The Overnight Report: Equities Rally On US Relief

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This story features DEEP YELLOW LIMITED, and other companies.
For more info SHARE ANALYSIS: DYL
The company is included in ASX200, ASX300 and ALL-ORDS

Buying orders dominated in US equities overnight as a positive vote in the US senate fueled optimism the longest ever US government shutdown is about to end, with Nasdaq leading the rally.

After a positive session yesterday (though not every sector joined in), ASX200 futures are suggesting the local market stands ready to follow the offshore lead.

Good Morning,

After last week’s sell off, the Australian market rallied on Monday on news the US government shutdown was probably coming to an end.

The ASX200 rose 66pts or 0.75% to 8,836 with nine out of eleven sectors rising.

Tech, miners (including gold stocks) and energy were the leading sectors.

Banks were mixed, consumer staples and property weakened.

What happened overnight, NAB Markets Today Research

Signs during our morning yesterday that the US Senate could muster the 60 votes necessary to pass a bill that would end the government shutdown, thanks to the support of number of Democrat Senators prepared to give up on demand for an extention of expiring health care credits, has been the catalyst for a global stock market rally. 

The Nasdaq closed up over 2% and the S&500 1.5%, after a day in which all European and Asia bourses ended in the green. US bond yields are modestly higher led by the shorter end, and which allowed the first of this week’s three quarterly refunding auctions, the 3-year note, to get away okay.

The US dollar is overall little changed, unlike the AUD which has been the top performing currency of the past 24-hours (high of 0.6540) boosted not just by better risk sentiment but the speech from RBA deputy governor Hauser yesterday which has further dampened hopes for any further RBA easing in the current cycle.

There has been no further tangible progress on efforts to end the US government shutdown following Sunday night’s procedural vote to advance a bill, passed 60-40, that would do just that. A formal vote on a bill could come during our day today, while the House has been recalled, with the requisite 48-hour notice, and will also need to approve whatever bill the Senate might pass – not a foregone conclusion if deemed probable. 

Stock markets have been fully prepared to ‘buy the rumour’ of a quick end to the shutdown. It brings with it the prospect of an early resumption of the flow of official US economic data, as well as an end to one current source of downward pressure on the economy (and where, incidentally, part of the bill ensures that none of the US government workers currently furloughed by the shutdown will be sacked, as had previously been muted).

There has been no data of note overnight though Fed officials have been out in force. St. Louis Fed President Alberto Musalem told Bloomberg he expects the US economy to bounce back strongly early next year, underscoring the need for officials to approach additional interest-rate cuts with caution.

“We’re going to get, I think, a substantial rebound in the first quarter,” Musalem said Monday, citing an expected bump when the government shutdown ends, fiscal support, the impact of rate cuts already made and deregulation. Speaking with Bloomberg reporters and editors, Musalem reiterated his view that current Fed policy is close to the level where it would no longer put downward pressure on inflation.

SF Fed President Mary Daly was a little more ‘two handed’ than Musalem. She said is on the alert for the possibility that a rise in productivity from the adoption of artificial intelligence could allow for faster economic growth without pressuring inflation.

“While I’m looking for productivity gains and seeing if they’re going to continue, I’m also keeping my eye completely focused on inflation to make sure that it doesn’t pick up in a way that would suggest we need to do more or we need to hold longer,” Daly told Bloomberg Television. At the same time, she said, “we don’t want to make the mistake of holding on too long for rates, only to find out we injured the economy.”

Federal Governor Stephen Miran said better-than-expected inflation data and signs of continued weakness in the job market call for a third consecutive interest-rate cut in December. In the absence of new economic information due to the government shutdown, a half-point cut next month is still “appropriate,” Miran said Monday during an interview with CNBC.

“At a minimum,” he added, the central bank should lower rates by an additional quarter percentage point.

Locally, RBA Deputy Governor Hauser yesterday delivered an important speech On the Rail or Off to the Races? The Outlook for the Australian Economy yesterday which was a further hawkish evolution of the RBA’s characterisation at the November SoMP.

Hauser made it more explicit that data in line with the November SoMP forecasts would not necessarily be enough to see any further easing, stating that “financial conditions are clearly more close to neutral than we thought they were a while ago” and emphasised high capacity utilisation –-citing the NAB business surveys– as the starting point for the recent upswing in growth, which meant Australia could find itself boxed in by capacity constraints. 

A path forward where “further policy easing may be necessary at some horizon” requires more spare capacity, a weakening in the labour market or softer demand growth than the RBA’s current assessment, and/or a material deflationary impulse from offshore. ‘Off to the races’ is a scenario where stronger productivity growth –-not in the RBA’s current central forecast-– allow for higher, non-inflationary growth than the current circa 2% trend.

Prior to Hauser’s speech money markets had -15.6bps of easing priced by the May 2026 meeting. By Monday’s close this was down to -12.3bps. AUD/USD lifted from a smidge below 0.65 to 0.6510, gains later extending to above 0.6520 (and an o/n high of 0.6540), aided by optimism for a quick end to the US government shutdown.

In bond markets, The US Treasury’s US$58 billion auction of 3-year notes went off okay, awarded at 3.579% versus the 3.589% when-issued yield. The 2.85 bid-to-cover compares with 2.59 average for previous six auctions.

The 9.7% primary dealer award was lower than previous as direct award increased to 27.3%, indirect award to 63%. Market reaction to the results was limited, leaving front-end yields trading cheaper by around 3bp on the day (and the 2s10s spread flatter by around 2bps).

In Europe 10-year benchmarks finished narrowly mixed with Bunds up 0.2bps but France and Italy down around -2bps, and gilts -0.4bps.

It was also a good night for commodities, led by a 2.9% jump for copper and gold back trading as a ‘risk on’ asset, up 2.75% to back above US$4,100. Crude oil benchmarks are up 0.6%

Some relief… Ipek Ozkardeskaya, Swissquote extract

Last week was a tough one: it was marked by a cocktail of rare but discouraging US data. Falling yields failed to lift risk appetite, and better-than-expected tech earnings couldn’t lure investors back on board. OpenAI even suggested that the US could warrant its trillion-dollar debt — I mean, it was a disaster.

But this morning, things look calmer. The news that the US government shutdown could finally come to an end lifts market sentiment, after the Senate put together the 60 votes needed to push the deal through its first stage.

It’s only the opening act in what could still be a drawn-out political drama, but investors are seizing on any sign of progress to end the longest US government shutdown in history and feed on data — data they need to understand where the US economy stands, where inflation and jobs are headed, and what the Federal Reserve (Fed) should do next.

Speaking of the Fed: some members are cautious, while others appear to be giving more weight to inflation than the weakening jobs market. Last week’s Challenger report printed the highest job losses in October since 2003, and Friday’s University of Michigan survey hinted at deteriorating sentiment, gloomy expectations, and a mixed inflation outlook, with 1-year inflation expectations rising to 4.7%. It’s a close call.

Yet the secured overnight financing rate (SOFR) tumbled last week below 4%, the lowest in three years. That’s not because the Fed decided to cut it — SOFR isn’t something the Fed fixes directly. It’s a market-driven rate reflecting what banks and investors charge each other for overnight cash secured by Treasuries.

When there’s plenty of liquidity sloshing around, the rate naturally drops. And there is excess cash in the system: nearly US$7.5 trillion sits in US money-market funds, while US Treasury auctions have been thinner — partly because the looming government shutdown complicated issuance plans.

In other words, the Fed hasn’t pulled the lever — the market has, reacting to all the excess cash. This higher liquidity could give risk assets a lift this week, if the news flow remains calm.

Futures are hinting at an encouraging start, and if the US government can reopen, it would be the cherry on top. The S&P500 has rebounded around 2% since rumours of a potential shutdown end broke last Friday.

Add to that Jensen Huang’s comments at TSMC’s annual sports day on Saturday — saying “the business is very strong, and it’s growing month by month, stronger and stronger,” and that they need more chips from TSMC — and investors are forgetting last week’s drama. TSMC is up more than 1%, SoftBank jumps 2.5%, Korean SK Hynix is up more than 5% and Nasdaq futures lead gains. Hopefully it lasts!

US economic data is light this week due to ongoing shutdown, but earnings from Nvidia-backed neocloud provider CoreWeave, Cisco and Disney will be in focus, along with 13F filings due Friday. Michael Burry’s large position against Nvidia and Palantir contributed to last week’s risk-off sentiment. Investors will look for evidence of lower exposure or continued bets against tech giants.

Elsewhere, Chinese inflation unexpectedly rose last month, as factory-gate deflation eased. Unlike the West, which doesn’t need more inflation, this is good news for China — they’ve been trying to boost consumption for years, and production prices have been falling for almost three years. That said, the October surprise could be temporary, partly due to the Golden Week holiday lasting an extra day.

Still, US crude is better bid this morning, above US$60pb, probably helped by encouraging inflation data from China. But US crude remains under pressure within a longer-term negative trend since summer, influenced by OPEC’s strategy to release more barrels.

The cartel has now announced a pause in output increases between January and March, and this Wednesday’s monthly oil report should provide further clarity: will OPEC try to set a floor under prices, or continue letting them slide to gain market share?

Danske Bank extract

From a broader perspective, despite the recent equity weakness, we continue to view the backdrop positively.

Macro fundamentals remain solid, and earnings results, particularly in the US supportive. Moreover, the latest developments in US-China trade relations have been constructive.

Hence, we do not see an increased probability of a market correction compared to several weeks ago.

If anything, the combination of resilient data and market dynamics strengthens our confidence that equity markets are likely to move higher in the near term.

Corporate news in Australia

-Rixon Capital is providing a $30m debt facility to DelayPay, a BNPL services provider specialising in lending to the agricultural sector.

-Deep Yellow’s ((DYL)) largest shareholder is working with a potential move against the board post the sudden departure of CEO John Borshofff on Oct 20.

-Downer EDI ((EDI)) won a $750m Chevron maintenance deal in WA.

-Cosette to appeal court ruling blocking it from abandoning the acquisition of Mayne Pharma Group ((MYX)), though the deal is blocked by FIRB/Treasurer.

-NextDC ((NXT)) shareholders urged to reject CEO Craig Scroggie’s $15m pay plan.

-Transformer failures delay BlackRock’s $1bn Waratah super battery project.

On the calendar today:

-AU NAB Oct Business Survey

-AU Westpac-MI Nov Consumer Sentiment

-UK Unemployment Rate

-US Veterans Day Holiday; Share Mkt Open

-LIFE360 INC ((360)) 3Q25 Earnings/Investor Call

-ABACUS STORAGE KING ((ASK)) AGM

-ADVERITAS LIMITED ((AV1)) AGM

-BENDIGO & ADELAIDE BANK LIMITED ((BEN)) Sept Quarterly Update

-CHAMPION IRON LIMITED ((CIA)) ex-div 10c

-CROMWELL PROPERTY GROUP ((CMW)) AGM

-COLES GROUP LIMITED ((COL)) AGM

-DOWNER EDI LIMITED ((DOW)) AGM

-EMVISION MEDICAL DEVICES LIMITED ((EMV)) AGM

-GOODMAN GROUP ((GMG)) AGM

-JUMBO INTERACTIVE LIMITED ((JIN)) AGM

-L1 LONG SHORT FUND LIMITED ((LSF)) AGM

-MICRO-X LIMITED ((MX1)) AGM

-NATIONAL AUSTRALIA BANK LIMITED ((NAB)) ex-div 85c (100%)

-TPG TELECOM LIMITED ((TPG)) EGM

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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