The Overnight Report: All Quiet Overnight

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

With US, Canada, Brazil and some key Asian markets closed overnight, it was a quiet session with European markets easing slightly and the gold price slipping below US$5,000/oz.

After a bounce yesterday, ASX200 futures are pointing to a positive start with the Big Australian, BHP Group ((BHP)), reporting earnings today.

Good Morning,

The Australian market rose 0.2% to 8,927.20, boosted by gold stocks and a recovery rally in technology, while banks eased back.

What happened overnight, NAB Markets Today extract

It was quiet overnight session with muted moves on markets due to holidays in the US, Canada, Brazil and in key Asian markets. Data releases were limited to European Industrial Production, which fell -1.4% in December and in the Asian session yesterday, Japanese 4Q GDP, which rose 0.1% (weaker than expected).

The latest Bank of America fund manager survey showed positioning in the US dollar was the most negative since at least 2012, when the survey began.

Negative sentiment is consistent with that seen in the options market, where pricing of risk reversals reflect more demand for puts than calls on the USD against various majors. 

While widespread anecdotal evidence shows investors are more inclined to hedge USD exposure than previously. The DXY index is down around -15% from its peak in 2022; a reasonable correction but not enough to deter investors from sticking with the firm consensus expectation of further weakness in the USD in the year ahead.

In FX markets, the Japanese Yen fell -0.5% against the USD. The market has likely assumed that softer GDP data in 4Q will encourage PM Takaichi’s plans to offer additional fiscal support and reduce the sales tax on food.

Pricing for BoJ rate hikes nudged a little lower post the GDP data, with only 4bps priced for the March meeting and 16bps priced for April.

Elsewhere in currency markets, moves were very modest. The AUD/USD is down -0.2%, dipping below the 0.7080 level early this morning, while the NZD/USD is largely unchanged. EUR has drifted lower overnight, down -0.1% against the USD.

Equity markets were mixed overnight; in Europe the EuroStoxx50 was down -0.1% while the FTSE100 rose 0.3%. The German DAX was a notable under-performer, down -0.5%.

Sovereign bond markets were largely unchanged overnight; UK 10Y gilt yields declined -1.6bp while moves were minimal elsewhere in Europe.

The cash market for US Treasuries was closed overnight, but 10Y UST futures finished the session marginally higher in price. 

AUD 10Y Bond futures traded a tight 2bp range overnight and are little changed relative to the close yesterday.

ANZ Bank Australian Morning Focus, Commodity Update extract

Crude oil prices edged higher after reports of Iran conducting naval drills near the Strait of Hormuz, increasing supply flows risks.

The passage accounts for about 20% of global oil shipments. President Trump announced on Friday that regime change is his preferred outcome for Iran, ramping up pressure on Tehran ahead of upcoming talks in Geneva.

The market remains unsettled by geopolitical uncertainties, with investors cautious due to the pending US-Iran and Ukraine negotiations this week. Speculative positions have been increasing in recent weeks.

If tension in the Middle East eases or meaningful progress is made on the Ukraine war, the risk premium currently built into oil prices could swiftly unwind. However, any negative outcome or further escalation could prove to be bullish for the oil market, as this could narrow the market balance for the year.

Saudi Arabia’s crude sales to China for loading in March rose to 56–57mt against 48mt last month after the kingdom reduced its selling price.

European natural gas fell as forecasts for milder weather pointed to easing demand pressure, with the heating season nearing to end. Supply outages in Norway did not have much impact on prices. Norway’s Ormen Lange gas field will operate at reduced capacity due to a compressor failure, with the outage lasting longer than expected.

Maintenance at the Gullfaks field is planned, further constraining northwest European gas flows and technical capacity in the coming weeks. Europe’s storage levels are below 34% full, the lowest since the crisis in 2022.

Depleted inventories keep prices vulnerable to any supply disruptions.

Gold prices failed to hold above US$5,000/oz, with renewed strength in the USD dampening sentiment and lower yields offering little relief. The recent crackdown on speculative trading in China’s precious metals sector has heightened concerns regarding futures positions.

Both silver and gold have declined in trading volumes, and the market currently lacks clear direction as it remains closed for the Lunar New Year.

Nevertheless, wholesale demand remained robust ahead of the spring holidays, and the latest price pullback is likely to trigger further pent-up demand for gold. As expected, India’s gold imports surged in January as buyers moved to secure supplies in anticipation of import duty hike in the 2026-27 budget.

Industrial metals started the week on a weaker note, with both US and China markets closed. Copper prices trade below US$13,000/t amid weakening demand due to higher prices. Inventories are replenishing after large draw downs since last year due to fears of US import tariffs, with total exchange inventories rising to 1mt, the highest since 2003.

Aluminium prices stabilised after Friday’s price drop after Trump confirmed he is narrowing the scope of US import tariffs on metals. He plans to roll back levies on aluminium and steel on concerns that the duties are hurting consumers.

He raised tariffs on steel and aluminium to 50% in June 2025. Speculative positions have decreased from recent highs, as supply worries prompted the establishment of new long positions.

AI is Speed Skating on Ice, Yardeni Quicktakes extract

Technological innovations tend to be disruptive and dynamic. That’s especially true with AI, which has the potential to disrupt itself, as evidenced by its ability to write software code, including AI code.

So it can feed on itself, with the new code eating the old, making it obsolete very quickly. The pace of obsolescence seems to be moving at warp speed for both AI hardware and software, particularly the LLMs. That pace has recently spooked investors who’ve been selling the stocks of any company that might be negatively disrupted by AI. 

The first casualty so far this year has been the software industry’s stocks. The iShares Expanded Technology-Software (IGV) is down -24.6% ytd. Last week, investors started to cherry-pick among some of the beaten-up stocks in search of the companies that might benefit from AI rather than be destroyed by it.

Investors also last week continued to pummel the S&P500 sectors that might be adversely affected by AI and flock to those that seem most immune to disruptive AI. 

So there has been a significant rotation in the stock market away from sectors representing less certain bets on the virtual world back to those representing the more predictable physical world, i.e., the S&P500’s Energy, Materials, Consumer Staples, Industrials, Real Estate, and Health Care sectors.

Investors are rotating among sectors of the stock market rather than moving from stocks to cash. That’s because the earnings outlook remains strong. Industry analysts have continued to raise their earnings-per-share estimates for 2027, which hit a record US$363.27 last week.

The bull market in the S&P500 began to broaden during the second half of last year as industry analysts grew increasingly bullish on the earnings outlook for the S&P500’s Impressive-493 while maintaining their optimism about the Magnificent-7.

The rotation from the former to the latter accelerated since late October 2025 as investors lost confidence in their own ability to call the winners and losers in the AI marathon.

The broadening of the bull market in stocks has been supported by increases in the percentages of S&P500 companies with positive 12-month percent changes in forward revenues and forward earnings to 83.5% and 80.3%, respectively.

The S&P500’s Magnificent-7 have continued to underperform the S&P500’s Impressive-493 since late October 2025, when investors became increasingly concerned the former’s AI arms race was forcing them to spend too much on AI infrastructure.

In the past, the stock market often became increasingly concentrated in a few names during bull markets and less so following bear markets.

Will this time be different? We think so. The bull market should remain strong as it broadens.

Meanwhile, the US MSCI continues to underperform the All Country World ex-US MSCI.

Japan’s MSCI continues to outperform the US MSCI now the new government has won a decisive majority in Parliament and is expected to proceed with a program of fiscal stimulus.

Also outperforming the US is the Emerging Markets MSCI, which has been boosted by very strong forward earnings projections, especially for South Korea and Taiwan.

These two countries export the GPUs and memory chips (“picks and shovels”) needed to expand AI capacity. Other emerging economies are benefiting from soaring commodity prices and expanding middle-class consumers.

Corporate news in Australia

-Generation Development Group ((GDG)) considers a takeover of Ironbark Asset Management

-Morgan Stanley Infrastructure has hired Rothschild for around $1bn sale of StraitNZ

-L1 Capital ((L1G)) is seeking a 19.9% stake in tin explorer Elementos ((ELT))

-KKR-owned John Laing has acquired a 49.9% stake in Melbourne Convention Centre

-Affinda raises $25m with backing from Paul Little with the valuation rising to $220m

-Kapstream targets $300m via an ASX listed trust as an alternative to bank hybrids

-Transgrid wants consumers to cover $1.1bn-$1.5bn transmission cost blowout

-EQT Partners is looking for a dual listing IPO for NZ$2.5bn Metlifecare

On the calendar today:

-AU RBA Feb Meeting Minutes

-UK Dec Qtr Unemployment

-BABY BUNTING GROUP LIMITED ((BBN)) 1H26 Earnings

-BHP GROUP LIMITED ((BHP)) 1H26 Earnings

-BRAVURA SOLUTIONS LIMITED ((BVS)) ex-div 4.46c

-BRAVURA SOLUTIONS LIMITED ((BVS)) ex-div 5.77c

-CHALLENGER LIMITED ((CGF)) 1H26 Earnings

-COMPUTERSHARE LIMITED ((CPU)) ex-div 55.00c (30%)

-DETERRA ROYALTIES LIMITED ((DRR)) 1H26 Earnings

-FLETCHER BUILDING LIMITED ((FBU)) earnings report

-HEALTHCO HEALTHCARE & WELLNESS REIT ((HCW)) 1H26 Earnings

-INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) ex-div 12.00c (25%)

-JUDO CAPITAL HOLDINGS LIMITED ((JDO)) 1H26 Earnings

-KINATICO LIMITED ((KYP)) 1H26 Earnings

-PRO MEDICUS LIMITED ((PME)) 1H26 earnings report

-QUALITAS LIMITED ((QAL)) earnings report

-QUALITAS REAL ESTATE INCOME FUND ((QRI)) 1H26 Earnings

-RELIANCE WORLDWIDE CORP. LIMITED ((RWC)) 1H26 Earnings

-SEEK LIMITED ((SEK)) 1H26 Earnings

-SIMS LIMITED ((SGM)) 1H26 Earnings

-SELECT HARVESTS LIMITED ((SHV)) AGM

-SRG GLOBAL LIMITED ((SRG)) 1H26 Earnings

-SRG GLOBAL LIMITED ((SRG)) earnings report

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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