The Overnight Report: A Whimper Not A Bang

This story features MACQUARIE GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: MQG
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

With US markets closed for Thanksgiving holiday, markets were relatively subdued overnight.

As the month of November draws to a close, ASX200 futures are pointing to a weaker start on Friday.

Good Morning,

The ASX200 rose 0.13% or 10pts to 8,613 on Thursday.

Gold stocks rose nearly 2.5% to reach a five week high and miners generally reached a two week high, up 0.8%.

What happened overnight, NAB Markets Today Research

We are coming to the end of what has been a relatively lively week in terms of movement across all markets, where in FX both AUD and NZD are materially higher and the standout G10 winners, US stocks have made an impressive recovery from their mid-month swoon, led by a 7.9% gain for the Russell2000, and US Treasury yields are -6-9bps lower aided by some weaker mid-week US data and revived hopes for December Fed easing.

As for Thursday’s markets, very little to report and where the US Thanksgiving holiday saw both the cash stock and bond market closed.

It’s an early close for both US stock and bonds Friday and with little of note on the economic calendar, the month looks set to end with a whimper rather than a bang.

Month end portfolio rebalancing including possible FX hedge adjustments promise to be the main feature, though in FX at least the limited month-to-date moves across major stock indices suggest this shouldn’t be material.

A bit of (non-US) central bank speak worth noting overnight. The Account (minutes) of the end-October ECB meeting indicate the next move in interest rates is far more likely to be up than down (also NAB’s view).

It says, “It was important to remain entirely open-minded on the possible need for a further rate cut, and that such a move was likely to be warranted if there were an increase in the likelihood or intensity of downside risk factors, or if the projected undershooting of the inflation target became sustained.”

In the UK, Bank of England rate-setter Megan Greene –-a hold-out against rate cuts in the recent meetings– has been the first Monetary Policy Committee member to speak post Wednesday’s Budget, playing down hopes that a cut to energy bills will make it easier for the Bank to agree rate cuts.

“The budget should have some inflationary implications, though it’s kind of a one-off so there is an argument for looking through it,” Greene said. “If it affects inflation expectations, if it brings them down, that would be great. I’m not convinced it will do that.”

Another central bank interview which caught our eye was with Dutch central bank governor Olaf Sleijpen in an FT interview, talking about stablecoins, saying “If stablecoins in the US increase at the same pace as they have been increasing…they will become systemically relevant at a certain point, ”adding the digital tokens could create risks for financial stability, the economy and inflation in Europe that would potentially force the ECB’s hand.

“If stablecoins are not that stable, you could end up in a situation where the underlying assets need to be sold quickly,” said Sleijpen. This could primarily backfire on financial stability but also on the wider economy and inflation, he warned.

In such a scenario, the ECB would “probably have to rethink monetary policy”, he said, but was not sure if a cut or an increase would be needed. “I don’t know in which direction we would be going,” he said, adding that financial stability tools should be used first.

Elsewhere in the interview he says inflation risk are currently balanced and that growth has help up better than expected with trade policy uncertainty having fallen since June.

In equities, S&P500 futures, which have traded, are flat and the EuroStoxx600 index closed up just over 0.1%. Locally the ASX200 rose 0.13% but the NZX50 fell -1%, seemingly a bit upset at the limited prospect of any further RBNZ rate reduction(s).

Governor Hawkesby in a Bloomberg interview yesterday said that “forever lowering and keeping the door open” to further easing is “just not consistent” with getting inflation back to its 2% target, confirming that a significant shift in the outlook would be required for the RBNZ to lower rates further.

In bonds US 10-year Treasury futures have traded a tight range and are little changed from the APAC day close. Eurozone benchmark yields show little movement, though digestion of the UK Budget, has seen the 10-year UK gilt yield up 3bps to 4.46%, reversing about half of the fall of the previous day’s knee-jerk relief rally.

In commodities a mixed overnight performance, with base metals giving back some of Wednesday’s strong gains, oil modestly higher, iron ore little changed but 2.7% up on the week to be the best performer of all the commodities we track, while gold down -0.3% but still 2.3% up week to date.

A New Geography of Compute, Stephen Innes, SPI Asset Management extract

The AI trade has entered that deliciously dangerous phase where everyone keeps whispering about bubbles, but nobody is prepared to lift their foot off the accelerator. And the proof isn’t in Nvidia’s price action anymore, it’s in the power grid.

If you want to understand where the AI-capex Manhattan Project is heading, stop looking at GPUs and start looking at gigawatts.

As of mid-October, the US data-center pipeline has swollen to an absurd 245 GW, a number so grotesquely oversized it makes 2021-era crypto mining look like a candle flickering in a windstorm.

The gravitational pull of that pipeline has shifted decisively toward Texas, where planned capacity has nearly doubled in two quarters as developers stampede into the only geography that can plausibly accommodate this scale of ambition

The old gospel of “fibre adjacency” has been replaced by a blunt new commandment: access to power is access to survival. And once that truth took hold, the entire map of the industry began to warp.

Data Center Alley is giving way to Data Center Prairie — sprawling, isolated, giga-campuses stretching across Pennsylvania steel country, the Wyoming emptiness, and above all, the sun-bleached plains of West and North Texas.

The developers aren’t pretending anymore. They don’t trust the utilities to deliver on time, and they aren’t willing to let grid bottlenecks dictate the pacing of the AI revolution. So they’re doing the unthinkable: building their own power plants, at hyperscaler scale and hyperscaler speed.

Natural gas is the weapon of choice, particularly where the Permian Basin sits practically beneath the server racks. You’re now seeing five-gigawatt campuses in Midland County, two-gigawatt gas-backed parks like Project Horizon, and 5-GW monsters like Pacifico’s Ranch.

And yet even the gas network is bursting at capacity, which means if you’re building far from the basin, you’re not just paying for more molecules, you’re paying in time, waiting for new pipelines that may not clear regulatory hurdles before the next economic cycle turns.

Some developers are bending sunlight and wind rather than gas, as in the Nevada and Utah solar-stabilized tract developments or Montana’s Big Sky digital infrastructure campus.

But even there, batteries are less about flexibility and more about brute force balancing, smoothing renewables and providing fast-ramping backup for onsite gas turbines. These are no longer clever grid-optimization tricks. They’re survival systems designed for workloads that cannot go dark, ever.

And this all comes with a capital distortion that would make even late-cycle Silicon Valley blush. The 2% of projects with budgets north of US$17 billion somehow account for 42% of total capital deployment.

Meanwhile, the 60% of projects under US$1 billion barely register, just 8% of total capex. Froth isn’t creeping into the system; it’s flooding the pipes.

The poster children are Project Jupiter in New Mexico at US$160 billion and Project Kestrel in Missouri at US$100 billion, numbers so detached from reality they feel like lunar base proposals.

What’s more remarkable is the financial engineering underneath them: developers issuing industrial revenue bonds where they are both payer and payee, a circular structure that tees up tax advantages and pushes project valuations into uncharted airspace.

The biggest tell that we’ve entered a new regime is the hyperscalers themselves. For years they resisted onsite generation, preferring the clean-hands simplicity of grid power. No scope 1 emissions, fewer headaches, shorter contractual lock-ins. But urgency is now trumping orthodoxy.

Developers are betting that hyperscalers will overlook the operational risk because speed to compute is paramount, or that a new generation of hyperscalers, less fixated on ESG purity and more obsessed with capacity, will happily sign onto gas-fired campuses if it means teraflops tomorrow instead of teraflops in 2029.

Even though only 10% of the pipeline includes onsite generation, those projects account for a staggering 34% of total capacity. And of course, Texas dominates the map, with gas turbines as the workhorse technology.

Every terawatt of this build-out tightens the natural-gas market, competing directly with LNG exports and nudging long-term gas prices higher.

This doesn’t just lift electricity bills for consumers, it crowds utilities out of the turbine market at precisely the moment on-grid demand from EVs, manufacturing re-shoring, and electrification is accelerating.

If the off-grid AI complexes soak up the turbine supply chain, the regulated utilities will be left trying to keep the lights on with one hand tied behind their back.

And here’s the real kicker: even if the AI bubble burps, pops, or deflates gently, the affordability and reliability pressures unleashed by this shift will not disappear.

Once tens of gigawatts of private, gas-fired compute fortresses start pulling fuel, burning molecules, and shaping regional power curves, state regulators are going to step in.

First softly, then loudly. And once that happens, all bets are off. Markets can price a bubble; they can’t price a political backlash against runaway energy demand.

This is no longer about whether AI valuations are rich or whether project internal rates of return (IRRs) make sense on a spreadsheet.

The market is staring at an AI-capex universe that is forcibly rewriting America’s energy system in real time.

The Manhattan Project metaphor is no longer figurative, it’s literal. The new bottleneck isn’t chips. It’s joules.

And every hyperscaler knows it.

Corporate news in Australia

-ACCC concerns may stop National Australia Bank ((NAB)) from buying HSBC Australia.

-Betashares is planning to acquire a minority stake in ASIC-approved stablecoin issuer Macropod.

-US private equity firm, General Atlantic is reported as securing control of El Jannah, the Lebanese charcoal chicken chain for $1bn.

-Snowy Hydro is expected to announce a 15-year deal to purchase power from a SA wind farm being developed by Macquarie Capital’s ((MQG)) Aula Energy.

On the calendar today:

-AU Oct Pvt Sector Credit

-US Black Friday (Mkts close early)

-BERKELEY ENERGIA LIMITED ((BKY)) AGM

-BALLARD MINING LIMITED ((BM1)) AGM

-CENTURIA CAPITAL GROUP ((CNI)) AGM

-DGL GROUP LIMITED ((DGL)) AGM

-DATELINE RESOURCES LIMITED ((DTR)) AGM

-EMERALD RESOURCES NL ((EMR)) AGM

-GROUP 6 METALS LIMITED ((G6M)) AGM

-GLOBAL LITHIUM RESOURCES LIMITED ((GL1)) AGM

-HASTINGS TECHNOLOGY METALS LIMITED ((HAS)) AGM

-HORIZON MINERALS LIMITED ((HRZ)) AGM

-IPERIONX LIMITED ((IPX)) AGM

-KGL RESOURCES LIMITED ((KGL)) AGM

-MACH7 TECHNOLOGIES LIMITED ((M7T)) AGM

-METALLIUM LIMITED ((MTM)) AGM

-PLATINUM CAPITAL LIMITED ((PMC)) AGM

-SATURN METALS LIMITED ((STN)) AGM

-TRIBUNE RESOURCES LIMITED ((TBR)) AGM

-WILDCAT RESOURCES LIMITED ((WC8)) AGM

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.

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