The Overnight Report: US, Iran Tensions Rise

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US markets fell on Thursday, albeit closing off intraday lows, as US, Iranian tensions are growing and investors fretted over alternative asset manager Blue Owl.

The much anticipated US December PCE print is announced on Friday (EST).

After reaching a new 52-week high on Thursday, ASX200 futures are pointing to a weak start as more companies report earnings.

Good Morning,

The ASX200 hit a record 52-week high on Thursday following a fourth days of gain, up 79 points or 0.9% to close at 9,086.

Eight of eleven sectors rose, led by energy, with miners, banks and telcos boosting the index.

Consumer discretionary and property lagged.

Following hot on the heels of a cracker result released by BHP Group, Rio Tinto ((RIO)) released a slightly better-than-forecast result overnight with dividend payout upped to 60%.

Today’s calendar includes financial result updates by the likes of ANZ Bank ((ANZ)), Mineral Resources ((MIN)), Megaport ((MP1)), QBE Insurance ((QBE)), PLS Group ((PLS)), and Newmont Corp ((NEM)).

FNArena’s Corporate Results Monitor: https://fnarena.com/index.php/reporting_season/

What happened overnight, NAB Markets Today extract

It has been a mixed session for financial markets as the uncertain geo-political backdrop continues to dampen risk sentiment.

On the geo-political backdrop, news reports confirm the US military deployment of aircraft carriers, jets and refuelling tankers in the Middle East is the largest deployment of forces the US has done since the military buildup in 2003, ahead of the invasion of Iraq. 

White House press secretary Karoline Leavitt said Iran was expected to offer a response to the negotiations within “the next couple of weeks,”. President Trump has said he will decide in the next 10 days if the US strikes Iran or does a deal. 

While financial markets remain relatively calm amidst the uncertainty around US-Iran relations, price action suggests investors are reluctant to trade the evolving macro backdrop whilst these tensions prevail.

In terms of the macro-outlook, yesterday’s Australian employment report surprised with the unemployment rate holding steady at 4.1% (4.08% unrounded) versus expectations of a lift to 4.2%. 

Employment growth was a touch lower than expected at 18k. The trend decline in the unemployment rate in the past couple of months is seen to bring this indicator more in to line with other indicators which show some ongoing capacity constraints/pressures, supporting the RBA’s shift in policy stance. 

In the US, on average US data continues to surprise to the upside, as reflected in the US data surprise index which has been heading higher since late last year. Data releases overnight included weekly jobless claims, pending home sales and a regional business survey. 

Jobless claims came in at 206k in the week ending Feb 14, from 229k in the previous week and versus expectations of 225k. The drop in claims suggests the recent rise was due to snowstorms. 

Overall, this report eases concerns around a weakening labour market and supports the view of Fed members expressed in the latest FOMC meeting minutes that downside risks to employment had moderated.

 Continuing claims edged a little higher in the week ended February 7, but this series remains fairly stable and suggests conditions are not deteriorating. Overall, the low hire/low fire theme holds.

The drop in US pending home sales is seen to be partly weather related.

Grabbing headlines was the widening in the US trade deficit in December to US$70.3bn (from US$53bn in November), taking the full year deficit to -US$901.5bn, and one of the largest since 1960.

The December deficit (which was much wider than consensus expectations) reflected a 3.6% rise in the value of imports (including computer accessories and cars) and a -1.7% decline in exports of goods and services (largely reflecting fewer shipments of gold (excluding gold exports, up 1%).

Goods imports reached a five-month high. This report suggests net trade could only contribute 0.1ppts to 4Q GDP and in response economists are lowering Q4 GDP expectations.

Turning to markets, Australian rates sold off (yields rose) in response to the stronger than expected Australian employment report. 3-year and 10-year futures ended Thursday’s session up around 7bps (in yield). 

The AU OIS curve ended the session pricing cumulative 22bps of rate hikes for the May meeting and a total of 40.5bs by year end. 

Into the employment release the market was pricing a cumulative 18.7bps for May and a total of 33.6bps by year end. 

Overnight Aussie futures have partially unwound yesterday’s sell-off (down -2bps), out-performing peers. US treasury yields led an earlier rise in global bond yields as US data surprised to the upside (US 10-year rose to 4.10%) but the sell-off has since been unwound as risk sentiment turned on the geo-political backdrop. 

In terms of Fed expectations, the US OIS curve still prices the risk of three -25bps rate cuts this year but expectations of a third cut are at around 25%, down from assigning a 50% probability late last week.

Equity markets are weaker overnight, opening lower and sustaining these loses amid a choppy session. Geo-political concerns have outweighed the positive US macro backdrop reflected in recent data, while Walmart’s cautious outlook also weighed on sentiment. Walmart’s full year earnings forecast was below consensus expectations, citing unpredictable times for consumers as a constraint.

Also weighing on sentiment was the decision by Blue Owl Capital to restrict withdrawals from one of its private credit funds. Investors in Blue Owl Capital Corp II will no longer be able to redeem shares on a quarterly basis. Instead, the fund will return capital through periodic distributions funded by loan repayments, asset sales or other transactions.

In commodity markets the focus has been on the oil price which has reached the highest intraday level since August amid rising concerns between US and Iran relations. West Texas oil rose to US$66.88 overnight while Brent reached US$72. 

Fuelling the near-term bullish tone in oil was the EIA report which showed that US crude stockpiles fell 9 million barrels, the largest drop since September. 

Wheat prices have risen to a three-month high amid uncertainty over the supply outlook as peace talks between Russian and Ukraine have halted while the US Department of Agriculture has forecast warm weather across the central and southern plains (which is where a large share of the US winter wheat crop is grown).

The Gold price broke back above US$5,000 earlier in the session and has held the gains.

Of bots and men, Investing in the age of AI, Sonal Desai, Franklin Templeton

Investment strategy is never easy, but we have started this year with a remarkable confluence of shifting factors: technological, economic and geopolitical. Understanding how they will play out and interact becomes crucial to asset allocation.

The artificial intelligence (AI) revolution and its potential impact is currently playing a dominant role in asset markets. It has the potential to reshape our economy and disrupt most industries, but it is subject to profound genuine uncertainty, and it moves at high speed. Even for nimble-footed financial investors, it’s hard to keep up.

Through most of last year, the main story was the massive investment to build AI models and capabilities. Investors quickly bid up the valuations of the companies providing the “picks and shovels” for the AI revolution: Nvidia and the tech giants developing AI models. 

More recently, however, the sheer size of debt issuance underpinning this AI investment wave is becoming an important concern for markets. The focus has also shifted to the companies and industries that might suffer from AI competition, like software. Here there is high uncertainty, and obvious risks of short-term over-reactions.

The focus on the potential losers comes partly from the fact that it’s hard so far to identify the companies and industries that can reap major efficiency gains thanks to AI. 

That’s because adoption of AI solutions at scale is likely to require more time. 

Companies need to identify the right AI models and solutions for their mission-critical areas; they will need to reorganize processes and operations and socialize the adoption. Adoption will also likely be uneven across both companies and industries.

As AI evolves at a faster pace, this will remain a fluid situation, but identifying the industries and companies likely to win or lose in the AI revolution is a key priority for asset allocation.

A second crucial factor is the differential distribution of investment opportunities across the world economy. Here the biggest structural story is the persistent rise of emerging markets. 

Over the past decade, and especially post-COVID-19, many emerging markets (EMs) have run prudent fiscal and monetary policies—in stark contrast with advanced economies. 

As a result, the EM asset class has already proved resilient to global macro disruption and should now find a more supportive macro environment in 2026. Therefore, on the EM sovereign side I see scope for some further spread tightening, as fiscal policies remain generally prudent and economic reform momentum continues.

Meanwhile, I think EM corporate debt is likely to trade range bound.

Europe looks attractive, but whether this is going to be just a cyclical story or turns into a structural one remains to be determined. 

In the near future, European economies should benefit from a revival of investment policies and defense spending. Geopolitics plays an important role, as European leaders have converged on the need to bolster the continent’s own defense capabilities. 

For this to turn into a structural story, however, European governments will need to tackle long-overdue structural reforms, including reforms related to public spending.

Rationalizing social safety nets seems indispensable to create the fiscal space for a prolonged public investment push. And simplifying regulations could go a long way toward unleashing the innovation and investment potential of the private sector.

On both fronts, Europe has consistently disappointed. Courtesy of geopolitics, there is somewhat greater hope that this time might be different.

I remain more bullish than consensus on the US economy. Households have demonstrated reliable resilience. The AI investment boom continues, and corporate investment seems to be broadening out from just AI. Productivity growth has accelerated.

Last, but not least, a new bout of fiscal stimulus should provide a boost in the first half of the year.

Fiscal policy, however, is also the main cause of caution for the longer term. The fiscal deficit is projected to remain at around 6% of gross domestic product (GDP) for years to come. With debt held by the public nearing 100% of GDP and upside risks to interest rates, this is the Achilles’ Heel of the US economy.

It can undermine confidence, puts upward pressure on funding costs, and raises the risk of a significant tax hike down the road.

The US dollar has remained under pressure on the back of its still-strong valuation and concerns about political polarization and the strength of US institutions, along with geopolitics. 

A more aggressive US foreign policy stance, which often relies on financial sanctions, has strengthened incentives for more countries to reduce their reliance on US dollar (USD) foreign currency (FX) reserves and on the dollar-dominated financial system.

There are limits to the extent any country can decouple from the dollar, which still has a dominant share in global FX reserves, financial flows and trade payments. But at the margin it does reduce the USD’s attractiveness.

Overall, therefore, I believe the macro and geopolitical environment will continue to favour some diversification outside the US in sovereign, corporate and currency exposure, with EMs offering some of the most interesting opportunities.

I would not take this case too far, however, given the lack of a credible alternative to the depth and liquidity of US asset markets, especially while they are supported by a robust growth story.

To close, I would also like to reiterate my view that inflation is likely to remain stubbornly above target; with growth robust and the labour market showing signs of stabilization, this suggests the Federal Reserve’s easing cycle has already come to an end.

Corporate news in Australia

-La Trobe is seeking $1bn-plus for IPO

-Wilson Group is seeking options for eleven self-storage units its owns or leases in Melbourne

-Ellerston Group is reported as buying Winnings Appliances

-Sharon AI continues to seek an ASX IPO with its prospectus expected in March

-Goldman Sachs will sell Seek’s ((SEK)) $2.3bn stake in Employment Hero

-CARe Automotive’s Jim Vais and Norman Moss acquire MotorOne Autobody’s 20 smash repair shops

-CC Capital tests buyers for Insignia’s ((IFL)) non-core assets amid pending acquisition approval

On the calendar today:

-US 4Q/2025 GDP (Advance)

-US Dec PCE Inflation

-AUSTAL LIMITED ((ASB)) earnings report

-ASX LIMITED ((ASX)) ex-div 101.80c (100%)

-BENDIGO & ADELAIDE BANK LIMITED ((BEN)) ex-div 30.00c (100%)

-BOOM LOGISTICS LIMITED ((BOL)) 1H26 Earnings

-BLUESCOPE STEEL LIMITED ((BSL)) ex-div 65.00c (100%)

-DIGICO INFRASTRUCTURE REIT ((DGT)) 1H26 Earnings

-GWA GROUP LIMITED ((GWA)) ex-div 8.00c (100%)

-GUZMAN Y GOMEZ LIMITED ((GYG)) 1H26 Earnings

-IGO LIMITED ((IGO)) earnings report

-INTELLIGENT MONITORING GROUP LIMITED ((IMB)) 1H26 Earnings

-INGHAMS GROUP LIMITED ((ING)) earnings report

-LATITUDE GROUP HOLDINGS LIMITED ((LFS)) 1H26 Earnings

-LGI LIMITED ((LGI)) 1H26 Earnings

-MACQUARIE TECHNOLOGY GROUP LIMITED ((MAQ)) 1H26 earnings report

-MINERAL RESOURCES LIMITED ((MIN)) 1H26 Earnings

-MEGAPORT LIMITED ((MP1)) 1H26 Earnings

-MYSTATE LIMITED ((MYS)) earnings report

-NEWMONT CORPORATION REGISTERED ((NEM)) FY25 Earnings

-NEURIZON THERAPEUTICS LIMITED ((NUZ)) General Meeting

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

-POLYNOVO LIMITED ((PNV)) 1H26 Earnings

-PERSEUS MINING LIMITED ((PRU)) 1H26 Earnings

-PETER WARREN AUTOMOTIVE HOLDINGS LIMITED ((PWR)) earnings report

-QBE INSURANCE GROUP LIMITED ((QBE)) FY25 Earnings

-QUBE HOLDINGS LIMITED ((QUB)) 1H26 Earnings

-RAMELIUS RESOURCES LIMITED ((RMS)) earnings report

-SILEX SYSTEMS LIMITED ((SLX)) earnings report

-TABCORP HOLDINGS LIMITED ((TAH)) earnings report

-TELIX PHARMACEUTICALS LIMITED ((TLX)) FY25 Earnings

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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