The Overnight Report: Cautious Optimism

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This story features WASHINGTON H. SOUL PATTINSON AND COMPANY LIMITED, and other companies.
For more info SHARE ANALYSIS: SOL
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

Markets are preparing for more positive signals from the fighting opponents in the Middle East war, allowing a softly supportive undertone for equities. The materials sector performed strongly overnight.

Good morning,

For right or for wrong but the two opponents attempting to engage with each other in the Middle East conflict is taken as a positive signal by financial markets.

Even though demands put forward on both sides are oceans apart from reaching any deal, at this stage.

After a big rally in yesterday’s session, SPI futures are suggesting moderate gains are likely for Thursday morning, following on from cautious optimism that has characterised financial markets overnight.

US indices pared gains, but closed higher. The current lead indicator, the price of oil, retreated slightly.

Yesterday, a lower-than-projected local CPI release was taken as a positive too, even though it can be just as easily dismissed as ‘old news’.

Today, Reserve Bank of Australia assistant governor Christopher Kent is set to give a speech at 9.15am AEDT –-Reassessing Australian Financial Conditions-– at the KangaNews Debt Capital Market Summit in Sydney.

WH Soul Pattinson ((SOL)) is updating on its financial performance.

The AUD has weakened -0.7% to US69.48c.

J.L. Bernstein:  Iran Rejects U.S. Peace Plan But Markets Don’t Care

The U.S. sent Iran a 15-point ceasefire proposal through Pakistan.

Iran rejected it within hours and countered with five conditions, including full sovereignty over the Strait of Hormuz and war reparations.

The two sides are nowhere close. But the mere existence of a written proposal was enough to send stocks higher and oil lower.

Brent fell below US$100. WTI dropped to around US$90. This is still way above pre-war levels, but the direction matters.

Gas is at US$3.98 nationally and United Airlines CEO Scott Kirby warned fares could rise another 20% if fuel stays elevated.

Stephen Innes, SPI Asset Management:

• The market is pricing the possibility of a diplomatic offramp, but positioning ahead of confirmation remains fragile and prone to sharp reversals

• Oil is still the dominant macro driver, and as long as physical flows through Hormuz remain constrained the dollar retains its bid as the cleanest hedge against global stress

• Central banks can signal hawkish intent, but policy will ultimately be shaped by energy prices, meaning rate expectations will stay hostage to the barrel, keep FX activity in check

• The old low energy price regime is gone, with markets now recalibrating to an US$80 to US$90 oil world where FX trades energy access as much as yield differentials

• The correlation between oil and broader markets is loosening at the margin, but not breaking, creating a window where risk assets can drift higher even as energy risk firms

• The market is pricing eventual resolution while oil continues to price the friction of the path, leaving a volatility pocket between belief and reality

• Macro data is turning less supportive for equities, meaning any oil-driven inflation shock will land on a far more fragile foundation than markets are currently acknowledging

National Australia Bank:

There was a modest improvement in risk sentiment evident in higher equity prices with focus on the viability of ceasefire talks. Sovereign bond yields are generally lower, and the US dollar is modestly stronger against most G10 currencies with the aussie currently around -0.7% lower at 0.6943.

The two sides remain far apart, although White House Press Secretary Karoline Leavitt said “the United States has been engaged over the last three days in productive conversations”.

A senior Iranian official said Iran had rejected a US proposal to end the war.

The US proposal called Tehran to dismantle main nuclear sites, fully open the Strait of Hormuz and use a reduced missile arsenal in self-defence only.

Iran has set out conditions of its own, including reparations, recognition of authority to collect fees from ships transiting the Strait of Hormuz and lifting of all sanctions.

Some Gulf states are reportedly lobbying President Trump to stick with the war. CNN reported Vice President JD Vance may travel to Pakistan for Iran talks this weekend.

In other geopolitical news, President Donald Trump and Chinese leader Xi Jinping will now hold their summit in Beijing on May 14-15. The meeting was earlier scheduled for later this month, but the US president postponed the meeting to focus attention on the war with Iran.

Australian CPI was a tenth lower than expected on both headline and trimmed mean measures (3.7% and 3.3% respectively). Our overall assessment of the data is that underlying inflation pressure was tracking a little softer in Q1 than the RBA feared in their Feb SoMP forecast.

That should soften some of the RBA’s concerns at the margin, but the broader assessment that the labour market remains a little tighter than is consistent with full employment and inflation before the Iran shock was on track to moderate only gradually back towards target remains intact.

Before the Iran shock, we were forecasting a 0.8% qoq trimmed mean outcome in Q1, the data to February are consistent with that, although we now expect a 0.9% outcome due to the mechanical effect of higher fuel prices in March. 

RBA Assistant Governor Kent speaks this morning at 9:15am at the KangaNews conference, although some media reporting looks to have reported on the content of his speech already. AAP reports that Kent ‘said’ “A negative supply shock pushes up prices and leads to weaker economic activity, making us all poorer,” and that “Central banks cannot change that.

“But they can ensure that the initial rise in prices does not lead to a rise in longer-term inflationary expectations and extended inflationary pressures.”

He pointed to tighter financial conditions as putting downward pressure on short-run neutral, but on the other side ongoing capacity pressures and the risk to inflation and long run inflation expectations “could both push short-run neutral rates higher and necessitate a more restrictive stance of policy.”

While Australian February CPI contained some marginal good news but left the broader assessment intact, the UK data provided the opposite.

Headline inflation was in line at 3.0%, but core and services inflation were both a tenth higher than expected.

Speaking after the data, the BoE MPC’s Greene said there will be lasting effects for UK inflation even in a “best case” scenario and that she is more worried about inflation the impact on growth.

ANZ Bank:

Crude oil fell in early trading, as efforts to start talks between the US and Iran gathered pace. President Trump said that Iran had offered a “present” as a show of good faith in negotiations.

He later noted that this was related to energy flows through the Strait of Hormuz.

China also urged Iran to engage in talks with the US. The US administration drafted a 15-point plan intended to help bring the conflict with Iran to a close, according to a Bloomberg report.

Trump delayed his threatened attack on Iran’s energy infrastructure for five days to allow time for negotiations, citing major points of agreement with Iran. However, oil prices unwound moves following reports on Iranian state media that an unnamed senior security official has listed five conditions for the US and Israel to end the conflict.

Iran also fired a new wave of missiles at Israel, signalling little willingness to compromise. This raised concerns the fighting continues to escalate, despite talks.

The emergence of an off-ramp for Trump has seen investors start to unwind long positions in the futures market. Many discretionary traders have stepped back from the market in recent days.

In another sign of a fading risk premium, the Oman benchmark shed almost -USD50/bbl to trade near USD110/bbl on Wednesday. Similar declines were seen in Murban crude from the United Arab Emirates.

Global gas prices dipped as diplomatic efforts by the US drove optimism that the conflict might soon ease. North Asia LNG tracked the drop in crude oil, trading around USD20/MMBtu. Prices had been in the mid-USD20/MMBtu range last week following Iran’s attack on the Las Laffan facility, the biggest LNG export plant in the world.

Japanese LNG importers have said there is little immediate disruption to supplies, although they have been engaging with other LNG buyers to enable a smooth delivery of cargoes. Tokyo Gas warned that a prolonged conflict in the Middle East could lead to a surge in power prices in Japan.

The European gas market is about to enter its stockpiling season with storage facilities severely depleted. Dutch facilities are now only 6% full, while in Germany they sit much lower than normal, at about 22%. Refilling them prior to the next heating season could fuel competition for cargo if these supply disruptions persist.

Copper gained on optimism of a diplomatic solution to the Middle East conflict. Positioning data points to a tentative rebound in risk appetite across the base metals. This helped lift gold prices.

Nevertheless, sentiment was impacted by reports that central banks are selling gold to defend currencies.

Turkey’s central bank has held discussions about conducting gold-for-foreign currency swap transactions in the London gold market, in an effort to defend the TRY, according to Bloomberg. The country has been an aggressive buyer in recent years and currently holds around USD135bn.

Iron ore futures dropped after unconfirmed reports that China Mineral Resource Group is close to striking a deal to resume purchases of certain BHP Group ((BHP)) iron ore products. The group told steelmakers in September last year to stop buying certain products due to a dispute over long-term supply contracts. If a deal is reached, China’s iron ore port inventories will be difficult to drawdown.

MEPS International: Energy crisis could hit Asian steelmakers most

 Steelmakers in Asia could be among the worst affected by the Middle East conflict as a growing energy crisis threatens to stall steel demand and economic growth.

 Asian producers paused their overseas offers in early March, following the joint US-Israeli offensive and Iran’s retaliation, with most yet to return to the market.

Some East Asian steel shipments have been diverted to ports in India after rising oil prices triggered increased shipping costs and lengthy diversions.

 As in 2025’s Red Sea shipping crisis, vessels destined for Europe have been diverted away from the Middle East conflict zone with many talking an alternative route via South Africa’s Cape of Good Hope.

This adds 3,500-4,000 miles, 10 to 14 days of travel time and significant costs.

Corporate news in Australia

• Pepper Money ((PPM)) ends take-over talks with Challenger ((CGF))
• 4DMedical ((4DX)) shares rally after Mayo Clinic tech deployment
• NatWest has begun transacting on Pexa Group’s ((PXA)) UK platform, starting with remortgage transactions
• EVT Ltd ((EVT)) completed a $750m refinancing deal, expanding its debt facilities and improving financing terms
• Meta Platforms and YouTube found liable in major social media addiction case

On the calendar today:

-JP Feb PPI

-US Weekly Jobless Claims

-IPD GROUP LIMITED ((IPG)) ex-div 6.80c (100%)

-SALTER BROTHERS EMERGING COMPANIES LIMITED ((SB2)) ex-div 2.00c (100%)

-WASHINGTON H. SOUL PATTINSON AND COMPANY LIMITED ((SOL)) 1H26 Earnings

-TOURISM HOLDINGS LIMITED ((THL)) ex-div 2.54c

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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