The Overnight Report: Bond Yields Rising

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This story features WOODSIDE ENERGY GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: WDS
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

US markets slipped from all-time highs, with concerns around OpenAI's growth outlook weighing on technology stocks.

After a sixth consecutive fall for the ASX200 yesterday, ASX200 futures are pointing to another weak day ahead of the March quarter CPI print at 11am (AEST).

Good morning,

Wednesday marked the sixth straight session of decline for the ASX200, down -0.6% to 8,711. Consumer discretionary fell -2.3%, while energy rose 1.2%.

March quarterly updates continue today with Woodside Energy ((WDS)), Mineral Resources ((MIN)), Capstone Copper ((CSC)) and Westgold Resources ((WGX)).

See also FNArena’s Corporate Calendar https://fnarena.com/index.php/financial-news/calendar/

Big Tech Earnings, Central Bank Meeting, Middle East…and Now Rebalancing Flows? Tony Sycamore, IG

Adding another layer of complexity to the backdrop for US equities. On top of central bank meetings, big tech earnings and the Middle East situation, month-end rebalancing flows are now set to kick in.

US stocks have been on a tear. The Nasdaq 100 is up almost 15% month to date and the S&P 500 up almost 10% month to date, sharply outperforming bonds and most global peers (except the Kospi and Nikkei).

That outperformance means many portfolio managers will likely need to sell US equities and buy bonds and laggards (think ASX200 up 2.75% month to date and FTSE up 1.42%) over the next few sessions to get back to benchmark weighting.

This rebalancing could easily act as a near-term headwind for US stocks and provide a type of cushion for the ASX200.

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

Microsoft Walks Free From the OpenAI Mess

Oracle, CoreWeave, Nvidia and Broadcom all closed down hard. SoftBank fell almost -10% in Tokyo against its US$60 billion OpenAI exposure. Microsoft finished green because the recent deal amendment kept its access to OpenAI’s tech through 2032, while letting OpenAI go multi-cloud for the heavy compute. Microsoft kept the upside and walked away from the bill.

The Cartel Just Lost Its Stabiliser

UAE leaving OPEC on May 1 is now sinking in for analysts. The country has 4.8 million barrels a day of capacity but was capped at 3.4 million under quotas. Once Hormuz reopens, that extra supply pressures Saudi Arabia’s role as the price stabiliser. Rystad and SocGen are framing this as the start of producers racing to monetise reserves before the energy transition forces it.

Bond Markets Are Testing Five Percent Worldwide

The US 30-year is back at the ceiling that has pressured stocks every time it has been hit over the last three years. The UK 10-year gilt crossed five percent today, the highest since 2008. When the long end of two major economies hits the same level for the same reason (inflation plus political dysfunction), that is a signal, not a coincidence. Housing, small caps and high-multiple growth feel this first.

NAB Markets Today Research extract

Risk sentiment was softer overnight, as markets wait for more news on the Middle East conflict and weakness in tech stocks dragged on US equity markets.

A sell-off in technology stocks dragged down US equity markets (Nasdaq -0.9%, S&P500 -0.5%) as concerns resurfaced over whether large investments in artificial intelligence will pay off.

According to a WSJ report, OpenAI missed several sales targets, driving concerns the firm may struggle to support its AI infrastructure spending. 

Data overnight in the US saw the Conference Board measure of consumer confidence surprise to the upside in April, rising to 92.8 from 92.2 in March. The improvement was led by a rebound in expectations for the next six months. Of note, the labour market differential lifted to a four-month high, signalling less risk of a larger rise in the unemployment rate than the prior month’s data had been suggesting.

In Europe, the ECB’s 1Y ahead measure of inflation expectations among euro-area consumers jumped in March to 4.0% from 2.5%. This series is now at its highest level since late 2023. 3Yr and 5Yr ahead inflation expectations also rose.

Yesterday, the Bank of Japan kept its policy rate unchanged, as widely expected, though a 6-3 vote was somewhat surprising, with three members voting for a 25bps hike. However, a modest increase in the yen faded after Governor Ueda refrained from signalling imminent tightening at his press conference, despite reiterating the ongoing need to gradually raise interest rates.

Uncertainty in the Middle East has allowed the BoJ to maintain its ultra-loose policy stance despite mounting inflationary pressures. The BoJ continues to show little inclination to address deeply negative real interest rates that are weighing on the yen’s value, despite four consecutive years of inflation above target. The market remains unconvinced that a rate hike will occur at the next meeting in June, and even a 25bps hike in July is not fully priced in.

Better data in the US and the sharp rise in inflation expectations in the Euro area pushed sovereign bond yields higher in overnight trading, with curves bearishly flattening. US 2Yr yields rose 4bp, while German 2Yr bond yields rose 8bps.

At the longer end of the curve, moves were muted, with US 10Yr yields up 1bp and German 10Yr yields up 3bps. The implied yield on AUS 3Yr bond futures rose 5bp overnight, delivering a -20bp sell-off in the space of a week in the front end of the Australia futures curve.

Today in Australia, the ABS releases CPI data for the month of March and for the full three months to March (Q1).

National Australia Bank expects Q1 trimmed mean (pre-October 2025 basis) to print at 0.9% q/q and 3.5% y/y, in line with the RBA’s February SoMP forecast, reflecting higher fuel prices in March.

For the month of March, we expect headline inflation to rise sharply to 4.7% y/y (from 3.7% in February), driven by a 34% surge in fuel prices.

The trimmed mean is seen at 0.25% mom (3.3% y/y).

Overall, the Q1 data should confirm that inflation was too high and broad-based ahead of the Iran shock, but is likely to fall short of fuelling the RBA’s concern that domestic pressures were accelerating into early 2026.

Regardless, the real impact of the Middle East conflict will emerge in Q2, meaning that the main implication of today’s data will be to set the starting point for inflation at the beginning of the conflict. Pricing for a May hike from the RBA continues to grind higher, with circa 20bps priced for next week’s meeting.

In FX markets, the US dollar advanced. The Bloomberg Dollar Spot Index gained 0.3% after two days of declines, supported by higher oil prices. In Antipodean FX, the AUD/USD traded a tight 45bp range overnight and is largely unchanged vs. yesterday afternoon’s levels at the USD0.7180 level. In contrast, NZD is 0.4% weaker against the USD overnight, with investors perhaps a little shy ahead of the RBNZ Governor’s speech later today.

In the commodity complex, gold registered losses of around -2% relative to yesterday morning’s levels, while iron ore futures were little changed, hovering around the US$106/t level.

ANZ Bank, Crude Oil extract

Crude oil extended recent gains, as the market frets over the ongoing closure of the Strait of Hormuz. Stalled peace talks have raised the prospect of an indefinite disruption to oil supplies from the Persian Gulf. 

The US continues to ratchet up pressure on Iran’s oil industry. It announced sanctions on 35 entities and individuals that oversee Iran’s shadow banking architecture. The administration also warned banks of sanctions exposure related to China’s ‘teapot’ refineries that may be importing Iranian oil.

Oil prices briefly fell after the UAE announced it will be leaving OPEC on 1 May. Tension has been building between the UAE and the broader group in the past few years, driven by its desire to utilise more of its capacity. Outside Saudi Arabia, it is one of the few OPEC producers with the ability to increase output.

The move offers little respite to the market’s current supply disruptions. We calculate the oil market is losing around -10mb/d, equating to around -500mbbl since the Middle East conflict escalated in late February.

The rebalancing of the market once the Strait of Hormuz is reopened will take years. There is a real possibility that the total capacity of Persian Gulf producers will be permanently reduced because of the conflict. That leaves the market requiring significantly more oil than the additional 1mb/d the UAE has the capacity to provide.

Macro Talking Points from Benoit Anne, MFS Investment Management

Trade-off time for global central banks. A number of major central banks are meeting this week, including the Fed, the ECB and the BoE. It is going to be a high-risk communication exercise for some, as the trade-off between downside risks to growth and upside risks to inflation is intensifying.

In particular, the ECB will likely try to walk back some of the earlier signals that validated the need for future hikes, now that the risks to growth are becoming more apparent.

With that in mind, Peter Goves, our head of DM research, believes that the ECB will signal a need to remain vigilant, while also saying that there is no rush to do anything.

Likewise, in the UK, the BoE is also facing some communication challenges after sending some excessively hawkish signals back in March that triggered major volatility.

Calibration of the messaging will therefore be essential. The idea for the BoE would be to buy a bit more time and sound a little more composed in the face of a complicated macro backdrop.

The easiest central bank job this week is at the Fed. Nobody expects much at all from this week, given the forthcoming leadership change.

With the DoJ charges about to be dropped, it now looks highly likely that Kevin Warsh will be confirmed as the new Chair, just in time for the next policy meeting in June.

This week, the Fed will reiterate patience and data dependency in the face of the two-sided macro risks, although signs of a more resilient labour market have resurfaced.

Overall, this is a broadly supportive backdrop for being long duration, in our view, as some of the local curves, especially in the eurozone and in the UK, seem to be overstating the magnitude of potential future hikes.

For a little while, renewed stagflation fears and hawkish central banks triggered an upward spike in that equity-bond correlation, but the move has now corrected lower.

At this juncture, the correlation coefficient is as low as it has been since early 2022, prior to the brutal Fed tightening cycle.

Looking ahead, we believe that fixed income could benefit from its regained status as a portfolio diversifier as the correlation continues to normalise.

Overall, we view fixed income as an attractive de-risking asset class, given the elevated level of yields.

With markets paying for conviction, now companies have to deliver. Risky assets have rallied, but the backdrop is still complicated: geopolitics, mixed growth signals, and a sensitive inflation and rates mix. That leaves less room for disappointment. It also puts the burden back on execution.

Into 2026, we expected capex momentum to build on three pillars: a firmer earnings backdrop, structural spend tied to AI infrastructure and supply-chain realignment, and fiscal incentives under the One Big Beautiful Bill Act.

Early earnings commentary broadly supports that view. Many management teams say investment plans are intact. Markets are still rewarding likely capex beneficiaries, especially in tech hardware.

The near-term test is delivery. This week’s earnings updates from large cloud providers matter. We are watching for potential slippage: construction bottlenecks, supply constraints, and delayed spend. Evidence of these would suggest AI investment is being capped by execution capacity.

We are also watching orders and inventories. Activity looks resilient, but surveys hint at pull-forward demand. Firms may be securing inputs and building stock amid disruption risk. That can support revenues near term. It can also set up a softer patch later as inventories normalise.

If physical constraints intensify, availability could keep pricing firm, with input costs already rising. The key question is whether companies can protect revenues and free cash flow, even if margins are pressured.

In that setup, we prefer durable demand, pricing discipline, and teams that can execute. Overall, we are sticking with a fundamentals-first approach. We seek to emphasise balance sheet strength, cash generation, and disciplined capital allocation, as we think these attributes can contribute towards helping portfolios compound through volatility (contribution from Ross Cartwright, Lead Strategist – Strategy and Insights Group).

Corporate news in Australia

-Pacific Equity Partners is bidding $747m for oOh!media ((OML))

-David Jones announced a pre-tax loss of $95.5m for the year to June 29, 2025

-Anthropic’s Mythos has banks on notice to address cybersecurity risks

-Fletcher Building ((FBU))is selling its wire business to United Industries, expects up to NZ$23m loss

-Fantastic Furniture is nearing a private equity-backed sale

-Grant Thornton Australia agreed to sell to a US private equity-backed counterpart

-Macquarie Group ((MQG)) and partners sold Cleco Power to Stonepeak for $8.3b

-Finder Energy ((FDR)) is seeking to raise $30m

-Reliance Worldwide ((RWC)) maintained FY26 guidance after US tariff refund filing

-Sunshine Metals ((SHN)) launched an $18m capital raising

-Woolworths Group ((WOW)) accelerated competition with Coles Group ((COL)) after guideline breaches

-Grant Thornton Australia plans to join a global platform

-Family offices are backing Fifth Estate fundraising

On the calendar today:

-AU 1Q CPI

-JP Public Holiday

-JP Public Holiday

-EZ March M3

-US FOMC rate decision

-US March Trade Bal

-29METALS LIMITED ((29M )) Qtr Update

-ACROW LIMITED ((ACF)) ex-div 2.00c (100%)

-CAPRICORN METALS LIMITED ((CMM)) Qtr Update

-CAPSTONE COPPER CORP. ((CSC)) Qtrly update

-MINERAL RESOURCES LIMITED ((MIN)) Qtrly Update

-RAMELIUS RESOURCES LIMITED ((RMS )) Qtrly Update

-VULCAN ENERGY RESOURCES LIMITED ((VUL)) Qtrly Update

-WATERCO LIMITED ((WAT)) ex-div 7.00c (100%)

-WOODSIDE ENERGY GROUP LIMITED ((WDS)) Qtrly Report

-WESTGOLD RESOURCES LIMITED ((WGX)) Qtrly Update

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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