The Overnight Report: Small Caps Take The Lead

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The relase of weaker ADP November payrolls supported US markets overnight, with another positive session, lead by the Russell2000.

ASX200 futures are pointing to a positive start today, following two cautiously positive sessions post a negative start to the week on Monday.

Good Morning,

The Australian market squeaked higher on Wednesday post weaker than expected GDP data.

The ASX200 rose 16pts or 0.2% to 8,595 with utilities and energy leading the gains while healthcare lagged.

What happened overnight, NAB Markets Today Research

US small caps are leading a positive day for US equities with Fed easing expectations solidified by a softer than expected ADP private payroll report, the latter notwithstanding its poor track record for predicting non-farm payrolls.

US treasury yields drift a couple of basis points lower with the belly of the curve leading the move while the USD extends its recent decline with GBP and NZD leading (AUD now back above 66c).

Commodities are stronger across the board with copper at the top of the leader board, printing a new high. The Kremlin and US envoy meeting ends with no signs of an imminent Russia-Ukraine deal.

The US ADP report revealed a -32K decline in private payrolls in November, below the consensus, 10K.

November hiring was particularly weak in manufacturing, professional and business services, information, and construction with Dr. Nela Richardson, chief economist, ADP, noting that “Hiring has been choppy of late as employers weather cautious consumers and an uncertain macroeconomic environment,” adding that “And while November’s slowdown was broad-based, it was led by a pullback among small businesses”.

Later in the session the ISM Services survey for November increased to 52.6 from 52.4 in October, beating expectations for a 52 outcome.

The November headline print is a nine-month high, encouragingly prices paid for services and materials showed the slowest growth in seven months, indicating some easing of inflationary pressures.

The details also showed twelve industries reported growth last month, while five contracted, while the employment sub-index showed further signs of stabilizing, climbing to a six-month high of 48.9, so still contracting but at a slower pace relative to recent months.

Notwithstanding its awful track record for predicting the official non-farm payrolls data, reaction to the ADP data miss weighed on US treasury yields, although later in the session the (modestly) better than expected ISM services report more than reversed the initial ADP impact. 

The 2yr US Treasury yields was in a mild downtrend during our sessions yesterday opening at 3.50%, then trading to an overnight low of 3.46% post the ADP release, followed by an intraday high of 3.50% post the ISM print.

The 2yr yield now trades at 3.48%, -2bps lower relative to levels this time yesterday. The 5yr part of the curved is -3bps lower on the day at 3.62% while the 10yr now trades at 4.05% after trading in an overnight range of 4.04% to 4.08%.

Moving onto equities, US stocks look set to end the day in positive territory with small leading the charge, Fed easing expectations seemingly fuelling an attraction for smaller companies. Russell2000 rose 1.91 while the S&P500 is up 0.30% and the NASDAQ is 0.17%. 

Big tech has been an underperformer with Microsoft coming under pressure following a report noting the company has lowered expectations for business customers to spend money on its cloud unit’s marketplace for artificial intelligence models and agents.

A Microsoft spokesperson denied the report, stating aggregate sales quotas for AI products have not been lowered while other analysts also disputed the report. Earlier in the session, European equities closed mixed with the Eurostoxx600 almost unchanged at 0.1%

Peace in the Ukraine-Russia war doesn’t look imminent. The WSJ report a five-hour meeting at the Kremlin between President Putin and US envoys Witkoff and Kushner concluded without reaching an agreement to end the war, but the talks were “useful” and “constructive,” a senior Russian official said.

The main stumbling block is territory, with Russia demanding all of the eastern Ukrainian region of the Donbas while Ukraine rejects surrendering territory that Russia hasn’t taken.

Meanwhile, the FT reports the EU has proposed a legally contentious workaround to raise up to EUR210bn for Ukraine backed by immobilised Russian state assets, including emergency powers that in effect strip Hungary and other dissenting countries of their veto. 

Commodities are also enjoying a solid day with copper leading the charge, up 2.78% on the day, Bloomberg notes recent gains have been driven by a growing chorus of traders and analysts warning global inventories soon could be drained to critically low levels as huge volumes of metal are shipped to the US in anticipation of tariffs.

The LMEX index gained 2.35% while oil prices and gold gained between 0.5% and 1%.

In other news, US Treasury Secretary Scott Bessent said he will push for a new rule that candidates for regional Federal Reserve presidents must have lived in that district for at least three years. 

Bessent argued presidents in the regional banks were meant to be from their district, but now there’s an idea of importing someone from outside the district.

The new rule may need congressional approval, or could be implemented by the Fed chair and the board, according to Bessent.

Thoughts on Bitcoin, Stablecoin and Gold, Yardeni Quicktakes

We do not have an opinion on bitcoin because we don’t have any way to value it. It has been widely called “digital gold.” We’ve previously described bitcoin as “digital tulips.”

That makes us sound bearish since the famous Tulip Bulb Bubble burst in Amsterdam several centuries ago, once it was realized that the small Dutch market had run out of buyers willing to pay higher and higher prices.

When the selling pressure started, it quickly fed on itself, resulting in a crash.

Bitcoin is different because it trades 24 hours a day, worldwide. That also makes it more volatile, though possibly crash-proof. That’s because when it dives, there are likely plenty of new buyers around the globe who see the drop as a buying opportunity.

In addition, bitcoin is receiving strong support from Wall Street, enabling the public to play the game through ETFs and futures. It must be comforting for many individual investors to receive a monthly statement from their brokers showing the value of their bitcoin ETF holdings, rather than having to keep a digital key and worry that their blockchain account might be hacked by quantum computers one day.

So ARK’s CEO Cathie Wood could be right. She is forecasting that bitcoin will be worth US$1.2m per coin by 2030. She recently lowered her forecast from US$1.5m to reflect the rapid rise of stablecoins (cryptocurrencies pegged to the US dollar), which she noted are “usurping” some of the utility she initially expected bitcoin to capture in emerging markets.

President Donald Trump signed the GENIUS Act in July. It established a regulatory framework for the issuance of stablecoins, which must be backed by liquid, safe assets such as US Treasury bills. We identified the act as an explanation for bitcoin’s sharp price decline since it was enacted, as stablecoins reduce demand for bitcoin transactions.

Bitcoin rallied sharply today on news that Vanguard Group, one of the world’s largest asset managers, has reportedly decided to permit ETFs and mutual funds that mainly hold crypto-assets to be traded on its platform.

Interestingly, this new move goes against a longstanding position held by the firm’s previous CEO, who had stated that Vanguard would never ever offer bitcoin ETFs or similar products. But apparently things have changed since the departure of the last CEO.

We’ve also described gold as “physical bitcoin”. Like cryptocurrency, we have no way of valuing the precious metal. However, when the price of gold rose to a new record high of US$2,000 per ounce last year, we turned bullish because many central banks have been adding gold to their reserves after the US and EU froze Russia’s foreign currency reserves in February 2022.

When it rose above US$3,000 earlier this year, we looked at the gold price chart and identified a rising channel, suggesting that US$4,000 was a reasonable price target for the end of this year. It has been consolidating just above that level for several weeks.

We expect it to continue doing so until mid-2026, before resuming its climb toward our year-end target of US$5,000.

We are still targeting a gold price of US$10,000 by the end of 2029, when we expect the S&P500 to trade at a record 10,000. Gold tends to be inversely correlated with the S&P500 on a cyclical basis. But their trends on a long-term basis have been nearly identical.

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“Crypto is also finding better form, with Bitcoin reclaiming the November highs and breaking through $93k. It still feels as though traders are uneasy about chasing the move here, and confidence in playing on the long side remains fragile. Either way, the price action is certainly more constructive, and it feels as though we could see a push into the $96–$98k range in the near term.”

[Chris Weston, Pepperstone]

Corporate news in Australia

-Perseus Mining ((PRU)) is buying Predictive Discovery ((PDI)) in a premium all-scrip takeover.

-Calvary Healthcare plans to acquire 12 Healthscope hospitals for $180-$220m.

-News Corp ((NWS)) sold its 13% stake in ARN Media ((A1N)).

-Qantas Airways ((QAN)) merges domestic airline and QantasLink under one executive.

-Transurban ((TCL)) retains FY26 guidance and lifts its interim dividend to 34c.

-ANZ Bank ((ANZ)) settlement on dead customer fees held up by Federal court.

-Saulda Medical to launch on ASX with a $775m valuation.

-Dexus ((DXS)) is raising $500m via 30-year bonds for capital management.

-First Guardian investors are unlikely to recover the full $446m according to liquidators.

-WiseTech Global ((WTC)) CEO Zubin Appoo defends new pricing model post customer concerns.

-US-focused critical minerals Locksley Resources ((LKY)) is seeking to raise up to $15m via an institutional placement.

On the calendar today:

-AU Oct Trade Balance

-US Weekly Jobless Claims

-ANTERIS TECHNOLOGIES GLOBAL CORP. ((AVR)) AGM

-BENDIGO & ADELAIDE BANK LIMITED ((BEN)) Investor Day

-RIO TINTO LIMITED ((RIO)) Capital Markets Day

-TAMBORAN RESOURCES CORPORATION ((TBN)) AGM

-WHITEFIELD INDUSTRIALS LIMITED ((WHF)) ex-div 10.5c (100%)

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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