The Overnight Report: No Follow-Through

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US markets rallied again as US/China trade tensions faded on the upcoming deal, with weakness in Gold continuing.

After a positive day on Monday, the ASX200 futures are indicating a weaker start ahead of Wednesday's 3Q CPI print.

By Danielle Ecuyer

Good Morning,

The Australian market rose on Monday with banks and real estate stocks leading.

The ASX200 rose 0.6% to close at 9,070.50.

What happened overnight, NAB Markets Research Today

Equity markets across Asia and in the US are in good spirits following the weekend news that a new trade détente between the US and China is likely to be confirmed when Presidents Trump and Xi meet in South Korea later this week.

Nasdaq rose 1.86% and S&P500 lifted 1.2% to a new record 6875 with subsector gains of more than 2% for IT and Communication Services. European stocks all finished higher but to a lesser extent, after a great day for APAC bourses led by a 2.5% gains for the Nikkei and more than 1% for both Hong Kong and Shanghai benchmarks.

Gold lost another -US$125 to be flirting with sub-US$4,000 levels, versus a high of US$4,380 little more than ten days ago.

The 24 hour news channels are adamant this reflects a loss of haven demand driven by optimism for an upcoming new US-China trade truce, though we are more inclined to think in terms of a rush for the exit by Johnny-come-lately retail/ETF buyers who of late have replaced buy-and-hold central bank buyers as the primary source of demand.

Relevant or not, we were also amused yesterday to pick up a story courtesy of the Benzinga news service of a proposal the US government revalue and sell gold reserves holdings to acquire 5% of the outstanding stock of Bitcoin (in which respect we note Bitcoin has risen some 3.5% since last Friday, albeit likely more a response to stronger equities/risk sentiment)

The most market moving aspect of RBA Governor Michelle Bullock’s fireside chat with her Head of Economic Analysis Michael Plum at the ABE annual dinner last night was her response to a double-header question of what the RBA’s forecast is for Q3 Trimmed mean CPI and what would constitute a ‘miss’ versus that forecast.

The answers were ‘0.6%’ and ‘0.3%’ respectively, albeit the RBA has already flagged the upside risk to their 0.6 (0.64% to be precise) Q3 forecast contained in the August SoMP.

This comment alone reinforces NAB’s view that a 0.9% Trimmed Mean outcome –-our forecast-– would be sufficient ground for the RBA to be on hold next month, and likely in December too, while a 0.8% outcome could leave next week’s decision more finely balanced.

The Governor did, as she had previously, point to dwelling costs and market services inflation as being sources of concern about the upside August monthly CPI, while stressing the month to month volatility in data –- in reference to both inflation and the labour market.

On the latter, she noted even at 4.5% the unemployment rate was ‘still pretty low’ and that forward looking labour market indicators suggest the labour market will not deteriorate much from here on.

Bullock did emphasise the need to ‘wait for a bit more data’ but in the same breath noted there would be new forecasts in November, so her comment didn’t appear designed to put markets completely off the scent of a November move, while at the same time arguing that the incoming data implied the need for ongoing ‘caution’ in its approach to monetary policy.

Outside Australia, slim pickings again in regard to data or official commentary. The German Ifo index rose to 88.4 in October from 87.7, a little above the median estimate from economists, though the rise was all in the expectations component with the ‘Current Assessment’ falling for a third successive month, to 85.3 from 85.7 and levels comfortably above 86 earlier in the year.

All we got out of the US was the Dallas Fed Manufacturing Activity, which lifted to -5.0 from -8.7 (-6.2 expected). On the trade front, President Trump reportedly says he has no interest in talking to Canadian PM Carney at APEC, even though he didn’t confirm that the additional 10% tariffs announced on Sunday, in response to his disdain for an anti-tariff advert being aired on Canadia TV, would proceed.

FX markets see AUD/USD as the standout winner (high of 0.6560) where in addition to the weekend US-China trade news and the diminution of expectations for a November RBA rate cut after Governor Bullock’s comments last night.

China yesterday set the USD/CNY fix below 7.09, its lowest level since 15 November 2024. This in turn has seen spot USD/CNY fall from above 7.12 to below 7.11, a definite tailwind for AUD/USD. 

In bonds, the US treasury curve has flattened with 2s up 1.6bps and 10s -1.5ps. Speculation that the market is coming into the FOMC ‘priced for perfection’ regarding a follow-up -25bs Fed rate cut in December following the widely anticipated October move looks to be a factor for the front end, while for longer dates bonds a potential ‘end of QT’ announcement as early as this week is a talking point.

Chris Weston, Pepperstone extract

It’s hard to ignore the price action across the US equity complex, with the bulls, at this stage, dominant and in total control. The -2.7% sell-off in S&P 500 futures on 10 October gave us a 6806–6540 range to work with and to guide, and after nine sessions of consolidation (the NAS100 showing a similar pattern), price finally broke out and closed above 6806 on Friday.

After the gap higher on the futures re-open (Monday), driven by news that the US and China were set to forge some form of trade agreement, the market breathed a small sigh of relief — clearing the path to do what it does best: rally. Risk assets kicked higher, resulting in a solid low-to-high trend day.

Breakaway gaps can often serve as powerful signals for the continuation of a prior bullish move, and as we approach earnings from the Mag7 names this week, the market is signalling limited concern about holding equity risk into these results and guidance.

There seems little in the global macro landscape that appears capable of derailing the current melt-up. With the ongoing US Government shutdown limiting the risk that would have come from the tier 1 economic data, and when Fed rate cuts align with a still-resilient economy, solid earnings growth, and a market skewed towards selling volatility, the outcome has simply been to buy risk.

It’s not hard to see why options traders are layering into S&P500 31 October 7000 call options.

S&P500 Futures volume was on the lighter side, while cash equity volumes were in line with the 30-day average. That said, participation has been fairly healthy, with 64% of S&P500 constituents closing in the green. Only staples and materials finished modestly lower, the latter dragged down by a -6.1% decline in Newmont, which was hit by the -3% sell-off in gold.

Flows have rotated away of materials and into mega-cap quality names ahead of earnings. The MAG7 saw solid inflows across the board, with all seven constituents posting strong gains. Nvidia closed at US$191.49 and looks set for another run at US$200, despite Qualcomm formally entering the AI race — announcing new chip products, and a deal with Saudi Arabia’s AI HUMAIN and seeing its shares jump 11%.

Nvidia shareholders clearly don’t view Qualcomm’s entry as a game-changer; if anything, Qualcomm’s entrance at this stage in the game reinforces confidence that the growth in AI still has multiple years ahead.

If it pays to respect the tape in US equities, and Asia certainly will when it opens, it’s equally hard to overlook the move in gold. Caution is warranted for those trying to pick the lows, as XAUUSD has broken below last week’s US$4004 low and through the key psychological figure.

Crowded longs can unwind quickly when leveraged traders rush to lock in profits, forcing CTA reduce levels into play.

Of course, the tape could turn higher, but while gold continues to make lower lows and futures volumes remain elevated on down days, calling the bottom is a tough ask, requiring both skill and a bit of luck.

For now, it makes more sense to let others do the hard work and tactically buy a rip after the dip.

FOMC preview: Erik Weisman, MFS Investment Management 

A -25bp cut appears to be a foregone conclusion on October 29th given labor market concerns.

The September CPI print is based on a limited sample with a high noise-to-signal ratio and is unlikely to sway the FOMC decision one way or another. There seems to be faith in the thesis that tariffs are a “one-time price shock.” Upside surprises in services inflation have not been a major part of the discourse either.

Instead, the Fed’s focus has been on weak payrolls. Labor market slack, via its influence on wages, plays a critical role in determining services ex-shelter inflation. Given this context, the laser focus on jobs is not misplaced.

Thus, at this juncture, the labor side of the mandate is dominating. If inflation remains sticky at a high run rate well into the first half of 2026, the Fed may loosen less than the market is pricing, but that would be a story for a later date.

Waller, one of the most dovish members of the FOMC, recently mentioned he is looking for data to reconcile the apparent disconnect between the weak labor market and robust spending. His unraveling of this puzzle will be critical for him in deciding the course of policy beyond October.

Meanwhile, that conundrum may be especially difficult to disentangle any time soon given that it remains unclear whether the Fed will have enough government-sponsored, high-quality macro data by December 10. Thus, chances are Powell and others will be non-committal about December and will stress data dependency when the data come back online.

This does not mean that the December meeting will be uneventful. Recent behavior of SOFR [Secured Overnight Financing Rate] suggests a rise in funding market pressures and Powell acknowledged the issue in his recent comments.

There is deep awareness and desire to avoid a repeat of repo market strains witnessed in 2019. Consequently, the Fed may signal it will provide concrete guidance on ending QT in December, with the potential for a surprise announcement ending QT even sooner.

Corporate news in Australia

-Norges Bank which manages the world’s largest sovereign wealth fund will oppose election of five James Hardie Industries ((JHX)) directors and vote against its renumeration report.

-AUB Group ((AUB)) shares were halted after a media report said the group was in advanced talks with Swedish private equity firm EQT.

-Roc Partners may sell Pace Farm for $1bn after egg prices rise on strong demand.

-Brazilian Rare Earths ((BRE)) is a possible takeover target ($665m) after its 2026 scoping study with both US and Australian buyers likely.

-Netwealth Group ((NWL)) seeks Federal Government support after a -$101m loss from the First Guardian fund collapse.

On the calendar today:

-US S&P House Price Index

-ALCIDION GROUP LIMITED ((ALC)) Sept Qtrly/Investor Call

-AUSTAL LIMITED ((ASB)) AGM

-AUSGOLD LIMITED ((AUC)) AGM

-BIG RIVER INDUSTRIES LIMITED ((BRI)) AGM

-BATHURST RESOURCES LIMITED ((BRL)) 1Q26 Update

-CREDIT CORP GROUP LIMITED ((CCP)) AGM

-CSL LIMITED ((CSL)) AGM

-HILLGROVE RESOURCES LIMITED ((HGO)) Sept Qtrly/Investor Call

-LIONTOWN RESOURCES LIMITED ((LTR)) Sept Qtrly/Investor Call

-POLYNOVO LIMITED ((PNV)) AGM

-RESOLUTE MINING LIMITED ((RSG)) Sept Qtrly/Investor Call

-SHAPE AUSTRALIA CORPORATION LIMITED ((SHA)) AGM

-TRAJAN GROUP HOLDINGS LIMITED ((TRJ)) AGM

-WESTGOLD RESOURCES LIMITED ((WGX)) Sept Full Quarterly

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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