The Overnight Report: Santa Rally Hope Emerging

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US markets led by a rebound in technology shares and the Nasdaq after a weaker-than-expected November CPI print, albeit plenty of questions remain around the quality of the data.

Australian shares eeked a miniscule gain yesterday and futures are suggestings a robust start for the end of the last full trading week of 2025.

Is that hope for a Santa rally peeking around a corner in the distance?

Good Morning,

The Australian share market recovered from an early sell off to finish in the green on Thursday, snapping three consecutive days of losses.

The ASX200 edged up 3pts to 8,588 with seven of 11 sectors up, led by consumer staples, while energy and uranium miners lagged.

What happened overnight, NAB Markets Today Research extract

The long-awaited resumption of US CPI data was greeted with raised eyebrows after headline CPI for November fell to 2.7% from 3.0% when last recorded in September against an expected rise to 3.1%, with core (ex-food and energy) CPI put at 2.6% from 3.0% versus 3.0% expected. 

Given data collection for the November reading only resumed at mid-month following the end of the government shutdown, the data needs to be treated with a high degree of caution.

Our friends at Pantheon Economics note, ‘The skew in data collection towards the end of the month probably explains why CPI airline fares slumped by -6.7% between September and November —indicators of demand had held reasonably firm— and why core goods prices rose by just 0.06%. A higher proportion of price quotes than usual for November likely were sourced during the Black Friday discount period’.

They nevertheless note softness in other components –e.g. primary rents up just 0.13% between September and November– looks genuine.

We will have to wait the December CPI data due on 14 January to fully comprehend the inflation picture. Accordingly, pricing for the 18 January FOMC meeting is currently unchanged on pre-CPI levels with just -6bps of easing priced. 2-year US treasury yields, which dropped from 3.46% to 3.43% immediately following CPI, are currently back at 3.46% (still -2.5bps lower on 24 hours ago).

In other US economic news, initial jobless claims at 224k were in line with expectations and down on 237k the prior week. While continuing claims were lower than expected at 1,897k – albeit up from 1,830k – factors such as rising graduate unemployment (ineligible to claim) and more longer term unemployed no longer qualifying for benefits after 26 weeks. This number is not seen as a signal of improving labour market conditions.

Other US news just in has President Trump saying, ‘I think Chris Waller is great’ (following a flagged interview), that he is talking to three or four Fed chair candidates and will be making a decision very quickly on the next Fed chair. It rather sounds like he still can’t make his mind up.

The Bank of England cut rates by -25bp to 3.75% as universally expected, though the vote split was closer than anticipated with a 5-4 majority, especially after data in the past week pointing towards a slowing (contracting?) economy, unemployment climbing to a four-year high and somewhat faster than expected fall-back in inflation.

On the forecasts, the Bank lowered its Q4 GDP estimate to 0.0% from 0.3% and says it sees inflation closer to 2% by mid-2026 than the prior 2.9% estimate.

Governor Bailey said there is scope for some additional policy easing next year with rates still seen to be on ‘gradual declining path’ but that further easing ‘will become a close call’ (as if Thursday’s wasn’t? – Ed). Market pricing for future BoE cuts has been significantly pared back, e.g. by the July 2026 meeting to show just for -36bps of cuts from -63bps previously.

Elsewhere in Europe, following widely expected no change decisions from the Norges Bank and Riksbank, the ECB left rates at 2% as expected, following what Reuters reported was a very short meeting (ending at 11am Frankfurt time). 

A subsequent Bloomberg source report noted that barring shocks, the ECB easing cycle is likely over. On its forecasts, the ECB raised its growth estimate for 2025 and later years, to 1.4% from 1.2% in 2025, 1.2% from 1.0% in 2026 and 1.4% from 1.3% in 2027.

Asked about recent comments from known ECB hawk Schnabel that the next move in rates could be up, President Lagarde batted back that ‘given the degree of uncertainty, we can’t give guidance’.

US equities faded slightly in mid-afternoon trade but the Nasdaq finished up 1.38% and the S&P500 up 0.79% ,having earlier been up nearer 2.0% and 1.0% up respectively.

Consumer discretionaries rose 1.7% with Nike topping earnings estimates after the close and the sector led the gains for the S&P500 on Thurday.

Earlier, European stocks fared well with the German DAX up 1.0% and Eurostoxx600 both ending 1% higher and the UK FTSE 0.7%

In commodities, a more mixed picture after across-the board gains on Wednesday, with iron ore faring best up 1.2%,the LMEX index up 0.4%, but copper slightly weaker, as is zinc (aluminium leading the gains).

Oil is very marginally higher while gold has slipped -0.2% to US$4,333.

International growth outlook: Franklin Templeton extract

We see multiple opportunities around AI. It feels like the United States is dominating the headlines and everybody else is picking up the scraps, but that’s not exactly true.

We are thinking of AI the same way we target three types of growth—structural, secular and emerging.

Among structural change stories, which tend to be early cyclicals, we like the “picks and shovels” companies like semiconductor stocks. At some point, demand for GPUs and custom AI silicon that power large language models will be met, but we are not there yet. Additionally, industrial companies that supply power, connections and cooling equipment to data centers are also part of the early-stage buildup.

The next group is the AI adopters, which encompasses not just technology companies but all parts of the global economy. We are having conversations with consumer companies such as a global cosmetic maker, for example, which is deploying AI for R&D.

By using AI to operate faster and more efficiently, secular growth companies should see cost savings. For supermarkets, which operate on skinny margins and high levels of headcount, the upswing from that cost savings could be meaningful. We are excited about the secular phase and expect adoption to broaden by the second half of 2026.

Finally, AI-native companies fall into our emerging growth bucket with high rates of revenue growth. There are not many of them today, but we are confident there will be. We expect completely new businesses will emerge on the back of all this other foundational AI technology we are investing in.

Additionally, AI companies can be quite different by market. China has differentiated companies in AI relative to the United States. Access to technology has led them to scale differently and their advantage in power —and ultimately running costs— will be a key differentiator for the future.

In 2025, value has worked internationally because inexpensive stocks are the most direct beneficiaries of the kind of enormous stimulus measures being approved in Germany, other parts of Europe and Japan.

Growth stocks, in contrast, have done okay, but they are a much smaller part of core benchmarks like the MSCI EAFE and MSCI ACWI Ex-USA. In Europe, which is roughly three-quarters of developed market indexes, technology is quite small and concentrated in cyclical areas.

Better earnings can drive growth stocks higher, and we see challenges to growth earnings falling into three categories: tariffs, technology and transition. These issues have created volatility around earnings and impacted more highly rated growth stocks.

Many of them are in the secular AI growth bucket and should see a re-assertion of growth as cost savings begin to come through and new ways of monetizing their businesses emerge. Lower interest rates will certainly help stocks, but we think that to reassert market leadership —specifically in technology— it will come down to improved earnings.

For 2025, our approach is across three buckets —structural, secular and emerging—  which allows us to own companies that are showing good earnings growth. Among structural growth ideas where we see a step change in earnings is European banks, which have been a good source of performance.

We think banks can continue to work as we don’t believe inflation is going away and we expect to see higher interest rates than the market is discounting. This should be beneficial for certain other industries, such as supermarkets, with high fixed-cost structures.

Within industrials, areas tied to aerospace and defense have done well, but anything related to real estate such as construction and engineering has underperformed. So, we are staying nimble in determining which industries have pricing power and where higher inflation can be a tailwind.

Health care has [been] challenged by lower research spending and US policy adjustments. But these issues are moderating today as corporations adjust to the new regime. While stocks have been weak, health care is a compelling innovation source, notably in biotechnology.

Some of these companies do not yet have commercial revenue but are developing new products (for example, China has been aggressively developing antibody drug conjugates that target diseased cells) that could be the next clinical breakthrough large cap pharmaceuticals companies are seeking.

Despite a relative performance comeback for international equities in 2025, valuations remain historically attractive compared to their US peers. Overseas markets continue to offer growth franchises with best-in-class business models and innovation comparable to that available in the United States but at more reasonable multiples.

International companies are clear leaders across industries such as semiconductor equipment, biopharmaceuticals, luxury goods and advanced manufacturing and are well-positioned amid the current secular trends of AI and increased defense spending.

We believe an active approach grounded in fundamental research is well-suited to identifying compelling non-US growth opportunities in a rapidly changing global economy.

Corporate news in Australia

-Boss Energy ((BOE)) shares fell sharply after a downgrade in the outlook for Honeymoon after a five month review of mineralisation.

-Wesfarmers ((WES)) has placed 54 Priceline stores into receivership amid Infinity Pharmacy Group’s financial problems.

-GemLife Communities ((GLF)) has acquired Townsville site for -$21m to build 500-plus homes.

-Austal ((ASB)) has won a $1bn deal to build 18 landing craft for the Australian Army.

-Netwealth Group ((NWL)) will compensate First Guardian investors with -$100m after admitting compliance failures.

-Santos ((STO)) awarded $240m after winning contract dispute with Fluor Australia.

-Paladin Energy ((PDN)) shares slid after its debt facility is cut to US$110m from US$150m.

-Allegro selects Igneo as preferred buyer for $500m Strait Link, including two vessels.

-Meg O’Neill leaves Woodside Energy ((WDS)) to become the first female CEO in big oil at BP.

-PT Petrokimia Gresik is looking at Dyno Nobel’s ((DNL)) Phosphate Hill mine and fertiliser plant a year after discussions ended.

-Bapcor ((BAP)) shares rallied after CEO Angus McKay resigned after barely 16-months in the job and three profit downgrades.

On the calendar today:

-AU Nov Private Sector Credit

-JP BOJ MonPol Decision

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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