The Overnight Report: BHP & RBA

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

With US markets closed for Presidents’ Day overnight, speculation of higher European defence spending bolstered defence stocks and pushed yields higher in Europe.

The Euro Stoxx 50 closed with a gain of 0.5% and the FTSE100 rose 0.4%.

Federal Reserve governor, Michelle Bowman, said progress is needed on inflation before cutting rates further.

Philadelphia Fed President Harker echoed that sentiment, noting he is optimistic that both inflation pressures and rates will decline over the longer run.

All eyes will be on the RBA. AUD rates could move significantly if the RBA surprises with a dovish cut or pause. AUD/USD was little changed, staying around mid-0.63.

Crude oil rose after reports that OPEC is considering delaying further production hikes. European natural gas prices slumped as supply risks ease.

Iron ore prices eased, as the market adjusted to the fading impact of Western Australia’s Tropical Cyclone Zelia.

Locally, the February results season is ramping up. This morning, BHP Group ((BHP)) reported a -23%  decline in underlying profit from the US$6.56bn achieved last year, with the lowest dividend payout for shareholders in eight years.

Today’s calendar also includes Hub24 ((HUB)), ARB Corp ((ARB)), Challenger ((CGF)), Mineral Resources ((MIN)), Monadelphous ((MND)), and others.

SPI futures are suggesting general sentiment remains supportive ahead of the RBA’s decision.

By Chris Weston, Head of Research, Pepperstone

Good morning.

Happy RBA day to those who observe, where there is an elevated prospect of mild relief for borrowers as the RBA look to massage the cash rate out of a more restrictive settinglet’s call it an insurance cut for nowwith 6-month annualised trimmed mean inflation falling into the RBA’s target range and offering the bank just enough confidence to start a gradual and shallow cycle.

Market pricing already reflects the cut with the interest rate swaps market implying the cut at 86%, which is good enough to say the broad collective weight of money sees the cut as an almost done deal.

Of course, there are bets with the distribution that the RBA remains on hold likely swayed by the labour market data, increased household spending and the recent uptick in business confidence.

However, the weight of money has been placed for the cut and convinced by the historical precedence that over the past 20 years, the RBA has only gone against a market pricing a cut above 75% on just three occurrences, with the last occurrence seen back in 2015.

Looking further along the Aussie interest rate swaps curve, we see a follow-up -25bp cut in May and then one last cut in December. The 6-month BBSW rate, the benchmark by which many commercial bank loans are priced off, has already reflected the cut dynamics, falling from 4.68% in December to now stand at 4.26%.

The Volatility Markets Pricing a Low Impact Meeting

Taking the swaps pricing in isolation in theory it’s easy to see why AUD overnight or 1-week options implied volatility is priced at low levels, with options pricing not reflective of an impending vol shock or fireworks from the events seen through the day.

We also consider the fact that the RBA will take on two new members and will essentially split into a committee that sets monetary policy and another on governance.

So, while we are likely to hear that further cuts are conditional on the incoming data, the current board will unlikely want to speak on behalf of the incoming personnel.

Subsequently, it seems all roads lead to lead to undefined and non-committed guidance around further cuts, with market expectations for two more -25bp cuts this year, that non-committed approach, while it being the base case, could offer downside risk to Aussie equity and some modest intraday upside risk for the broad AUD.

What Happens Should the RBA Hold Rates Unchanged?

There would be a shock in the market should the RBA keep rates on hold and a cut is certainly no slam dunk.

Should the RBA leave the cash rate unchanged at 4.35%, and while many will disagree, I would shy away from saying the RBA have a true communications problem on their hands, as it’s not as though they’ve recently offered the levels of explicit guidance that other central banks did in the lead up to cuts; they just haven’t talked the market out of its position.

By leaving rates unchanged they risk injecting an element of policy uncertainty into interest rate pricing, with short-term interest rate futures/swaps and the AUD likely commanding a higher volatility as a result.

A hold would also likely see AUDUSD spike towards the 100-day MA at 0.6429, with interest-rate sensitive ASX200 plays (banks, consumer/retail plays, property stocks) all sold off aggressively.

In fact, I’d argue that the risk for these equity plays is modestly lower on the day anyhow, as the upside case would require a cut and a more committed and defined path towards further easing a “dovish cut” so to speak and that seems a lower probability.

There will also be a focus on the RBA’s Statement on Monetary Policy (also comes out at 14:30 AEDT), where the immediate consideration falls on its new forecasts for trimmed mean inflation for both the June and December quarters, which are currently forecast at 3% and 2.8% respectively.

These will likely be lowered by- 20bp a piece (to 2.8% and 2.6%) and perhaps if the forecasts are lowered even more dramatic, then we see an increased downside reaction in the AUD.

So, the base case is we get a -25bp cut, and while the statement should welcome the progress seen in inflation, they should acknowledge that their fight against inflation is not yet over, with further cuts conditional on the incoming data and “the evolving assessment of risks to guide its decision”.

One could argue, given this dynamic that there is a small upside risk to the AUDUSD on the day and even more pronounced downside risk for interest-rate-sensitive ASX200 equities.

While I don’t see the cut causing sizeable AUD intraday weakness (the cut is largely discounted) my tactical preference, however, is to buy dips into 0.6320/10, with a view then to manage the risk that will come from Gov Bullock’s presser, and Aussie Q4 wages and employment through the week. 

On the calendar today:

-RBA cash rate decision

-UK Dec unemployment

-US Feb NAHB

-3P Learning ((3PL)) earnings report

-ARB Corp ((ARB)) earnings report

-AUB Group ((AUB)) earnings report

-Baby Bunting ((BBN)) 1H25 earnings report

-BHP Group ((BHP)) earnings report

-Big River Industries ((BRI)) earnings report

-Challenger ((CGF)) earnings report

-Computershare ((CPU)) ex-div 45c

-Deterra Royalties ((DRR)) earnings report

(and more)

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

Corporate news in Australia:

– Charter Hall ((CHC)) and Hostplus will fully acquire Hotel Property Investments ((HPI)) after surpassing 90% ownership

By deVere Group CEO Nigel Green

The long-awaited rotation in equity markets finally appears to be underway as investors shift capital away from the over-concentrated, high-flying Magnificent Seven tech stocks and into a broader array of opportunities.

For the past two years, the Magnificent SevenApple, Microsoft, Alphabet, Amazon, Tesla, Nvidia, and Metahave dominated the markets, driving much of the gains in the S&P500.

These titans surged more than 160% between 2023 and 2024, creating a market increasingly reliant on just a handful of stocks.

But in 2025, that momentum has stalled. While the S&P500 has edged up just 4% this year, with the Magnificent Seven barely moving, adding a mere 1%with significant losses in Tesla, Microsoft, and Alphabet.

This is not a minor blip, says one of the world’s largest independent financial advisory and asset management organizations, it’s a structural shift. Several forces are driving the move away from the most overvalued tech stocks toward broader markets.

Valuation concerns are mounting, with Big Tech trading at stretched price-to-earnings ratios that may not be sustainable.

Rising costs are also a factor, as these companies sink billions into AI infrastructure, cloud computing, and data centers, raising questions about long-term profitability.

Higher for longer interest rates have further weighed on tech stocks, which are more sensitive to borrowing costs.

Finally, after two years of extraordinary gains, investors are locking in profits and reallocating capital to undervalued areas.

With capital flowing out of the tech behemoths, clear winners are emerging in both the US and international markets.

UK large caps in energy, healthcare, and consumer staples are attracting capital, while a weaker pound has made UK exports more competitive, boosting large multinationals. US small caps are gaining momentum, often seen as a barometer of domestic economic health.

Industrials and energy stocks are drawing fresh attention as AI hype cools slightly and tangible industries linked to infrastructure and transportation show resilience.

At the same time, investors are seeking opportunities beyond the US, with emerging markets and European equities demonstrating renewed strength.

For the past decade, growth investors have relied on the same playbook: pour capital into tech, ignore valuations, and ride the wave. That strategy is being challenged. Investors are now looking for diversification, value, and broader participation in market gains.

This isn’t the end for the Magnificent Seven. They remain among the most powerful, cash-rich corporations in the world. But their ability to dictate the entire market’s trajectory is diminishing.

Those who recognize and act on this shift early will be best positioned for the opportunities ahead. The great rotation has begun.

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