The Overnight Report: Conflicting News Flows

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This story features REGAL PARTNERS LIMITED, and other companies.
For more info SHARE ANALYSIS: RPL
The company is included in ASX300 and ALL-ORDS

US markets ended off session highs and broadly flat overnight as mixed messages from the US Administration emerged around the Iranian war and the Strait of Hormuz.

After a positive rebound yesterday, ASX200 futures are pointing to another positive start.

Good Morning,

The Australian market rebounded on Tuesday, retracing some of the losses from previous sessions.

The ASX200 rose 93 points or 1.1% to 8,963.

Tech and miners led the rally, with energy stocks selling off on lower oil prices.

NAB Markets Today Research extract

The conflict in the Middle East continues but the fear which hit the investor community late last week and through the Asian session on Monday continues to ease.

There is no clear driver of the re-pricing in markets aside from sentiment which has seen the oil price retreat; equity markets rally; treasuries stabilise, the corporate bond market come alive again (with the biggest single day offering on record in the US IG market) while the Aussie dollar has rallied back strongly.

The risk on price action reflected in financial markets overnight has occurred even as US officials have signaled military operations have escalated with the US having had the most intense day of strikes.

This news challenges Trump’s earlier comments the conflict could be resolved soon.

In addition, guidance out of Israel and the US is showing a divergence around the endgame –- with President Trump having suggested the end is in sight while Israeli Prime Minister Netanyahu’s comments suggest he is not ready to de-escalate.

Country support is likely an influence on the divergence. A Reuters/Ipsos poll found just 27% of Americans approve of the campaign, while an Israel Democracy Institute survey found 82% of Jewish Israelis backed the attack. 

European officials are voicing their concerns around US and Israel’s plan with German Chancellor Merz saying overnight that “Above all, we’re concerned at the apparent lack of a joint plan on how this war can quickly be brought to a convincing conclusion”.

Expectations the G-7 will deploy oil reserves (if needed) continues to support investor sentiment with a further unwinding of the spike in the oil price overnight.

WTI oil and Brent prices are down close to -8% (but off the days lows). The executive director of the IEA (which oversees the use of OECD oil reserves) said overnight IEA member governments will “assess the current security of supply and market conditions to inform a subsequent decision on whether to make emergency stocks of IEA countries available.”

In other news there was a headline that a US Navy ship had escorted an oil tanker through the Strait of Hormuz, but the Whitehouse later confirmed this was not the case.

Dampening sentiment late in the session and resulting in the oil price moving off the days lows was a headline that “US intelligence assets have begun to see indications Iran is taking steps to deploy mines in the Strait of Hormuz shipping lane”.

While second tier data releases are not front of mind for investors at present, US data releases overnight included NFIB small business optimism report and US Existing home sales.

For the NFIB survey, Pantheon notes the results need to be taken with caution/skepticism given just 428 companies responded which is down from 509 earlier in the year. That said, the index fell from 99.3 in January to 98.8 in February.

Borrowing costs are a burden while the uncertainty level remains high with the proportion of businesses answering “don’t know” or “uncertain” to six key questions in the survey remains in the top 10% of all past readings since 1986.

Closer to home, the NAB Business survey for February (released on Tuesday) showed the gains in Business confidence seen over the past two months has been unwound with confidence falling -4pts (unrounded) in the month.

Business confidence is now in negative territory for the first time in almost a year — likely reflecting some caution in the wake of the February rate hike. Business conditions were flat in the month as a 1pt rise in trading conditions was offset by a -2pt fall in employment.

Capacity utilisation has remained elevated (with 6 out of 8 industries above average).

European bonds and Gilts played catch up overnight, rallying back as investors re-thought cash rate outlooks and US treasuries have stabilised.

Weighing on the treasury market late in the session was a weak 3-year offering with the dealer take up the highest in a year while the indirect take-up at 59.8% (which includes central bank demand) was well down on the 5-auction average (of 62.3%).

The bid-cover ratio was the lowest since August 2025. The auction also brought a rare tail –- 1.1bps with a 3.579% high yield versus 3.568% when-issued. This is the largest tail since the April 2025 3yr sale (where the tail was 2.4bp and occurred after Liberation Day).

Turning to currencies, the Aussie dollar is the top performer overnight with support coming from RBA deputy Governor Hauser where he presented a hawkish representation of recent labour market data and noted inflation was “directionally higher” than the RBA’s February forecast.

There remains a clear bias to further tightening with Hauser noting at next week’s RBA Monetary Policy Board meeting he thinks ‘there will be a very genuine debate’ .  The AU OIS curve prices 61% chance of a 25bps rate hike at next week’s meeting with cumulative 61bps of rate hikes priced by year end.

All up, we take Hauser’s comments as putting the market on notice it should not be surprised if the RBA decides to raise rates next week.

The case for further tightening was already clear in the February staff forecasts, and Hauser’s comments on the recent data flow suggest they are assessing the recent data flow as supporting that assessment.

If concern about renewed upside risks to inflation dominate elevated uncertainty, the Board may conclude the case to square up the risks on the domestic backdrop in March is compelling.

The risk to this strategy is that global developments in the next few months render a cash rate of 4.1% as no longer appropriate as downside risks to global growth are realised. This misalignment can be remedied quickly, and thus the policy of least regret may be to hike sooner rather than later.

NAB’s view remains for a rate hike in May, with the risk skewed to an additional hike in H2 2026. However, we acknowledge the risk the RBA tightens as soon as the March meeting. Ultimately, the direction of travel is clear, but the timing is up for debate.

Equity markets are mixed. Given price action last week it is no surprise to see European stocks rallying back stronger than US equities. The EuroStoxx is up 2%, FTSE 100 up 1.6% while US stocks are largely unchanged (retracing earlier gains).

Credit spreads are also mixed with US IG CDX and cash spreads largely unchanged while Euro Main is down -3.8bps. After a quiet couple of sessions, corporate issuance re-emerged overnight. There were around 10 borrowers raising around EUR27 billion of bonds in the European market –- making it the busiest session since early February (issuers included the European Union and the UK’s DMO).

In the US, Amazon’s US$37bn 11yr tranche offering led a flood of 11 issuers in the IG primary market totaling US$65.75bn — the biggest single day offering on record.

The Amazon deal is the fourth largest high grade bond sale on record and the second highest peak order book at US$126bn.

Markets pricing end of Iran war before it happens, Nigel Green, deVere extract

Markets are already beginning to trade as if the Iran conflict will de-escalate, even though there is no formal resolution yet.

Oil prices slipped back below US$90 a barrel, from US$120 at its peak, after comments from US President Donald Trump suggesting the war with Iran could end “very soon,” although he indicated to reporters the conflict would likely continue beyond the coming week. 

The shift in sentiment rippled quickly across global markets. 

US stocks closed higher, with the S&P 500 and Nasdaq both gaining ground as investors moved back into risk assets on Monday.

Asian markets followed the move in early trading, with major indices in Japan, South Korea and Hong Kong rebounding after several sessions of caution driven by conflict fears.

The reaction across asset classes suggests investors are already positioning for a cooling of tensions in the Middle East, even though there has been no diplomatic breakthrough and fighting rhetoric continues on both sides.

Markets are beginning to trade the end of the conflict before it has actually happened. Financial markets are extremely forward-looking but, in situations like this, they can move ahead of geopolitical reality.

Energy markets, in particular, have been highly sensitive to the conflict because of Iran’s central role in global oil supply. Iran produces roughly 3.2 million barrels of oil per day and sits close to the Strait of Hormuz, the narrow shipping corridor through which around 20% of the world’s oil consumption passes.

Any threat to that route drives rapid spikes in crude prices. Earlier stages of the conflict pushed traders to price in the risk of supply disruption, lifting Brent by more than 12% in a matter of days before the latest reversal.

The speed of the price swing illustrates how quickly geopolitical risk premiums can build and disappear in modern energy markets.

The market response also shows how political signalling now plays a powerful role in shaping investor expectations. A single set of comments from the US president was enough to send oil sharply lower and equities higher. Markets interpret political messaging almost instantly, often adjusting prices well before the underlying situation has materially changed.

However, the strategic outlook remains uncertain.

Investors could also be underestimating the significance of a major political shift inside Iran.

Markets may be underestimating the influence and decision-making approach of Iran’s new Supreme Leader, Mojtaba Khamenei, and his willingness for a longer war to drain American financial and military resource, and those of its allies.

Leadership transitions inside the Iranian system can reshape strategic thinking, military priorities and diplomatic positioning, and the global investment community has limited experience of how the new Iranian leadership will respond moving forward.

The Supreme Leader holds ultimate authority over Iran’s armed forces and the Islamic Revolutionary Guard Corps, meaning key decisions around escalation or restraint flow directly through that office.

Uncertainty surrounding the new leadership structure introduces an additional variable that markets may not yet be fully pricing.

Whatever happens next in this conflict, the global environment has become significantly more unstable and more volatile in a short period of time, and markets might currently be leaning toward a de-escalation scenario, but investors need to remember how quickly geopolitical realities can change.

Algorithmic trading systems and high-speed information flows mean geopolitical developments now feed directly into asset pricing within minutes.

The reality is that markets often move first and verify later and current price action suggests investors believe the worst escalation risks are limited. 

However, if events unfold differently, markets would be forced to reassess those assumptions very quickly.

Yann LeCun’s $1 Billion Bet Against ChatGPT, Shelly Palmer extract

Greetings from New York. Yann LeCun just raised US$1.03 billion for AMI Labs to build “world models” instead of large language models.

The Turing Prize winner left Meta to pursue AI that learns from reality rather than text patterns. His new company landed a US$3.5 billion pre-money valuation betting against the entire generative AI playbook.

LeCun’s co-founder Alexandre LeBrun admits this could take years to commercialize. No product in three months, no revenue in six months, no US$10 million ARR in twelve months. That timeline puts AMI Labs completely at odds with the venture capital model that has funded almost every other AI startup.

World models sound like a probable future for AI. Instead of predicting the next word in a sentence, a world model would predict how the world actually works.

Said differently, a world model would “understand” causality instead of just correlation. I put understand in quotes because I don’t have a good way to define (or personally understand) how an AI model will understand or even if they ever can understand the way humans do.

I love this journey, but the tech also terrifies me. I keep asking myself what scares me more: a future where AI fundamentally misunderstands how the world works, or a future where it actually understands the world completely. Both scenarios have kept me awake recently.

LeBrun predicts “world models” will become the next buzzword within six months. Every AI company will rebrand itself around world modeling to chase funding. The distinction between real world modeling and marketing world modeling will matter enormously.

LeCun has been arguing against the current LLM approach for years. Now he has US$1.03 billion to prove his alternative works. The success or failure of AMI Labs will determine whether the entire AI industry has been heading in the wrong direction.

Corporate news in Australia:

-Regal Partners ((RPL)) is pursuing M&A opportunities and is targeting Roc Partners’ private credit unit

-I Squared Capital has appointed Azure Capital to run a sale process for Octa

-Brookfield is seeking buyers for Ausco Modular, a business generating about $500m in annual revenue, as it looks to reduce debt at the parent level

-Wesfarmers ((WES)) has been accused of blocking the sale of Infinity Pharmacy Group, which has pushed the business into receivership

Imugene ((IMU)) has raised $20m to support development of its donor-derived CAR-T therapy, azer-cel

-Short interest increased in Wagners Holding ((WGN)) ahead of a sell-down by the Wagner family

-Raagulan Pathy is building an Australian fintech with plans to enter the US crypto payments market

-Partners for Growth has launched a $250m fund targeting later-stage Australian technology companies

-Mercer has decided not to pursue Colonial First State as the wealth manager explores a sale worth more than $5bn

-TPG Capital’s sale of Made Group is attracting strong interest, with Danone and Kirin leading the bidding

-SGH Ltd ((SGH)) is targeting Bingo Industries, highlighting potential synergies with Boral

-UBS is testing private equity interest in imaging provider Qscan ahead of a potential $1bn sale process expected in about six months, which could overlap with the planned $3bn IPO of I-Med

On the calendar today:

-JP Feb PPI

-US Feb CPI

-BREVILLE GROUP LIMITED ((BRG)) ex-div 19.00c (100%)

-BHAGWAN MARINE LIMITED ((BWN)) ex-div 0.50c (100%)

-BRAMBLES LIMITED ((BXB)) ex-div 32.74c (20%)

-CUE ENERGY RESOURCES LIMITED ((CUE)) ex-div 0.25c

-CUE ENERGY RESOURCES LIMITED ((CUE)) ex-div 0.25c

-CLEANAWAY WASTE MANAGEMENT LIMITED ((CWY)) ex-div 3.35c (100%)

-FINBAR GROUP LIMITED ((FRI)) ex-div 2.50c (100%)

-IVE GROUP LIMITED ((IGL)) ex-div 9.50c (100%)

-IMDEX LIMITED ((IMD)) ex-div 1.69c (100%)

-KIP MCGRATH EDUCATION CENTRES LIMITED ((KME)) ex-div 1.00c (100%)

-NAOS EX-50 OPPORTUNITIES CO. LIMITED ((NAC)) ex-div 1.60c (100%)

-PANTORO GOLD LIMITED ((PNR)) earnings report

-PEET LIMITED ((PPC)) ex-div 6.50c (100%)

-TASMEA LIMITED ((TEA)) ex-div 6.00c (100%)

-VULCAN STEEL LIMITED ((VSL)) ex-div 2.13c

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

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