The Overnight Report: Big Rebound Off Lows

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This story features FLETCHER BUILDING LIMITED, and other companies.
For more info SHARE ANALYSIS: FBU
The company is included in ASX200, ASX300 and ALL-ORDS

US markets recounded off intraday lows with technology stocks finding buying support, led buy bottom fishing in Nvidia post last week's sell off.

The Australian market finished flat on Monday, supported by energy and gold mining stocks.

ASX200 futures are pointing to a weaker start as tensions around the Middle East conflict rumble on.

Good Morning,

The Australian share market recovered from early losses on Monday.

The ASX200 added 2 points to 9,201 with four out of eleven sectors rising led by energy, gold miners, while technology was the weakest.

NAB Markets Today Research

There are significant unknowns around the duration of this conflict, the impact on energy prices and supply, alongside the severe human cost for Iran and potentially the wider region.

A key risk is the US’s ability to negotiate with a new Iranian leadership after the loss of senior figures, raising questions about Iran’s political cohesion and whether economic pragmatism can prevail over theological driven views.

The market is grappling with the Trump Scenario “All will be over in around four weeks” vs an alternative of a protracted conflict where an Iranian regime splints into different groups, making it hard to negotiate a truce with alongside an increase in disruption of energy supply through the Straight of Hormuz.

A couple of observations from the above. A spike in energy prices creates a dilemma for Central Banks, stagflation makes central banks very uncomfortable, a longer lasting energy shock is inflationary and at the same time it weakness growth.

When in doubt, best course of action is to wait and we are seeing a bit of that in terms of CB’s pricing expectations. More on that below.

For currencies, higher oil prices now tend to support the USD given the US’s status as a net energy exporter, reinforcing safe-haven flows. Persistently higher energy prices would be a clear negative for energy-dependent economies, notably Europe and Japan, implying downside risks for the EUR and JPY.

Our economists noted yesterday that Australia is relatively better placed given its status as a net energy exporter, with higher energy prices boosting government revenues and household incomes, though cost pass-through can be immediate.

As a result, the AUD should be more resilient than peers like the EUR and JPY, even if it underperforms the USD; the bigger risk for the AUD would come from a broader downgrade to global growth if high oil prices persist.

Looking at markets, core global yields have ended the day higher, but when we look at US Treasuries’ price action it has been a rollercoaster ride. Our Monday open was dominated by risk aversion and uncertainty. 10y UST yields traded down to a low of 3.92% early in the Eurpean session, a decline that started during our trading day, but then market attention shifted towards the supply of energy and evolving news form the conflict.

The Strait of Hormuz, which carries about 20% of oil and gas supplies, remains effectively closed as insurance companies won’t cover ships passing through, due to the risk of military attacks. Operations were paused at Saudi Arabia’s largest oil refinery after a drone strike.

Qatar suspended LNG production at the world’s largest export facility, which covers about 20% of global supply, after it was targeted in an Iranian drone attack. European gas futures rose over 50% and have since settled about 40% higher from last week’s close.

The duration of the shutdown is unknown. A Qatari assessment shared with Bloomberg warned that if shipping lanes in the region remain severely disrupted by the middle of this week, they would expect to see a more significant gas price reaction.

My BNZ colleague, Jason Wong notes that in media interviews, President Trump said he expected the military operation to last about four to five weeks if necessary and called on Iran’s generals to either hand power to the nation’s people or embrace a model similar to Venezuela.

Iran’s security chief said Tehran won’t negotiate with the US. Trump told CNN we haven’t even started hitting them hard…the big wave hasn’t even happened…the big one is coming soon”. In the last hour, Trump has been talking to reporters and regarding the timeline he said we’ll do “whatever it takes”, noting that US has the capability to go far longer than the four to five weeks noted.

Bloomberg reported the UAE and Qatar are private lobbying allies to help them persuade President Trump to reach for an offramp that would keep US military operations against Iran short.

Back to the move in yields, from an initial safe haven bid, the overnight session sees the market reassessing the inflationary impact from the risk of an enduring disruption to energy prices. 10Y UST are now trading at 4.046% with the curve showing an upward shift.

Relative to our Sydney close levels, 2y UST are 10bps higher at 3.49% and 10y UST are 9bps higher while the 2y10y UST Curve is 1bps flatter. . Adding to upside pressure, the US ISM manufacturing index fell by only -0.2pts to 52.4 in February, following the surge in January, leaving the index near a 3½ year high, stronger than expected.

The prices paid index surged 11.5pts to 70.5, likely reflecting the sharp lift in oil prices earlier this year.

Earlier in Europe, 10y UK gilts closed 14bps higher at 4.37% and 10y Bunds are 7bps higher at 2.71%. AU bond futures are -8.5 lower at 95.72 and 95.27 respectively.

As for Central Bank pricing, looking at the end of 2026 expectations the market has pared Fed and BoE rate cut expectations by -10bps and -15bps respectively, Fed now seein easing -50bps while the BoE is seeing easing -38bps. 

RBA rate hike expectations, now seen at 30bps vs 33 previously. When in doubt, best to seat on the sidelines.

Most Asian and European equity markets closed lower, with Japan’s Nikkei down -1.3% and the Euro Stoxx 600 index down -1.6%. The US S&P500 opened down -1.2% but the fall faded and now shows small gains (+0.18%), with the Nasdaq index up 0.12%% as IT stocks outperform.

In currency markets, the USD is broadly stronger, with the DXY index up 0.96% for the day, while other USD indices are up 0.5-0.7%. While some of this reflects a safe-haven (energy safety ) bid, it also likely reflects a closing of large short USD positions that have built up, given the tendency for traders to trim positions when uncertainty increases.

CAD and AUD have shown some of the smallest falls against the USD being least affected by the impact of higher oil and gas prices. The AUD is down -0.5% from last week’s close at 0.7077 and after trading to an intrady day low of 0.7032 late in our session yesterday. 

The NZD is down about -1% from last week’s close at 0.59356 after trading below 0.5920 overnight.

JPY didn’t attract any safe-haven flows, given Japan’s high import exposure to oil and gas. USD/JPY is up 0.9% to 157.40.

Geopolitical risks flaring up, Benoit Anne, MFS Asset Management, extract

Geopolitical risks escalating in the near term. We have already seen a number of geopolitical crises so far this year, with Venezuela and Greenland among others, but the latest developments in the Middle East, following the Israel-US attack on Iran seem to represent a major escalation.

The US’s stated objective is to trigger a regime change in Iran, but for now it is too soon to give that outcome a high probability of occurring. In the very near term, risky assets are likely to be impacted, and some caution is warranted. At time of writing, the oil price had spiked by about 8%, paring some of its gain overnight.

 It is also worth noting the US Treasury market does not seem to act as a safe haven with the 10yr rates up by 3 bp for now, in contrast to the historical pattern. 

Likewise, the USD is strengthening, but only marginally. One of the key items to watch for in the period ahead in order to assess the global impact of the conflict includes the timing of the potential reopening of the Strait of Hormuz, a route that typically covers about 20% of global oil transportation.

A prolonged closure of the Strait would cause major disruption, with negative repercussions for the global economy (more on that below). We will also be watching for signs of diplomatic efforts and negotiations as well as the intensity of the Iranian strikes as part of their retaliation.

While it is generally difficult to hedge geopolitical risks ex ante, the latest developments reinforce the case for global diversification. In our view, a mix of asset classes, geographies, currency exposures and sectors, combined with a focus on risk management, is probably the best approach to navigating this global market complexity. 

Headlines suggest geopolitics should dominate markets; history suggests otherwise. Periods of geopolitical stress inevitably command attention, but market history suggests a clear pattern: geopolitical events rarely translate into lasting equity weakness unless they disrupt economic fundamentals.

Markets are not designed to absorb every global development. They are mechanisms for weighing which balance sheets matter, which earnings streams are exposed, and how those risks compare with what investors already expect. That context is critical when assessing current tensions across the Middle East.

The region’s relevance to markets lies in energy transmission, not geopolitics itself. Roughly one-fifth of global oil supply, a quarter of LNG flows, and around a third of global naphtha exports move through the Strait of Hormuz.

Even without a formal closure, heightened operational caution, withdrawal of shipping insurance and confirmed vessel incidents can meaningfully disrupt flows. From a market perspective, attention is narrowing to a small set of risks that genuinely matter: whether disruption through Hormuz becomes persistent; whether regional upstream energy infrastructure is targeted; and how long uncertainty lingers.

Time is the critical variable. Short-lived disruption can be absorbed through inventories, rerouting and price signals. Prolonged disruption cannot. The most relevant precedent remains 2022, when supply concerns following Russia’s invasion of Ukraine were validated by sanctions and import bans.

Oil prices peaked near US$127,  inflation accelerated, bond yields rose and equity outcomes diverged sharply. In that environment, Energy, Materials and Industrials proved more resilient, while Consumer Discretionary segments struggled. Importantly, today’s backdrop differs meaningfully from the 1970s.

The global energy system now operates with larger strategic reserves, more diversified supply and, crucially, OPEC incentives aligned toward stabilising flows rather than enforcing embargoes.

This does not remove risk, but it alters its character. The equity bear case linked to recent events is therefore narrow and specific: a sustained rise in oil prices that feeds inflation, constrains policy flexibility and shortens the business cycle.

Absent that, history suggests markets are likely to look through the noise (contribution from Ross Cartwright, Lead Strategist – Strategy and Insights Group). 

Corporate news in Australia

-Realm Investment Management has $80m exposure to UK, Market Financial Solutions

-Blackstone has appointed Goldman Sachs to run a $1bn sale process for clinical trials group Nucleus Network.

-Fletcher Building ((FBU)) is being considered in a potential $3.2bn takeover approach from Heidelberg Materials and CRH following its restructuring.

-Unified Capital managed the Wagner family’s $4.40-a-share block trade to institutional fund managers.

-Canva’s reported gender pay gap has widened to 27% following its $1.6bn employee share sale.

-Permira has appointed a board for a potential I-MED IPO as healthcare assets including Greencross and Nucleus Network are assessed for sale.

-ING has paused new superannuation sign-ups amid suspicious activity and cybersecurity concerns.

-Apple is preparing touchscreen Mac models expected to incorporate an iPhone-style dynamic island feature.

-Research suggests upgrading Australia’s market technology infrastructure could add up to $24bn annually to the economy.

-PwC Australia has the smallest gender pay gap among the Big Four firms, with a 6% gap in favour of men.

-Westpac ((WBC)) has commenced migrating business banking clients from St George, BankSA and Bank of Melbourne onto its core platform.

On the calendar today:

-AU 4Q Balance Of Payment

-AU 4Q Govt Finance

-AU Jan Dwelling Approvals

-AU RBA Bullock Speaks

-JP Jan Unemployment

-EZ Flash Feb Inflation

-LIFE360 INC ((360)) FY25 Earnings

-ACCENT GROUP LIMITED ((AX1)) ex-div 3.25c (100%)

-BELL FINANCIAL GROUP LIMITED ((BFG)) ex-div 6.50c (100%)

-CUSCAL LIMITED ((CCL)) ex-div 4.50c (100%)

-CAPRICORN METALS LIMITED ((CMM)) EGM

-CAPSTONE COPPER CORP. ((CSC)) FY25 Earnings

-DICKER DATA LIMITED ((DDR)) ex-div 11.50c (100%)

-DOWNER EDI LIMITED ((DOW)) ex-div 12.90c (100%)

-EVOLUTION MINING LIMITED ((EVN)) ex-div 20.00c (100%)

-HMC CAPITAL LIMITED ((HMC)) ex-div 6.00c (16%)

-JUMBO INTERACTIVE LIMITED ((JIN)) ex-div 12.00c (100%)

-NEXGEN ENERGY LIMITED ((NXG)) earnings report

-PROPEL FUNERAL PARTNERS LIMITED ((PFP)) ex-div 7.50c (100%)

-QUALITAS LIMITED ((QAL)) ex-div 3.50c (100%)

-QUBE HOLDINGS LIMITED ((QUB)) ex-div 5.35c

-REDOX LIMITED ((RDX)) ex-div 6.50c (100%)

-REA GROUP LIMITED ((REA)) ex-div 124c (100%)

-SIMS LIMITED ((SGM)) ex-div 14.00c (100%)

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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