The Overnight Report: Positive Ahead Of RBA

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A post-sell-off recovery in precious metals overnight, alongside a better than expected ISM print, sent US equities higher, shrugging off the risk-off sentiment that gripped Australiasian markets.

After a steep decline yesterday, ASX200 futures are indicating a strong start ahead of the RBA rates decision at 2.30pm AEST.

Good Morning,

Yesterday, the ASX200 fell -91 points or -1% to 8,779 led by materials, down -3.1%, as gold miners fell and financials outperformed.

SPI futures are signalling those losses will be compensated for ahead of today’s RBA decision.

What happened overnight, NAB Markets Today Research extract

The start of February has been an eventful one with price action during our trading session yesterday dominated by wild swings in silver and gold alongside side a decent fall in oil prices.

The risk off environment weighed on pro cyclical currencies with US equity futures also trading in the red as the market continued to digest implications from Trump’s pick of Kevin Warsh as the next Fed Chair.

The start of the overnight session initially followed a similar pattern with gold and silver falling to fresh lows before showing decent bounces. After a big fall during our time zone, oil prices stabilised overnight with US equities and UST yields heading higher boosted by a big jump in the US ISM manufacturing Survey.

The ISM manufacturing survey rebounded sharply in January, bringing the headline index back in expansionary mode after 10 months in contraction. The 52.6 headline reading for January was well above market expectations for a 48.5 outcome, and the production index now points to output growing at a 3% annualized pace.

New orders reached their highest level since early 2022.

The employment index registered its highest reading in a year, although at 48.1 it remains consistent with a contraction in hiring in the sector.

Meanwhile, the uptick in the prices-paid index to 59 plays to the idea that core goods inflation is set to remain sticky.

On a more cautious note, the report noted the positive signs for the start of the year were tempered by commentary citing that January is a reorder month after the holidays and some buying appears to be to get ahead of expected prices increase due to tariffs.

The US partial government shutdown remains unresolved, notwithstanding Senate agreement. House democrats are digging their heels in stalling a set of funding bills that include money for the Labor Department. 

The US JOLTs report will no longer be released tonight and the January jobs report (due Friday) will also be delayed. The dates for rescheduled releases will be provided once funding is restored. The hope is that a resolution will be reached over coming days.

Yesterday during our trading session, it was all about commodities with gold and silver recording wild swings with the move amplified by forced leveraged sellers. Looking at intraday charts, gold fell -19% with silver recording a similar decline. Then during the overnight session both precious metals found a new bid, jumping over 10% with gold trading to a low of US$4420, before recovering to US$4682 where it currently trades.

Silver had similar roller coaster ride, falling to a low of US$71 and now trades US$79.77.

Staying with commodities, oil prices plunged as geopolitical risk premiums eased after President Donald Trump said the US is in talks with Iran, prompting a broader commodities selloff.

West Texas Intermediate sank more than -4% toward US$62 a barrel while Brent closed down -4.3%, as Trump downplayed threats from Iran’s supreme leader and reiterated optimism about reaching a deal. White House envoy Steve Witkoff and Iranian Foreign Minister Abbas Araghchi are reportedly set to meet on Friday in Istanbul.

US equities opened lower, but the jump in the ISM and ease in geopolitical tensions fuelled a recovery with the S&P500 finishing up 0.5% while the NASDAQ is up almost 0.6%. 

In company news, Oracle stock edged higher after the company detailed a US$50 billion funding plan to help finance its AI while shares in Disney fell -7% after executives warned of muted growth for this quarter. Earlier in the session the Euro Stoxx600 closed 1% stronger.

US treasury yield climbed on the back of the stronger than expected ISM survey with the move led by the front end of the curve. The 2y UST yield gained 6.4bps to 3.56% relative to Sydney close levels while the 10y climbed 5.4 to 4.27%. Consistent with these moves overnight, AU bond futures fell with the 3y down -3.5 to 95.71 and the 10y down -3 to 95.14.

The USD is broadly stronger from the weekend close, adding to Friday’s gain after Warsh received the nod as the next Fed Chair. 

CHF (Swiss franc) has been the worst performing losing about -1%, reflecting the shift away from the dollar-debasement trade, with Warsh seen as a credible pick and one who is likely to defend the independence of the Fed. EUR declined below the 1.18 mark (-0.52 to 1.1781) with JPY falling by a similar amount.

USD/JPY now looks comfortable above 155 with JPY not helped but PM Takaichi comments on Saturday noting the weaker yen can be a huge opportunity for export industries. 

Following Friday’s report there was no official intervention when USD/JPY was trading up towards 160, some speculators might be willing to reload short yen positions in anticipation of a retest of that level.

Relative to other G10 pairs, the AUD has been quite resilient against a backdrop of a broadly strong USD, the pair traded down to a low of 0.6909 overnight and recovering to 0.6946 where it currently traded. 

NAB expects the RBA to raise the cash rate by 25bp this afternoon, followed by another increase in May, which would reflect a modest recalibration of policy.

The RBA is likely to remain concerned about capacity pressures and uncertain about how restrictive current settings are.

We don’t expect the Board will seek to shape firm expectations of the forward path, leaving the door open to some further adjustment while remaining data dependent.

ANZ Australian Morning Focus, Commodities extract

The selloff in the precious metals continued as traders unwind bullish bets.

Spot gold was down more than -10% at the height of the sell-off. A record wave of purchases of call options, which gives holders the right to buy at a predetermined price, set the scene for the selloff. As prices fell, dealers have opted to sell hedges.

However, the bulk of that unwind may be done, with gold recovering later in the session to end the day down only -1%. Further stabilisation will be determined by the mentality of the retail market. Physical demand from this sector has been strong in recent months and could provide a strong backdrop to the selling from leveraged trades in the institutional market.

Fundamentals remain strong. Central bank gold purchases should be strong amid strained international relations, while concerns about Fed independence and rising risk premiums on US assets may add volatility that supports investment demand for gold through 2026.

The heavy selling in the precious metal sector continued to spill over into the base metals market, with copper down as much as -5.7% in Asian trading.

However, copper pared back some of those losses on signs of buying from Chinese consumers. Manufacturers, who had been absent from the recent rally, emerged to from the sidelines to buy copper at lower prices to help restocking inventories ahead of the Lunar New Year holiday. That is despite economic data showing factory activity remains weak.

China’s official manufacturing purchasing index for January fell to 49.3, below the 50 threshold, separating expansion from contraction. The China Federation of Logistics & Purchasing attributed the slowdown to colder weather and demand being pulled forward late last year as firms rushed to meet annual targets.

The broader macro picture was also positive. India and the US reached a trade agreement that cuts the tariffs on Indian goods to 18% from 25%. US manufacturing activity also unexpectedly expanded in January, with the ISM index rising to 52.6.

Crude oil extended recent losses as geopolitical tensions continue to ease. President Trump downplayed threats from Iran’s supreme leader, Ayatollah Ali Khamenei, of a regional war, reiterating he’s hopeful they’ll make a deal.

Iran’s foreign ministry said it hopes diplomatic efforts will avert a war. White House envoy, Steve Witkoff, and Iranian Foreign Minister, Abba Araghchi, are set to meet in Istanbul on Friday.

Crude oil felt the impact of investors retreating from the sector amid the heavy selling in the precious and base metal markets. This was exacerbated by a stronger USD, which weighed on investor appetite. The threat of further headwinds on Russian crude exports also eased following the US-India trade deal.

As part of the deal, Trump said he will remove that additional 25% tariffs he applied in response to India’s purchases of crude from Russia. This could trigger more buying from Indian refiners.

Global gas markets were also under pressure amid signs of weaker demand. North Asia LNG prices fell on the prospect of above average temperatures weighing on heating demand.

In Japan, such conditions are expected in Tokyo and the wider Kanto-Koshin region. Nationwide temperatures across China are set to be mild, broadly trending seasonal to above normal through mid-February, according to data from Atmospheric G2 and other weather models.

European gas futures posted their sharpest fall in two years as forecasts signalled milder weather in coming weeks.

Corporate news in Australia

-GE Vernova identified as possible buyer of Noja Power for $1bn

-Ausgrid’s $2.5bn sale of Plus ES smart metering unit is garnering interest from Macquarie Group ((MQG)), KKR, EQT private equity

-Aware Super has started the sale of Victoria’s $4bn land registry Serv

-NRMA considers sale of Manly Fast Ferry for $100m deal

-Greencross moves closer to IPO with investor site visits

-PYC Therapeutics ((PYC)) is raising $653m to move forward with RNA therapies

-Regis Resources ((RRL)) revisits McPhillamys gold project with a new plan to address heritage issues

-TPG Telecom ((TPG)) and Telstra Group ((TLS)) lose market share as cheaper positioned rivals increase theirs

On the calendar today:

-AU Dec Dwelling Approvals

-AU RBA Cash Rate/SMP

-AROA BIOSURGERY LIMITED ((ARX)) Investor Webinar

-CREDIT CORP GROUP LIMITED ((CCP)) 1H26 Earnings

-PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED ((PNI)) 1H26 Earnings

-SYNTARA LIMITED ((SNT)) Investor Update

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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