The Overnight Report: RBA To Start Hiking?

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This story features LINQ MINERALS LIMITED, and other companies.
For more info SHARE ANALYSIS: LNQ

Buoyed by buying in big tech, the Nasdaq led US markets higher overnight, albeit finishing off the intraday highs.

Despite robust December labour force data, the Australian market rallied on Thursday. 

ASX200 futures point to a flat to slightly weaker start ahead of the Australia Day long weekend.

Good Morning,

Despite stronger than expected December labour force data, increasing the odds for a rate hike by the RBA, the ASX200 rose 66 points or 0.8% higher to 8,849.

Nine of 11 sectors gained yesterday, led by energy.

Banking stocks and miners did not participated in the day’s positivism.

What happened overnight, NAB Markets Today Research extract

In Australia the December employment growth was much stronger than expected at 65k and the unemployment rate fell -2 tenths to 4.1%.

At 4.1% the unemployment rate is tracking below where full employment is seen and in a backdrop where capacity utilisation is stretched and inflation remains above the RBA’s target band this result would not have landed favourably for the RBA Board. 

There was a noticeable re-pricing in the Australian financial markets post this release.

There was a notable re-pricing in the Australian rates market on Thursday following the better than expected employment report. Feb OIS is at 14.5bps priced (or circa 58% priced for a full 25bps rate hike) and the OIS curve now prices cumulative 52.5bps of tightening by the end of the year.

NAB’s call is for a 25bps rate hike in Feb and May but market participants are now speculating whether the RBA does back to back meeting rate hikes, particularly if Q4 CPI surprises to the upside.

On this, NAB published a CPI preview and is forecasting a 0.9% rise for Q4 trimmed mean versus the RBA’s November SoMP forecast of 0.75%. The sell-off in Aussie rates continued overnight with Aussie 3 year and 10 year bond futures rising another 3-4bps in yield. The AU-US 10-year bond spread has widened back above 60bps, currently at 62bps.

Overnight, it has been a positive session for risk assets overnight amid a further easing in geo-political tensions and some positive economic data. Equity markets are stronger, led by tech stocks while credit spreads are tighter with solid gains in US IG cash spreads. 

The US dominated the economic calender overnight with the final read on Q3 GDP, monthly consumer income and spending data, monthly PCE (Fed’s preferred measure) and initial jobless claims. 

Overall the data reflected a solid economy underpinned by a resilient consumer and in response the market has pushed out Fed rate cut expectations. GDP growth in Q3 was revised up a touch (to 4.4% from 4.3%) with downward revisions to consumption and fixed investment more than offset by upward revisions to contributions from net trade and inventories. 

Weekly claims data again surprised to the downside and supports the low hiring, low firing environment in the US. 

Consumer spending remained at a solid pace to start Q4 (October and November reports were released overnight), rising 0.3% in both months and pointing to another strong quarter. For now the tariff pass through does not appear to have dampened spending on goods while spending on services is also holding up (although healthcare dominates). 

Muddying the outlook for the consumer was a further dip in the savings rate (to 3.5% in November, from 4% in September) which is now running well below the pre-COVID average of circa 6%. While tax refunds will support spending in Q1, the consumer may be reluctant to tap further into their savings as the year progresses. 

Finally the monthly PCE prints were as expected, leaving core annual inflation at 2.8% — core PCE inflation came in at 0.160% in November and 0.208% for October.

Note, however that the shutdown is still seen to be impacting these readings (with distortions seen to have contained PCE readings to the downside) and so the focus turns to the December reading which should provide a cleaner view on the path of US inflation.

For Europe, consumer confidence remains weak but it did come in better than expected (rising to -12.4 from -13.2 and versus expectations of -13.0).

An easing in geo-political tensions ( with President Trump ruling out military action in Greenland and pointing to a framework deal with NATO Secretary General which is rumoured to entail the stationing of US missiles and mining rights) combined with solid US data releases has supported global equity markets overnight.

The gains in US stocks have been led by IT, industrials and healthcare. Upbeat comments from Nvidia’s CEO and reports that Anthropic has more than doubled its revenue run rate since last summer supported sentiment around the AI sector.

Of note is the continued performance in small caps with the Russell 2000 index out-performing the US equity benchmark for 14th consecutive session.

The USD has extended the week’s earlier declines with the dollar index currently down -0.4%. In focus has been the surge in the Aussie dollar post the stronger than expected employment report.

The AUD has continued to strengthen overnight, reaching its highest level since October 2024 (to be at 0.6842).

Yardeni Quick Takes, ‘Art of the Deal’ to ‘Concept of a Deal’

Recently, we wrote that “the latest [stock market] pullback won’t last long,” partly because we “expect the Greenland issue will be resolved.”

It seemed resolved this afternoon when President Donald Trump said that he and NATO Secretary General Mark Rutte “formed the framework of a future deal with respect to Greenland.”

The President told CNBC that “we have a concept of a deal” with the Arctic island. So he called off the threatened tariffs on eight European nations that were conducting a military exercise in Greenland to protest Trump’s plans to take it “one way or another.”

Trump explicitly stated today, “I don’t want to use force. I won’t use force.” When later asked by a reporter about the Danish rejection of his framework a few hours later, Trump responded dismissively, “If he [the Danish prime minister] wants to tell me, he can tell me that to my face.”

Meanwhile, the US economy continues to demonstrate its resilience. The Atlanta Fed’s GDPNow tracking model today increased its estimate for Q4-2025 real GDP growth from 5.3% to 5.4% saar. The model now puts real consumer spending growth at 3.2%, up from 3.1%, and real capital spending growth at 6.4%, up from 5.1%.

The Redbook Retail Sales Index rose solidly by 5.5% y/y through the week of January 16. The strength in retail sales during December and January is confirmed by the record-high forward revenues of the S&P500 Retail Composite industry during the week of January 20, 2026.

Also at a record high is the forward revenues of the S&P500 Home Improvement Retail industry . This suggests home improvement construction spending rose to new highs during the last two months of 2025 and the first month of 2026.

Capital outlays is also booming, led by information processing equipment. Industrial production of communications equipment, computer & peripheral equipment, and semiconductors & other electronic components are all at or near record highs.

Capital spending on manufacturing structures and data centers soared during President Joe Biden’s term, but has weakened somewhat during the first year of President Donald Trump’s second term.

However, this category may soon rise again, given the Trump administration’s success in getting more onshoring commitments by both domestic and foreign manufacturing companies.

Corporate news in Australia 

-Austrac has ordered an external auditor to Airwallex on suspicion it has failed to meet anti-money laundering and counter-terrorism financing commitments

-LinQ Minerals ((LNQ)) is raising $10m at 55c per share less than a year post IPO

-SpaceX is targeting an IPO possibly in 2026 that would raise more than US$30bn with a value of US$1.5trn

-Hesta has acquired a stake in Grow 

-Atlassian shares fall -16% on Anthropic Cowork disruption fears

-Qantas Airwarys ((QAN)) raises points needed for Emirates Flights, up to 32% for premium economy and 20% for first class

-Mothballed Tahmoor coking coal mine is being positioned by administrators for sale

-Auriga minority investors are preparing to sell a stake as the Qld helicopter business achieves $30m-plus earnings

On the calendar today:

-NZ 4Q CPI

-AU NAB 4Q Business Survey

-JP BOJ MonPol Decision

-ALCOA CORPORATION ((AAI)) FY25 Earnings

-ASTRAL RESOURCES NL ((AAR)) General Meeting

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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