The Overnight Report: The Unloved Rally

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

The tariff framework for US/UK soured optimism over the course of US trading, albeits markets ended higher overnight. The ASX200 is positioned to start relatively flat to slightly positive on the final day of the week.

World Overnight
SPI Overnight	8216.00	+ 3.00	0.04%
S&P ASX 200	8191.70	+ 13.40	0.16%
S&P500	5663.94	+ 32.66	0.58%
Nasdaq Comp	17928.14	+ 189.98	1.07%
DJIA	41368.45	+ 254.48	0.62%
S&P500 VIX	22.48	– 1.07	– 4.54%
US 10-year yield	4.37	+ 0.10	2.29%
USD Index	100.48	+ 0.76	0.76%
FTSE100	8531.61	– 27.72	– 0.32%
DAX30	23352.69	+ 236.73	1.02%

Good Morning, US markets lost some of the shine with the UK/US trade deal dampening optimism on the prospect for lowers tariffs, 10% is now seen as the baseline. US Treasury yields rose and markets pared gains.

What happened overnight: Extract NAB Markets Today Research

“Better go out and buy stocks now” was President Trump’s quip after the widely anticipated UK-US Trade Framework.

Although only a framework, it comes on the eve of US-China talks. The initial reaction was bullish with the S&P500 quickly gaining 1.6%, but the degree of enthusiasm waned with the S&P500 closing up 0.6% (similar to futures during Asia yesterday).

In contrast, the UK’s FTSE 100 ended in the red, down -0.3%. US yields rose with the 10yr up 11.1bps to 4.38%.

The USD (DXY) moved up 1.0% and AUD correspondingly -0.9% to 0.6402. GBP -0.8% has fallen slightly less after the BoE’s hawkish cut. Elsewhere, India-Pakistan tensions continue with drone strikes.

Why the paring back of the initial enthusiasm? 

The UK-US Trade Framework is only a framework and has many unresolved issues. This is also an agreement where the US already runs a goods trade surplus with the UK.

Final details are still being negotiated. The deal so far includes the 10% baseline tariff on most goods remaining while tariffs on steel and aluminium will fall from 25% to zero.

The UK will be able to export 100,000 cars a year to the US at a 10% tariff (down from 27.5%). There will be “reciprocal” market access on beef. The UK will remove the tariff on US ethanol and committed to import more US goods, including Boeing planes.

The US Trade Representative Greer noted other countries should view the U.K. deal as a framework for their negotiations with the US. President Trump also said that the 10% baseline tariff is probably the lowest end for a tariff.

It seems most countries will likely still face at least a 10% baseline tariff, with prospective trade deals more about carveouts for sector specific tariffs.

On US-China talks President Trump made positive comments: “I think it’s going to be substantive” and he said he would consider lowering the 145% tariff on China, “right now you can’t get any higher. It’s at 145% so we know it’s coming down”. And Commerce Secretary Lutnick noted “Over the next month or so, we’re going to roll out dozens of deals”.

As for the BoE, while they did cut rates as expected by -25bps to 4.25%, it was a 5-2-2 split decision. There were two dissents to leave rates unchanged and two voting for a larger -50bps cut.

Guidance was maintained of “a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate”. That two members wanted unchanged rates made this a more hawkish decision the dissenters Pill and Mann noted “the labour market was proving more resilient than expected, business surveys signalled continued inflationary pressures, and household expectations of inflation had firmed”

There is now just -4.8bps of cuts priced for the June BoE meeting, down from -13.9bps on Wednesday.

Rates markets seemingly took some of the trade optimism to pare back rate cut pricing, which followed soon after the FOMC on Wednesday.

US Fed Funds pricing now has -68.4bps of cuts for 2025, down from -77.9bps on Wednesday and -81.0bps on Tuesday.

The US 2yr yield rose 9.9bps to 3.87% and the 10yr yield is up 11.1bps to 4.38%. US Administration officials continued their criticism of Fed Chair Powell.

Economic data was not market moving. US initial jobless claims fell -13k last week to 228k, confirming that the spike up the previous week was due to seasonal factors. The annualised -0.8% fall in US productivity in Q1 reflected more noise than signal, including the plunge in net exports in addition to the usual volatility in measurement, with the annual average figure of 2.2% more reflective of productivity gains.

An Unloved Rally: Extract from Henry Allen Deutsche Bank

 “There are several examples from recent history where unloved rallies carried on for some time”

Reflecting on 2020: “Despite widespread fears that it would be a dead cat bounce, risk assets recovered very strongly, with the S&P500 back at an all-time high by August.”

“Another example came in 2023-2024, as the lags from tighter monetary policy were still being felt across the economy and fears of a US recession were widespread. There was plenty of skepticism at that rally, yet the S&P500 posted back-to-back annual gains above 20% for the first time since the late-1990s.”

Can Gold’s run last?: Extract World Gold Council 

Gold is up by nearly 27% year-to-date, significantly outperforming major asset classes. Not surprisingly, investors are asking what’s behind the move and how sustainable it might be. Gold has been supported by a combination of:

-US trade policy uncertainty and, more generally, geo-economic risk

-A weakening US dollar

-Higher inflation expectations combined with lower bond yields

-Continued central bank demand.

Against this backdrop, investment flows via gold ETFs have significantly ramped up. In 1Q 2025, gold ETFs amassed US$21bn of inflows the strongest quarter in three years with an additional US$11bn in April. Collectively, US funds have led the way, but Chinese funds have increased their holdings by a whopping 77% year-to-date.

We estimate that trade concerns have accounted for approximately 10% to 15% of gold’s return year-to-date, stemming from USD devaluation, heightened geopolitical and market risk, and at least partly from some of the investment flows we’ve seen in recent weeks

However, even if trade negotiations were to progress and conditions to improve, we would not expect gold to completely reverse its risk-induced bump. 

For one, gold remains well bid despite some easing of trade tensions and the noteworthy rebound in the US stock market since early April.

In addition, investors especially international ones appear wary of policies on which the Trump administration may concentrate nextand all other policies that may come over the following three and a half years.

Gold’s performance so far this year has been remarkable. But the speed at which it has occurred has raised concerns about its endurance.

We believe that structural reasons will enable investment demand to continue to thrive:

-Uncertainty surrounding US policies and their effect on the dollar

-More sensitivity to higher inflation expectations and a higher likelihood of lower interest rates

-Lower gold accumulation levels than in previous cycles.

That, of course, would not prevent potential pullbacks driven by profit taking or signs of advancements in trade negotiations.

Equally, for gold’s bull run to be sustainable for longer, consumers need to be given time to adapt to higher prices.

Corporate news in Australia

-BlackRock is taking a $25m minority stake in Generation Development Group ((GDG)) forming a strategic alliance to co-develop retirement products.

-Pro Medicus ((PME)) signed a $20m Visage imaging deal with the University of Iowa Health Care.

-Perpetual ((PPT)) is restarting the sale of its wealth management division with bids anticipated in the range of $500m-$700m.

-Shares owned by Bryan Dorman amounting to $108m in Regis Healthcare ((REG)) are being sold.

-Macquarie Capital is picking up a 10% stake in Webjet Group ((WJL)) at an 80c share price.

On the calendar today:

-JP March earnings

-CH 1Q BoP

-CH April Trade Bal

-HEALIUS LIMITED ((HLS)) ex-div 41.30c (100%)

-MACQUARIE GROUP LIMITED ((MQG)) earnings report

-NEWS CORPORATION ((NWS)) Qtr Report

-QBE INSURANCE GROUP LIMITED ((QBE)) Qtr update

-REA GROUP LIMITED ((REA)) Qtr Report

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

Spot Metals,Minerals & Energy Futures
Gold (oz)	3310.94	– 70.72	– 2.09%
Silver (oz)	32.62	+ 0.03	0.09%
Copper (lb)	4.59	– 0.03	– 0.61%
Aluminium (lb)	1.09	+ 0.01	1.20%
Nickel (lb)	6.98	+ 0.01	0.13%
Zinc (lb)	1.19	+ 0.00	0.39%
West Texas Crude	60.24	+ 2.19	3.77%
Brent Crude	63.20	+ 2.25	3.69%
Iron Ore (t)	98.23	– 1.10	– 1.11%

The Australian share market over the past thirty days

Index	08 May 2025	Week To Date	Month To Date (May)	Quarter To Date (Apr-Jun)	Year To Date (2025)
S&P ASX 200 (ex-div)	8191.70	-0.56%	0.81%	4.44%	0.40%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
APA	APA Group	Downgrade to Accumulate from Buy	Ord Minnett
ARX	Aroa Biosurgery	Speculative Buy from Add	Morgans
BSL	BlueScope Steel	Downgrade to Neutral from Buy	Citi
CTD	Corporate Travel Management	Upgrade to Buy from Neutral	UBS
EDV	Endeavour Group	Downgrade to Neutral from Buy	UBS
ORI	Orica	Upgrade to Buy from Neutral	Citi
PTM	Platinum Asset Management	Downgrade to Sell from Hold	Bell Potter
STX	Strike Energy	Downgrade to Hold from Buy	Ord Minnett
TNE	TechnologyOne	Downgrade to Hold from Buy	Bell Potter
WDS	Woodside Energy	Upgrade to Buy from Hold	Ord Minnett

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