ahead of payrolls tonight.

Treasury yields were little changed, the US 10yr up 2bp at 4.44%. German 10yr yields were up 1bp at 2.38%. UK10yr yields underperformed, ending the day 5bp higher at 4.49%.

President Trump and Treasury Secretary Bessent have clarified their position on interest rates, saying they were focussed on lower 10y bond yields rather than a lower federal funds rate.

In commodity markets, the active WTI oil future was down -0.5% to USD70.7/bbl, while gold was down -0.3% to USD2,851.9/oz.

Base metals edge higher as Chile warned of tighter supply. It expects higher demand from the energy transition and electrical networks.

Chile’s copper commission, Cochilco, noted geopolitical tensions and US tariffs loom as downside risks.

The prices on the Comex in the US rose higher as Trump has renewed threats of specific tariffs on the metal to help support the local industry.

On the calendar today:

-US Dec consumer credit

-US Jan Non farm payrolls

-US Jan unemployment

-Charter Hall Long WALE REIT ((CLW)) earnings report

-Cettire ((CTT)) earnings report

-Karoon Gas ((KAR)) investor briefing

-Nick Scali ((NCK)) earnings report

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

Corporate news in Australia:

-Treasurer Jim Chalmers has flagged EV road user charge is a priority tax reform

-Generation Development Group ((GDG)) to pay -$320m for acquisition of Evidentia Group, which provides investment advice to large wealth managers, AFR’s Street Talk has revealed

Spot Metals,Minerals & Energy Futures
Gold (oz)	2880.77	– 1.23	– 0.04%
Silver (oz)	32.68	– 0.12	– 0.37%
Copper (lb)	4.46	+ 0.02	0.49%
Aluminium (lb)	1.18	– 0.00	– 0.11%
Nickel (lb)	6.77	0.00	0.00%
Zinc (lb)	1.27	+ 0.01	1.15%
West Texas Crude	70.56	– 0.66	– 0.93%
Brent Crude	74.27	– 0.49	– 0.66%
Iron Ore (t)	106.23	+ 1.42	1.35%

By Chris Weston, Head of Research, Pepperstone

We may have just seen the AUS200 hitting a new all-time high, but with uncertainty over Trump’s trade policy still hanging over markets, ASX200 1H25 earnings set to commence, and campaigning around the federal election about to increase, there are reasons to think the path ahead for Aussie equities could be increasingly choppy.

We take a moment to consider the upcoming catalysts that could shape the trading environment and where the balance of risk resides for the ASX200.

The ASX200 technical set-up

While the fundamental catalysts laid out below will impact sentiment and drive investor and trader flows, the technical set-up on the daily remains highly constructive, with the probability currently skewed towards upside risk and new all-time highs.

We see that since December the AUS200 has printed a series of higher highs and lows with the index working higher within a rising channel.

The bullish momentum seen through January stalled on 31 Jan, however, the pullback in February was well supported below 8400 and into the 20-day MA, and we’re now seeing momentum reaccelerate again. 

 The set-up (on the daily) suggests that swing traders will likely look to work longs into modest weakness, while momentum-focused traders (on the higher timeframes) are now looking to reestablish longs. 

A Goldilocks’ environment for ASX200 equity appreciation:

While we saw a strong rally in many of our global equity indices throughout January and into February, we highlight the tailwinds that have been and remain more idiosyncratic to the Aussie equity market these include:

The Aus Q4 Q424 trimmed mean inflation rate recently fell to the lowest level since Q121, with the 6-month annualised inflation rate now at 2.7% and within the RBA’s target. In turn, this has cleared the path for the RBA to cut rates on 18 February, and the market pricing a cut at this meeting as a done deal.

Further out the Aussie interest rate swaps curve, the market prices -90bp of implied RBA rate cuts by December. Essentially, interest rate traders are betting on four -25bp rate cuts by year-end.

For ASX equities, the most important consideration is the reasoning behind why rate cuts are coming.

If the RBA is cutting for risk management purposes -which is currently the markets assumed base case– and because of reduced price pressures, then as long as growth and employment hold up and earnings estimates are assumed to rise, then we see a goldilocks’ backdrop for ASX200 equity appreciation.

ASX200 1H25 earnings are about to get underway (from 10 Feb) with the reporting period expected to support the view that ASX200 aggregate earnings are set to rise 6% in the 12-months ahead.

JB Hi-Fi ((JBH)), CSL ((CSL)) and CommBank ((CBA)) kick the reporting schedule into gear.

However, it’s the period between 17-28 February when the number of companies reporting ramps up, where we see around 80% of ASX200 companies report, and at a time when the RBA meeting takes place.

A solid labour market, government spending, rising household spending, and credit growth continues to tick higher; all positives for equity appreciation.

China remains a near-term two-way risk for equity sentiment, but should an agreement between Trump and Xi emerge, and traders build expectations that the Chinese authorities may indeed overdeliver on its stimulus plans at the NPC meeting (5 March), then ASX200 materials and resource plays would have a big upside kicker.

Negative factors that could increase the risk of equity drawdown:

While we’ve seen Trump showing a willingness to forge deals and in the case of Mexico and Canada delay tariff implementation, there are still uncertainties on trade policy and tariffs that may still result in increased and prolonged anxiety in ASX200 and global equity markets.

The ASX200 is expensive from a valuation perspective, trading on a 12-month PE multiple of 18.1x. Valuation has offered no signal for market timers, but it may limit new capital from coming into the market from here.

ASX200 banks are incredibly well owned by local insto investors and trade at multi-year high valuations. This runs the risk that we’ll need to see a huge result from CBA (on 12 Feb) to see the banks pushing further higher.

The RBA may look to cut rates in the 18 Feb meeting, but they’ll almost certainly state that further rate cuts are fully conditional on the incoming data.

Subsequently, if we were to see implied rate cuts being priced out it would lift Aussie bond yields, which in turn could weigh on more interest-rate-sensitive equities.

The Federal election (by May) may still be some months off and while it is unlikely to result in the same degree of volatility that we’ve seen in the US election, the outcome could have big implications for the ASX200.

With government spending and a widening deficit accounting for such a large percentage of job creation and growth, a Dutton-led minority government could usher in a period of more conservative spending, which, in turn, could weigh on Australian economic activity later in the year.

In summary, while risks remain, and we see a mix of positive and negative kickers on the horizon, the technical structure suggests pullbacks should be shallow and well supported, with the obvious risk of new all-time highs into earnings and the RBA meeting.

The Australian share market over the past thirty days

Index	06 Feb 2025	Week To Date	Month To Date (Feb)	Quarter To Date (Jan-Mar)	Year To Date (2025)
S&P ASX 200 (ex-div)	8520.70	-0.14%	-0.14%	4.43%	4.43%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AFG	Australian Finance Group	Upgrade to Buy from Neutral	Citi
APX	Appen	Upgrade to Buy from Accumulate	Ord Minnett
BWP	BWP Trust	Upgrade to Neutral from Sell	Citi
DSE	Dropsuite	Downgrade to Hold from Buy	Shaw and Partners
EMR	Emerald Resources	Downgrade to Sell from Hold	Ord Minnett
MND	Monadelphous Group	Downgrade to Neutral from Buy	Citi
NEC	Nine Entertainment	Downgrade to Neutral from Buy	UBS
NWS	News Corp	Upgrade to Buy from Neutral	UBS
OML	oOh!media	Downgrade to Neutral from Buy	UBS
PPM	Pepper Money	Upgrade to Buy from Neutral	Citi
PTM	Platinum Asset Management	Upgrade to Hold from Sell	Bell Potter
RMD	ResMed	Upgrade to Buy from Neutral	UBS
TCL	Transurban Group	Downgrade to Neutral from Buy	Citi
WES	Wesfarmers	Upgrade to Neutral from Sell	UBS

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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