The Overnight Report: Risk On Rally Continues

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

US markets continued to rally sharply higher, ignoring any tail risks from a more prolonged energy shortage. The S&P 500 and Nasdaq are trading just below all-time highs.

After a positive day, albeit trading off the intraday highs at the close, ASX200 futures are indicating a positive start.

Good Morning,

The Australian market advanced on Tuesday, following the positive overnight lead, with the ASX200 up 45 points or 0.5% to 8,971. Technology rallied 3.4%, and miners led, while banks were mixed.

Overnight, the S&P500 ended up, accounting for a 9.83% rise over the past 10 trading days, for the best 10-day gain since coming off the covid lows in March 2020

Today’s Big Picture, J.L. Bernstein extract

This Market Is Moving Faster Than the News

The VIX went from above 30 to below 20 in eight trading sessions. During last year’s Liberation Day sell-off, that same move took 26 days. The S&P500 just closed within half a point of a record, 53 sessions off the March 30 low. Morgan Stanley’s Mike Wilson called it this morning: the lows are in. Today made that case a lot harder to argue with. The reality is, we are still at war with Iran without an exit plan in place.

Rate Cuts Came Back to Life Today

This morning, traders were pricing roughly a one-in-seven chance of a Fed cut by year-end. By close, that was one-in-three. One PPI print did that. Goldman Sachs flagged today that six G10 governments have now shifted toward expecting rate hikes because of energy costs. The US Fed is the only major central bank still leaning toward cuts. That gap matters for the dollar.

Bank Earnings Are Hiding a Bigger Story

The bank earnings headlines were this morning’s news. What came out during analyst calls is more interesting. Wells Fargo disclosed US$36 billion in lending tied to private credit funds. JPMorgan disclosed US$50 billion, and Citigroup US$22 billion. Banks say 98% is investment grade with zero historical losses. UBS said today that private credit default rates will double to 9 to 10% this year, driven by AI disruption of software borrowers. Someone is wrong here, and it matters a lot.

NAB Markets Today Research extract

Markets were looking past the physical disruption in the Strait to the prospect of talks, with risk assets supported, yields lower, and the USD losing another 0.3% on the DXY.

The US and Iran are looking to arrange a second round of peace talks in the coming days. Bloomberg reports that the objective is to hold more discussions before the ceasefire expires next week.

US President Trump said talks could resume “over the next two days”. The US is pressing ahead with a naval blockade of Hormuz, although there are reports Iran may hold off sending ships through the Strait in the short term to avoid testing the blockade and derailing talks.

On data flow, the US PPI rose 0.5% in March and 4% y/y, the highest level since February 2023, but well below the 4.6% expected. Core PPI, excluding food and energy, increased just 0.1%, below the expected 0.4% gain, and slower than February’s 0.3% rise, helped by more modest growth in core goods prices.

The data leave core PCE estimates tracking near 0.3% mom, still elevated, but better than the last couple of outturns.

Meanwhile, the NFIB small business optimism index fell to 95.8 in March from 98.8 in February, amid rising costs and high uncertainty, although so far there is a lack of deterioration in hiring plans and only modest softening in sales expectations.

The IMF published its latest World Economic Update. Global growth is seen at 3.1% this year, three tenths lower than it would have been absent the Iran war. The IMF called this its ‘reference forecast’, and it assumes the war is relatively short-lived and average petroleum prices of US$82/bbl in 2026.

Even under this scenario, there is variation across countries, with lower-income commodity-importing economies being hit particularly hard through higher energy and food prices.

Under an ‘adverse scenario’, with a petroleum index averaging US$100/bbl in 2026 and US$75/bbl in 2027, and gas and food prices much higher, global growth is just 2.5% this year, but there is still only a modest downgrade to next year.

In the ‘severe’ scenario, petroleum prices are about US$110/bbl in 2026 and about US$125/bbl in 2027, and growth is just 2% in 2026, around the IMF’s 2% benchmark for a global recession, and growth of just 2.2% in 2027.

IMF chief economist Pierre-Olivier Gourinchas said that, with continued energy disruptions and no clear path to ending the conflict, the IMF’s “adverse scenario” already looked increasingly likely.

“Global financial stability risks are elevated,” the report reads. “The global financial system is confronting the ongoing war in the Middle East, potential inflationary pressures, rising risks of further tightening in financial conditions, and several channels through which market turmoil could escalate into financial instability.” Source: IMF, Global Financial Stability report

In FX, the AUD managed a 0.5% gain against the broadly weaker dollar, currently near 0.7127 after touching an intraday high of 0.7148, its highest since 12 March. The USD is back to early March levels on the DXY.

In rates markets, US Treasury yields were heading higher earlier in the session. Ten-year yields reached a session high of 4.30% before easing back to around 4.25% alongside a fallback in oil. There was little reaction to the more benign than expected PPI. A broader rally across Europe saw 10-year gilt yields fall 9bp and bund yields 7bp. In Japan, the 20-year government bond auction attracted its strongest demand since 2019, supporting a rally that pushed 20-year yields 9bp lower on the day.

The S&P 500 gained 1.2%, while the Nasdaq was 2% higher, its tenth consecutive day of gains. The index is riding its longest stretch of consecutive gains since 2021 and its largest 10-day gain since 2022.

Major banks reported mixed results. JPMorgan traders posted record quarterly revenue, and Citigroup logged its best returns in five years with a 13.1% return on tangible equity. Wells Fargo disappointed, with shares falling -5.7% after missing net interest income estimates. Financial stocks rose 0.2%, underperforming the broader market. Both JPMorgan Chase and Wells Fargo indicated that the economy and consumers remained resilient in the first quarter. Bank of America and Morgan Stanley report earnings today.

Oil prices retreated, with WTI sliding -6.9% to US$92.24/bbl, the lowest level since March 25. Brent dropped -4.3% to US$95.12/bbl. Physical oil prices are much higher, with dated Brent remaining above US$120/bbl. Gold was 2.1% higher, erasing losses from the previous two sessions.

Locally yesterday, the NAB Business Survey showed the initial impact of the shock and saw a plunge in confidence to -29 and a surge in input costs, but conditions were so far resilient, falling only 1pt to 6.

Westpac-Melbourne Institute consumer confidence also fell sharply, down -12.6% in April to 80.1. Declines were broad-based across subcomponents, with perceptions of family finances back near post-pandemic lows.

RBA Deputy Governor Hauser gave little away in a ‘fireside chat’ in New York. Much of the discussion was backward-looking, repeating the explanation for the RBA’s pivot to hiking rates in February and March.

Looking forward, Hauser was clearly focused on the growth versus inflation trade-off, but there was no clear steer on how that might resolve. He said “[Inflation risks] might still be on the upside [in the medium term], in which case we’re going to have to respond. But we do also need to take account of the possibility that activity slows.”…. the challenge was evaluating whether the shock “does some of the job of slowing the economy that rate rises would be expected to do, whether it substitutes or complements that rate rise?”

There is about 16bp priced for May and 56bp by the end of the year (from 62bp a day earlier).

Michael J. Wilson, Equity Strategist, Morgan Stanley

“Equity markets trade in the future, where information is imperfect and uncertain. Just like they discounted much of the uncertainty we are now seeing in the headlines, they are now looking ahead to resolution of that uncertainty and better visibility on the rolling recovery that began a year ago.” 

Oil price dip mask looming supply issues, Nigel Green, deVere Group, extract

Oil prices have slipped on renewed hopes of US-Iran talks, but the real strain is still building due to delays in global supply chains.

The warning comes as Brent crude trades just below US$100 a barrel in early Asian activity, easing around -1%, while US crude falls more sharply, even as tensions in the Gulf intensify and new restrictions linked to Iranian shipping begin to take effect.

Markets are reacting to headlines about possible negotiations, but the physical oil market operates with a delay, and what we’re seeing now is a sentiment-driven move, not a true reflection of tightening supply.

Shipping timelines are critical. Oil cargoes from the Gulf typically take between two and six weeks to reach key destinations, depending on the route.

Europe can see deliveries in roughly two to three weeks, while shipments to Asia often take longer. Tankers currently at sea were loaded before the latest escalation, so today’s price movements are not yet capturing the disruption that could be forming.

The Strait of Hormuz remains at the centre of the risk. Around 20% of global oil consumption flows through this narrow passage, making it one of the most important energy chokepoints in the world. Even limited interference can have outsized consequences.

Higher insurance costs, longer routing times, and hesitation from shipping operators can all reduce effective supply. Even if barrels start moving, they will be moving with greater friction.

A delay of several days per shipment quickly compounds across the system. Fewer cargoes arrive on time, inventories begin to tighten, and the market adjusts only after those constraints become visible.

The lag between geopolitical events and real economic impact is a defining feature of energy markets. Refiners, distributors, and retailers rely on inventories and forward purchasing, which insulates end users temporarily from immediate shocks.

Households have not yet felt the full impact. Fuel and heating costs adjust with a delay. A dip in crude prices today does not guarantee relief at the pump if supply tightens in the weeks ahead.

Businesses face a similar dynamic. Many companies hedge energy exposure or secure supply in advance, which delays the transmission of higher costs but does not eliminate it.

Energy-intensive sectors, logistics firms, and manufacturers are operating with a buffer that will not last indefinitely. As contracts roll over, any sustained tightening in supply will begin to feed through into operating costs and margins.

For investors, the current environment requires a distinction between short-term market moves and underlying fundamentals. Price action is being influenced by shifting expectations around diplomacy, while physical supply conditions are evolving more slowly.

Investors should be cautious about reading too much into a short-term decline in oil prices.

The structural risks tied to Gulf supply routes remain significant, and the market has yet to fully price the potential for disruption.

Energy markets often show a disconnect between sentiment and logistics in the early stages of a shock. The gap tends to close over time, and it can do so abruptly.

Additional pressure is emerging from operational constraints tied to heightened geopolitical tension. Even without a full blockade, restrictions and uncertainty around Iranian-linked shipping are creating complexity across global trade flows.

The current slight drop in oil prices is being driven by optimism around negotiations, but the mechanics of the market point to a delayed impact.

Time lags in shipping, rising transport costs, and ongoing geopolitical strain mean the real effects are still working their way through the system.

Households, businesses, and investors are likely to feel those effects hit in the next few weeks.

Corporate news in Australia

-Yancoal ((YAL)) will buy 80% of private equity-owned Kestrel coal mine for US$1.8bn

-Angus Aitken lifts stake in ARN Media ((A1N)) amid Kyle Sandilands legal dispute

-Potentia Capital’s Storypark acquires Xap to expand edtech and childcare software platform

-Ashurst and Perkins Coie approve merger to form $3.9b global law firm

-BlinkLab raises funds to support clinical trials for smartphone diagnostics

-Cuscal ((CCL)) launches equity raise to fund Paymark acquisition in New Zealand

-Neurizon Therapeutics ((NUZ)) launches $11.3m shortfall raise after weak rights issue uptake

-Dual-track IPO and sale strategies return as ASX conditions improve

-SiteMinder ((SDR)) rolls out AI tools amid share price decline and tech recovery

-Armaguard delays regulator submission of pricing model due to cost concerns

-Kelly+Partners CEO faces margin calls after share-backed borrowing

-Domain launches drone-powered 3D property listings to boost competitiveness

-Westpac ((WBC)) lifts bad debt buffers as fuel costs and volatility pressure earnings

-Chinese steel mills ease restrictions on BHP Group’s ((BHP)) iron ore purchases after dispute

-Pay.com.au delays IPO and raises $20m privately amid market volatility

-EQT plans dual ASX/NZX IPO of Metlifecare amid strong retirement sector demand

On the calendar today:

-JP Feb core machine orders

-EZ Feb Industrial Prod’n

-US Fed Beige Book

-AUCKLAND INTERNATIONAL AIRPORT LIMITED ((AIA)) Qtrly update

-CLOVER CORPORATION LIMITED ((CLV)) ex-div 1c (100%)

-EVOLUTION MINING LIMITED ((EVN)) Qtrly update

-NATIONAL STORAGE REIT ((NSR)) AGM

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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