The Overnight Report: Thursday The Exception

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US markets took a breather as indices were softer on the day with a lack of news and the US government shutdown ongoing.

After a positive day for the Australian market on Thursday, ASX200 futures are pointing to weakness.

Good Morning,

The Australian market rebounded on Thursday, post a three day losing streak.

The ASX200 rose 22pts of 0.25% to close at 8,970. Financials lagged and Materials rallied 1.8%.

What happened overnight, NAB Markets Today Research

With no obvious connection to what news there has been overnight –- NY Fed’s Willaims and Japan LDP chief Takaichi the highlights .

The S&P500 slipped -0.28%, NASDAQ -0.08% and the Dow down -0.52%. Earlier Thursday European stock closed lower with both the Eurostoxx 600 and UK FTSE down -0.4%. The Nikkei and Shanghai’s CSI 300 were the only winners Thursday, up 1.8% and 1.5% respectively.

NY Fed President John Williams, in a NY Times interview, said “The risks of a further slowdown in the labor market is something I’m very focused on.”

He said that if the economy evolved as expected —inflation moving up to around 3% and the unemployment rate inching up beyond its current 4.3%— he would back “lower rates this year, but we’ll have to see exactly what that means.”

He added “If anything, the information suggested that the tariffs effects have been a little smaller than I expected. I think the shift is more on the employment side… There’s more downside risks to the labor market and employment, and that is something that takes some of the upside risk off of inflation.”

Fed Governor Michael Barr was more circumspect. “Common sense would indicate that when there is a lot of uncertainty, one should move cautiously” . 

On the labor market, Barr said it is hard to assess how much of the slowdown in job creation in recent months is due to softer demand, highlighting measures that suggest labor supply and demand remain in “rough balance,” such as the ratio of job openings per unemployed worker (i.e., JOLTS).

“That said, even if the labor market is still roughly in balance, the fact that this balance is being achieved from simultaneous slowing in labor supply growth and in hiring suggests that the labor market is more vulnerable to negative shocks,”  suggesting he may not necessarily be opposed to further rate reduction(s) at upcoming meetings .

Post these latest Fed comments and compared to this time yesterday, US Fed Funds futures have added about half a basis point of cuts to pricing for both the October and December Fed meetings –currently -23.7bps for October and -44.8bps by December-– but with no discernible spillover to other markets.

US Treasury yields witnessed a small dip following the publications of the above comments from the Fed’s Williams, but on the day 2s are 1bps higher and 10s 2bps to 4.14%. 10-year benchmarks in Europe were mostly 2-3bps higher.

Outside the US and in news that saw a spike higher in JPY but which has since been more than fully reversed, Japan’s new ruling party chief Sanae Takaichi said in a TV interview, as reported by Bloomberg, that “I have no intention of triggering an excessively weak yen. But, just as a rule of thumb, I would say there are both merits and demerits to a weak yen”…. “For export-focused companies, this is a buffer, given the concerns over the Trump tariffs.”

Asked about her comments made a year ago in which she said an interest rate increase by the Bank of Japan would be “stupid”, she responded “Oh, please stop bringing that up”.

When asked if she would characterize a hike before the end of the year in that way. “I know I’m not in a position to comment on a rate increase.” Japan’s money markets were closed by the time the comments aired so let’s see if there’s a reaction this morning.

As of Thursday’s local close, money markets had 6bps of hikes priced for the October meeting and 16bps for December.

In news that has had little discernible market impact so far, other than perhaps contributing to today’s weakness in oil prices (WTI crude currently down -1.8% or -US$1.12) the Hamas negotiating chief, via a video aired on Al Jazeera, said the group has agreed to a deal that would see the end of its war against Israel. 

“We have received guarantees from the mediators and the US administration, and they all confirmed that the war has ended completely,” the message says. Let’s hope so.

Incidentally, the Nobel peace prize winner is due to be announced at 8pm AEDT tonight. It is supposed to be for 2024 achievements so even if Hamas-Israel peace is secured, chances of President Trump being awarded the prize this year would appear limited even if he has been nominated (as reports suggest, but which are never officially confirmed beforehand).

FX markets see the USD broadly stronger, DXY up 0.6%. The AUD/USD is off -0.5% at 0.6550 and NZD/USD -0.8%, pulling it back to the lows seen immediately after Wednesday’s -50bps RBNZ OCR cut. 

US Treasury yields witnessed a small dip following the publications of the above comments from the Fed’s Williams, but on the day 2s are 1bps higher and 10s 2bps to 4.14%. 10-year benchmarks in Europe were mostly 2-3bps higher.

RBA Governor Bullock and Assistant Governor (Financial Markets) Kent appear in front of the Senate economics committee (from 9:00 AEDT).

On the policy outlook, expect similar framing to the post meeting press conference, with little new data since then, albeit monthly household spending for August does suggest that risks on the sustainability of the pickup in consumption growth remain two sided.

The new era isn’t a bubble-it’s a re-rating of reality, Stephen Innes, SPI Asset Management

The hallmark of a true bubble is when capital outpaces the imagination of what it can actually build. Back then, the runway was all promise and no plane. Today, the planes are already in the air

There’s a kind of superstition that settles over markets every time tech begins to soar again, as if we can still hear the faint echo of the dot-com crash through the wiring of our Bloomberg terminals.

Twenty-five years on, analysts still see ghosts in the tape. The moment Nasdaq flirts with new highs, the cry goes up: “Bubble!” The word is meant to sound prudent, but it’s often just lazy nostalgia dressed as wisdom. The truth is more complicated.

What’s happening now isn’t a re-run of Pets.com or Webvan; it’s a structural re-rating of reality itself. The old heuristics —P/Es, forward multiples, CAPE ratios— can tell you valuations are stretched, but they can’t explain why the market’s gravity has shifted.

When an economy rewires its own neural network, the old compasses spin uselessly. We’re in one of those rare rewiring phases where earnings, adoption, and innovation all feed back on each other.

The hallmark of a true bubble is when capital outpaces the imagination of what it can actually build. Back then, the runway was all promise and no plane. Today, the planes are already in the air, data centers humming like industrial furnaces, AI inference running on real revenue, cloud profits compounding quarter after quarter.

The speculative element exists, sure, but it’s not untethered. It’s mapped to an infrastructure renaissance that’s as physical as it is digital.

There’s an old pattern in bubble mathematics — “faster than exponential” growth that ends in self-destruction. You can see that curve in tulips, railways, housing, and 1999 internet stocks.

But the present ascent doesn’t quite fit the geometry. This is more of a series of steep ramps interrupted by controlled pullbacks, algorithmic digestion rather than mania. It’s the market adapting to new earnings power, not levitating on pure story. The cycle looks noisy only because the calibration is happening in real time.

The behavioral texture is also different. There’s no mass retail fever pouring into micro-caps or unprofitable dream stocks. The exuberance is concentrated, a tight cluster of high-earning behemoths whose cash flows rival sovereigns.

You could argue the risk is that this concentration makes the tape brittle; if one giant stumbles, the index bends like a bridge cable. But that’s fragility of composition, not delusion of value.

The other key difference is leverage. Bubbles feed on borrowed oxygen; this one breathes mostly its own air. There’s dry powder in money-market funds, yes, but margin debt isn’t the accelerant it once was.

The excess today is psychological, the conviction that every new chip or model checkpoint will rewrite human productivity. That conviction will wobble at times, but it’s not toxic; it’s part of every technological cycle since Gutenberg.

The academic crowd has tried to chart the anatomy of hype, the way innovation narratives spread through research networks before they spill into markets. But even those models struggle to capture the present dynamic.

The feedback loop between science and capital is tighter, faster, and less delusional. The AI era isn’t about faith; it’s about returns arriving ahead of schedule.

Still, this isn’t a fairy tale. Overvaluation is real. Earnings expectations are elastic until they aren’t. A single macro tremor — policy tightening, a liquidity drain, a sentiment break, could still compress multiples violently. Every trader knows that stretched doesn’t mean safe; it means the climb demands precision.

Yet it’s also true that markets often overprice the apocalypse.

So when people whisper “bubble,” what they’re really doing is mourning the loss of the old valuation gravity. The paradigm has shifted, and it unsettles those who built their careers measuring P/Es against history books.

But history can’t price what it’s never seen before. The last two decades built digital networks; this decade is about teaching them to think. That’s not speculative froth — it’s the beginning of the next productivity wave.

If we’ve learned anything from 2000, it’s that bubbles burst when narrative outruns earnings. So far, the narrative is being chased by earnings, not the other way around. It’s not cheap, but it’s real.

The better analogy isn’t 1999 — it’s 1956, when transistors were just beginning to rewrite the industrial order. We’re in that kind of moment again, where the risk isn’t owning too much of the future, but owning too little of it.

So no, this isn’t a bubble in the classical sense. It’s a premium on inevitability. The market is paying forward for a transformation already underway.

The danger isn’t the mania; it’s mistaking acceleration for fragility. Traders who confuse altitude with unsustainability often miss the quiet revolutions happening under the hood. And when the next correction comes, it won’t be the crash of fantasy, it’ll be the repricing of pace.

We’re not chasing ghosts anymore. We’re trading the blueprint of the next economy.

Corporate news in Australia

-Lynas Rare Earths ((LYC)) announced a strategic partnership with US Noveon Magnetics for the development of a rare earth magnet supply chain in the US.

-ACCC approves the Elders ((ELD)) acquisition of Delta Agribusiness for -$475m with WA store sales in place to resolved competition issues.

-Ford delays Liontown Resources ((LTR)) lithium supply deal to 2029 due to an EV demand slowdown.

-Mineral Resources ((MIN)) has appointed JPMorgan to explore the sale of its lithium assets to ease its net debt load of $5.4bn.

– A second proxy adviser, Institutional Shareholders Services has told investors to vote against four James Hardie Industries ((JHX)) directors as well as the Chair at the AGM.

-New Energy Opportunities as appointed Bell Potter to overseas the pre-IPO convertible note capital raising for $30m and a future ASX listing.

-Citigroup and Macquarie Capital ((MQG)) are involved in a $688m block trade in Capstone Copper ((CSC)) for major investor Hadrian Capital Partners.

-Coles Group ((COL))’s CEO says the supermarket will do whatever it takes to remain competitive against Woolworths Group ((WOW)).

On the calendar today:

-NZ Sept Mfg PMI

-JP Sept PPI

-US Oct Uni of Michigan

-DOMINION INCOME TRUST 1 ((DN1)) ex-div 53.96c

-PERENTI LIMITED ((PRN)) AGM

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

The Australian share market over the past thirty days…

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