The Overnight Report: Back To The Races

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Positive news around US/China trade talks and the shutdown underpinned an across the board risk on rally for US equities with gold and bitcoin back in the fray.

After a positive day on Monday, ASX200 futures are pointing to a strong start to Tuesday.

Good Morning,

The Australian market recovered from early morning losses on Monday to finish up by 37 points or 0.4% to 9,032.

Materials lagged as gold miners sold off with financials and property gaining.

What happened overnight, NAB Markets Today Research

Global equity markets started the new week on positive vibes amid renewed optimism that US-China trade tensions may ease (mostly on the back of weekend news) alongside the prospect of a US government shutdown ending soon. 

US equity markets posted solid gains on Monday with the S&P500 up 1.07%, the NASDAQ climbed 1.37%, and the Dow Jones advanced 1.12%. 

Apple shares hit a record high, boosted by a positive analyst upgrade and strong iPhone demand, helping tech giants outperform. The Russell2000 index of small stocks jumped 1.93%, reflecting broad-based optimism.

Nearly a fifth of the S&P500 is set to report earnings this week, with early results beating expectations and supporting the rally. Cleveland-Cliffs rose on rare earths news, while regional banks remain in focus.

Markets are travelling on “high hopes” for a thaw in US-China relations, with President Trump listing rare earths, fentanyl, and soybeans as top issues ahead of trade talks. 

Adding to the positive vibes, National Economic Council Director Hassett suggested the government shutdown might end this week, although he added that if an agreement doesn’t come together, the White House might have to consider enacting “stronger measures” to force Democrats to accept a deal.

Earlier in the session, European equity indices advanced, with the Eurostoxx50 up 1.03%, the DAX gaining 1.80%, and the FTSE100 rising 0.52%. French equities lagged following their ratings downgrade, while UK stocks benefited from improved sentiment. 

Japan’s Nikkei225 was the standout performer, closing at a record high as the ruling LDP secured a coalition deal, fuelling hopes of pro-stimulus policies under prospective Prime Minister Takaichi.

Japan’s LDP and Ishin, also known as the Japan Innovation Part, formed a coalition deal that gives the parties 231 votes in the lower house, two votes short of a majority, but likely good enough for the LDP’s Takaichi to secure a vote as the next PM. 

The two parties are more politically aligned than LDP’s previous Komeito partner, but they will need support from at least one other party to pass key legislation. Pricing expectation for a BoJ hike at the Bank’s October have edged up over the past week from close to 0% to 7% currently amid signs of political stability, clearing the way for the Bank to move. A December hike still looks more likely priced at a 64% chance for a 25bps hike.

US President Trump and Australian Prime Minister Albanese met to sign a rare earths deal aimed at countering China’s dominance in critical minerals. The agreement supports US$8.5bn in new projects and includes joint investment in processing facilities, with the US also backing a gallium refinery in Western Australia. 

In addition, the AUKUS pact is “moving along very rapidly,” with both leaders reaffirming their commitment to defence technology sharing and nuclear submarine development, providing strategic reassurance for Australia and the broader Indo-Pacific region.

US Treasury yields edged lower. European bonds saw French government yields rise after an S&P downgrade, underperforming peers. The 10-year Bund yield was little changed, and Italian spreads narrowed slightly.

Currency markets reflected the risk-on mood, with the AUD and the NZD modestly outperforming. The AUD traded to an overnight low of 0.6485, but after a solid opening in US equities, the AUD lifted alongside the improvement in sentiments, trading to an overnight high of 06521, then easing a few pips to start the new day at 0.6513 (+0.23%) .

China’s Q3 GDP beat expectations at 4.8% y/y, driven by strong exports and industrial production, but domestic demand remains soft, with retail sales and investment lagging. The property market continues to weigh on sentiment, with house prices falling in most cities except Beijing and Shanghai. 

Policymakers are expected to focus on rebalancing toward domestic consumption at the ongoing Fourth Plenum, though the full five-year plan may not be released until March. The government has reiterated its commitment to proactive macro policies and high-quality growth, but the uneven nature of China’s recovery persists.

In commodities, gold surged 3.64% to trade near record highs, with investors seemingly treating last week’s dip in prices as an opportunity to get back in/add to positions. 

Silver also outperformed, while oil prices declined, with Brent down -0.64% to US$60.90 per barrel amid ongoing expectations of increased supply. Industrial metals were mixed, with copper and zinc rebounding, while iron ore and coal prices softened.

Elsewhere, Ukrainian President Zelensky signalled willingness to join a proposed summit with Presidents Trump and Putin in Hungary, though concerns persist over the location and terms.

In the Middle East, President Trump warned of strong US action if Hamas breaches the ceasefire with Israel, as mediators work to solidify the fragile truce.

The situation remains fluid, with risks to market stability from both regions

US credit jitters overdone, Benoit Anne, MFS Investment Management

Cockroaches or a few lone wolves?

We heard a lot about cockroaches over the past few days, in the context of rising credit stress in the US. Indeed, last week, U.S. regional banks came under pressure as several lenders recorded write-downs on loans tied to a bankrupt commercial real estate investment trust (REIT).

A senior executive of a major US bank warned that spotting “one cockroach” often signals more, reflecting concerns that isolated defaults may foreshadow a broader wave of bankruptcies. In other words, a potential infestation problem. To make this worse, wholesale funding market rates have climbed above typical levels, historically a sign of reserve shortages in the banking system.

But everybody calm down: there is no cause for panic, in Market Insights’ view. For a start, Fed Chair Jerome Powell’s recent remarks signal a review of quantitative tightening at upcoming Federal Open Market Committee (FOMC) meetings, with an end to the program likely by year-end. This should alleviate downward pressure on banking reserves.

As for the recent defaults, our investment team views the events as isolated, relatively small, and unlinked, reducing the likelihood of a systemic credit event. In fact, broader markets, including asset-backed securities (ABS) and collateralized loan obligations (CLO), have not shown significant spread increases tied to these episodes.

Overall, it is worth stressing these ongoing disruptions could spark dislocations, presenting opportunities for active managers to deploy capital at attractive valuations. Our investment team will continue to closely monitor developments, and potentially consider taking advantage of a temporary spike in credit market volatility.

The IMF sounds cautiously optimistic about global growth, despite significant risks. The IMF just published its new World Economic Outlook, which paints a picture of global growth that appears to be resilient.

Overall, the IMF projects global growth to slow only modestly to 3.2% in 2025 and to 3.1% in 2026, a stronger outlook than was earlier expected a few months ago. This looks to us like a global soft landing scenario, but there are still major downside risks.

On that note, the IMF highlights a number of key risks that could further damage the growth outlook, including prolonged policy uncertainty, more protectionism, labor supply shocks.

Meanwhile, fiscal vulnerabilities, potential financial market corrections, and erosion of institutions could also threaten macro stability, in the IMF’s view.

Resilient growth supports a gradual rate-cutting cycle, which in turn enhances the appeal of duration-sensitive assets and risk-on strategies. In a world that is still growing through uncertainty —albeit at a more moderate pace—  the story here is one of divergence.

While many advanced economies appear to be facing some headwinds, on a relative basis, emerging markets seem to be better positioned.

What this may mean for global investors is they should be encouraged to lean into this divergence by considering asset classes that benefit from cyclical recovery and monetary easing, such as emerging market debt and global equities.

Corporate news in Australia

-Infratil ((IFT)) boosts its stake in Contact Energy ((CEN)) to 14.3%.

-Bank of America will receive the final bids for Westpac’s ((WBC)) $30bn RAMS loan book this week.

-Air T is expected to acquire Rex Express after 15 months in administration with most creditors unlikely to be repaid.

-BHP Group’s ((BHP)) WA assets including its nickel holdings are likely to be sold to Gold Fields.

-Credit Clear ((CCR)) launched a $14m institutional placement to fund its $11m purchase of UK-based debt collection agency ARC.

-LGI Ltd ((LGI)) is raising $40m to fund growth opportunities.

On the calendar today:

-NZ Sept Trade Bal

-US Oct Phil Fed non-mfg

-AUDINATE GROUP LIMITED ((AD8)) AGM

-AURELIA METALS LIMITED ((AMI)) Sept Quarterly/Investor Call

-BENDIGO & ADELAIDE BANK LIMITED ((BEN)) AGM

-BHP GROUP LIMITED ((BHP)) Sept Quarterly

-CLEANAWAY WASTE MANAGEMENT LIMITED ((CWY)) AGM

-ENERGY ONE LIMITED ((EOL)) AGM

-GQG PARTNERS INC ((GQG)) ex-div 5.67c

-HUB24 LIMITED ((HUB)) 1Q26 Update

-IDP EDUCATION LIMITED ((IEL)) AGM

-JUDO CAPITAL HOLDINGS LIMITED ((JDO)) AGM

-MYSTATE LIMITED ((MYS)) AGM

-PLENTI GROUP LIMITED ((PLT)) 2Q26 Update

-PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED ((PNI)) 1Q26 Update

-PRAEMIUM LIMITED ((PPS)) 1Q26 Update

-QORIA LIMITED ((QOR)) Sept Quarterly/Investor Call

-REGION GROUP ((RGN)) AGM

-SOUTH32 LIMITED ((S32)) Sept Quarterly

-STANMORE RESOURCES LIMITED ((SMR)) Sept Quarterly/Investor Call

-WAM ALTERNATIVE ASSETS LIMITED ((WMA)) ex-div 3c (100%)

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

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.

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