The Overnight Report: One More Hike And Done?

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This story features DEXUS, and other companies.
For more info SHARE ANALYSIS: DXS
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

US markets took a breather at the start of the week as oil price rose and the US 30-year Treasury rose above 5%.

The closure/re-opening of the Strait of Hormuz remains uncertain.

The Australian market continued to ease ahead of today's RBA rate decision.

Today, the market will be looking for indications around how dovish or hawkish the central bank will be.

Good Morning,

The ASX200 eased on Monday ahead of Tuesday’s RBA rate decision at 2.30pm (AEST).

The index fell -33pts, or -0.4%, to 8,697. Seven of 11 sectors declined, led by consumer staples, down -2.6%, while outperformer tech rose 1%.

One look at the price chart further below showing the past twenty trading sessions on the ASX suffices to know local investors are being tested in their short-term patience and resilience.

Today’s calendar also includes financial results from Westpac ((WBC)) and quarterly updates by Dexus ((DXS)) and Vicinity Centres ((VCX)).

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

Corporate Results Monitor: https://fnarena.com/index.php/reporting_season/

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

Iran Breaks The Ceasefire

The UAE intercepted Iranian missiles and drones, the first real attack since April’s truce.

The US Navy sank six small Iranian boats in the Strait of Hormuz.

Shipowners are publicly refusing to move cargo without a guaranteed ceasefire.

The strait stays closed and oil stays elevated.

Amazon Goes After FedEx And UPS

Amazon $AMZN opened its supply chain network to outside businesses.

P&G, 3M, Lands’ End, and American Eagle are already shipping through it.

FedEx and UPS posted their worst day in over a year.

This breaks the multi-year thesis for the entire freight complex.

The 30-Year Crosses 5%

The 30-year Treasury yield broke 5% for the first time since last summer.

Mortgage rates followed to a one-month high.

The bond market is pricing oil-driven inflation as something that sticks, not something that passes.

This matters more than today’s equity move.

NAB Markets Today research extract

Risk appetite was weaker overnight, as events in the Middle East once again dented investor sentiment and Brent crude oil pushed back towards US$114/bbl. 

Yesterday morning, President Trump announced Project Freedom, whereby the US would guide commercial ships stuck in the Strait of Hormuz on humanitarian grounds.

He warned that any interference in this process would be dealt with forcefully. To counter, Iran warned any US interference in the Strait would constitute a violation of the ceasefire.

Since that announcement, tensions in the region have intensified. There were reports of an oil tanker being hit by projectiles and other reported attacks on commercial vessels near the Strait highlighted the dangers in the area. 

Overnight, a wave of strikes from Iran into UAE has followed. While missiles were intercepted across the country, a fire broke out from a drone attack in the port city of Fujairah, a major hub for its oil industry.

This represents the first notable attacks on infrastructure in almost a month.

There was limited economic data overnight to distract investors away from rising tensions in the Middle East. US factory orders for March rose 1.5%, with the ex-transport measure strong too. 

NY Fed President Williams spoke overnight, noting that “…Right now, the future is difficult to see, and the risks to both sides of our mandate have increased.”

His comments didn’t sway market pricing for upcoming FOMC decisions. 

In Europe, comments from Bundesbank President Joachim Nagel kept the prospect of a June rate hike alive. Nagel said the ECB will need to increase interest rates in June if there isn’t a significant change in the outlook, given that the situation is evolving less favourably than in the ECB’s earlier baseline scenario. 

Data yesterday in Australia saw Building Approvals for March fall -10.5% as expected, thanks to volatility in the apartment sector. Elsewhere, ANZ-Indeed Job Ads (Apr) fell -0.8% in the month and the MI monthly inflation gauge rose 0.6% in the month of April.

The front Brent futures contract rose around 5% to around US$114/bbl overnight. It is interesting to note the Dec-26 contract for Brent reached a new high overnight, trading up towards US$92/bbl. 

Gold continued its drift lower overnight, and has closed the session just above the US$4500/oz level.

Equity markets were lower, with the S&P500 off -0.4% and the Nasdaq down -0.19%. Within the S&P500, the Energy sector was the only component of the index to register a gain on the day.

European equity markets reacted badly to the combination of hawkish ECB speak and higher oil prices, with the Euro Stoxx50 falling -2% and the German Dax down -1.2%.

Later today the RBA Monetary Policy Board decision will be announced (2.30pm AEST). NAB is looking for a 25bp hike, taking the cash rate to 4.35%. 

At the same time, the RBA will release a new set of economic forecasts in the quarterly Statement on Monetary Policy.

There are a number of important cross currents impacting the forecast set, not least of which is the recent lift in energy prices.

Since the March Board meeting, the $A TWI has rallied 2%, the ASX is circa 1.3% higher and swap yields in the 5Y tenor are around 10bp higher.

Credit spreads have been well supported, but the very front end is now pricing in a terminal rate of 4.75% (vs. 4.6% in March).

Economy-wise, the unemployment rate remains in the low 4s, consistent with the notion that the labour market is tight.

However, the starting point for GDP growth is probably a little lower, given some softer consumption outcomes relative to the RBA’s February forecast set.

And of course, the forward-looking trajectory for inflation is now less favourable on both core and headline measures, thanks to the immediate impact of energy prices and likely second round impacts on underlying inflation.

House price growth has cooled somewhat in recent months.

The RBA Board is in an unenviable position of facing into a shock which moves it further away from both of its mandates.

But the starting point for the domestic economy –-one of above trend growth, elevated inflation and a tight labour market-– means that policy makers will be sensitive to the risk that second round price impacts of the energy shock are both broad and rapid in their impact on underlying inflation.

Given this backdrop, we think the RBA will deliver another 25bp rate hike later today.

NAB’s view at present is today’s hike is likely to mark the end of the tightening cycle. However, we acknowledge the risk, in the near-term, remains to additional hikes.

Indeed, we expect the RBA will want to leave the market (and others) with the impression that more tightening might be needed beyond May.

After 75bp of hikes, the RBA will likely be confident it has recalibrated policy to a setting that is now more appropriate relative to economic fundamentals. 

However, it will be mindful of facing into two-sided risks –- upside risk to inflation and downside risk to the labour market.

And, as outgoing FOMC Chair Jay Powell reminded us in a speech in September 2025, “Two-sided risks mean that there is no risk-free path”.

The immediacy of inflation risks vs. the lagged nature of labour market adjustment implies that the risks to the cash rate remain biased to the upside in the very near-term.

However, if our central case forecast for the Australian economy is correct, growth will start to slow as we move into the second half of calendar 2026.

All else equal, this will call for some caution on the part of policy makers.

Market Call: Up, Up & Away, Yardeni Quicktakes, Ed Yardeni & Toby Hearst

The stock market balloon is climbing higher, and the burners are firing. It isn’t all hot air that is lifting stock prices. It’s also earnings revisions, which are increasing for 2026 and 2027.

Growth stocks and the Magnificent-7 have reasserted leadership over the past month. Small caps and the Russell 2000 are at fresh record highs too. 

Investor sentiment remains surprisingly lackluster, leaving plenty of upside for the balloon. Even the soft spot in private credit is showing signs of stabilizing.

The question is whether the balloon is actually a bubble. We don’t think so. Consider the following:

(1)  Stock prices. The S&P500 market-cap-weighted and equal-weighted indexes have rebounded significantly since they bottomed on March 30. The former has risen to a record high, and we expect the latter to follow suit. Both of their 200-day moving averages (dma) are trending higher.

The Russell2000 closed at a fresh record high on Friday, and its 200-dma is trending higher. Small-cap stocks’ participation in the new-high record-setting is a positive confirmation of the sustainability of the rally.

The performance derby shows the leaders and laggards since the March 30 low in the S&P 500. Value’s early-year bounce has faded as Growth has decisively reasserted itself, driven by renewed conviction in the AI theme.

Investors are starting to nibble on private credit ETFs. The Virtus Private Credit ETF (VPC) and VanEck BDC Income ETF (BIZD) both have rebounded off their recent lows. Commercial bank loans and leases continue to rise, reinforcing our Financials thesis that the stress in the credit market is localized rather than systemic.

(2)  Earnings. S&P500 forward operating earnings has hit a fresh record high of US$346.19 per share. Consensus EPS estimates now stand at US$327.87 for 2026 and US$380.79 for 2027, and both appear still to be rising. Forward earnings is the single best leading indicator of stock prices, and it continues to point higher.

Q1’s blended EPS growth rate jumped to 18.5% during the week of April 30 from 13.4% just a week earlier, with roughly 44% of S&P500 companies reporting last week and broadly beating expectations.

This “earnings hook” is truly remarkable because analysts didn’t turn as pessimistic about the quarter as they often have in the past just before earnings seasons, setting the stage for frequent upside hooks.

Revenue breadth is leading earnings breadth higher at 87.0% versus 82.6%. There is still more upside for both.

The S&P500 LargeCap index is doing the heavy lifting in terms of absolute forward earnings, but the forward earnings of the S&P400 MidCap and S&P600 SmallCap indexes are also at record highs. The earnings tailwind is broadening down the cap stack.

The global bull market in stocks continues to be fuelled by the record-setting forward earnings of the All Country World ex US MSCI and of the US MSCI.

(3)  Valuation. US stocks are still cheaper than they were at the end of last year. The forward P/E of the S&P500 is at 20.9, well below the 23.0 peak at year-end 2025. MidCap’s forward P/E is at 16.3, and SmallCap’s is at 15.9. Both are still cheap relative to their own histories. Even the Magnificent-7’s forward P/E of 26.1 is well off its peak of last October.

Sector multiples confirm the valuation compression. Information Technology’s forward P/E has de-rated from 26.5 to 23.7 since year-end 2025, with Financials’ down from 16.4 to 14.8. Real Estate at 37.8 and Consumer Discretionary at 28.2 are relatively expensive. Financials and Energy at 14.8 and 15.3 remain relatively cheap.

The IT sector’s forward P/E remains a long way from dot-com-era territory. The S&P500 IT sector trades at 23.5 versus the S&P500’s 21.0, a modest 2.5pt premium. Investors are pricing the AI thesis with discipline that was absent during the tech bubble of the late 1990s.

(4) Sentiment. Our two favorite Bull/Bear Ratios (BBR) have recovered sharply from the depressed readings that informed our March 30 bottom call the evening of March 31.

Investors Intelligence’s BBR is at 2.37 versus its 2.60 long-term average, and AAII’s is at 0.96 versus 1.19. Both have lifted well off the lows, but neither is anywhere near readings that would flash a contrarian sentiment top.

Rising-but-still-below-average sentiment is exactly the profile of a bull market with room to run.

Corporate news in Australia

-Databricks to invest $416m in Australia over two years highlighting growing AI commitment

-Wyloo Metals considering sale of stake in WA rare earths project

-Chemist Warehouse ((SIG)) expanding into UK via Greenlight Healthcare stake

-Whitehaven Coal ((WHC)) in dispute with key customer in Taiwan over supply terms

-Cbus raising insurance premiums amid higher claims costs

-SPG Global ((SPG)) returning to investors with new equity raising between $60m-$70m.

-Mineral Resources ((MIN)) faces potential -$750m port levy risk linked to Chevron agreement

-Sharon AI denies short seller claims ahead of planned ASX listing

-Sydney Airport rail project delayed due to dispute

-Navigator Global Investments ((NGI)) enters trading halt ahead of acquisition 

-Pinnacle Investment Management ((PNI)) raises stake in Metrics to 35%

On the calendar today:

-AU April PMI

-AU March Household spending

-AU RBA rate decision

-US March Jolts

-US March Trade Bal

-XX Japan, China Public Hol

-DEXUS ((DXS)) Qtrly Update

-VICINITY CENTRES ((VCX)) Qtrly Update

-WESTPAC BANKING CORPORATION ((WBC)) 1H26 earnings report

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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