The Overnight Report: Waiting For Nvidia

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This story features CATAPULT SPORTS LIMITED, and other companies.
For more info SHARE ANALYSIS: CAT
The company is included in ASX300, ALL-ORDS and ALL-TECH

US markets slipped ahead of Nvidia's earnings tomorrow after the close (US EST) with rising bond yields not helping.

Nvidia now has a US$5.34trn market cap.

The US 30-Yr Treasury yield has backed up to a level not seen since 2007. Say what?!

After a robust rally on the ASX yesterday, the futures are pointing to a weaker start as out-of-season earnings season rolls on.

Good Morning,

In a nice respite from the recent trend, the Australian market rallied on Tuesday, up 99 points of 1.2% to 8,605.

Nine of eleven sectors lifted, led by Telcos up 2.7% and banks up 1.7%. Technology lagged by -0.4%.

Earnings season continues today with earnings report releases from Catapult Sports ((CAT)), James Hardie Industries ((JHX)), Plenti Group ((PLT)), and Serko ((SKO)) alongside a swathe of AGMs.

For more details see https://fnarena.com/index.php/financial-news/calendar/

Today’s Big Picture, J.L. Bernstein

Chip Selloff Deepens Heading Into Nvidia Earnings

Semiconductors are down for a second straight day (preMarket) as investors take profits on the AI trade.

Seagate warned about demand Monday and memory names followed it lower.

The Philadelphia Semiconductor Index has been crushed over two sessions and Nvidia reports tomorrow with sky high expectations.

If the biggest chip company in the world can’t justify these valuations tomorrow night, what company can?

So far Nvdida has been a money printing machine in this Ai/chip run.

Foreign Central Banks Are Exiting Treasuries

Japan sold roughly US$47 billion in Treasuries in March. China cut holdings to the lowest since 2008.

Central banks are liquidating dollar reserves to defend currencies against the oil shock from the Gulf war.

Total foreign holdings fell -US$240 billion in one month, and that is before the April data when currency intervention likely picked up. 

Oil Dips On Trump’s Iran Pause, Yields Tell A Different Story

Trump paused a planned strike on Iran at the request of Gulf leaders and said there’s a “very good chance” of a nuclear deal.

Brent pulled back toward US$110 on the headlines.

The bond market has stopped reacting to diplomatic optimism.

The 10 year is sitting above 4.6%, a Reuters poll shows most economists expect no rate cuts this year, and futures markets are pricing a possible hike by January.

ANZ Bank, Australian Morning Focus

Equity markets fell, as global bond yields pushed higher. Oil declined after a report that NATO is considering deploying assets to the Strait of Hormuz if it’s not open by July. 

The S&P500 was down -0.67%. The EuroStoxx50 was unchanged, and the FTSE100 rose 0.1%. The yield on the US 10y Treasury note rose 5.6bp to 4.67%, while the yield on 30y Treasury bond rose to its highest level since 2007. 

The active WTI oil futures contract fell -0.4% to US$107.8/bbl and Brent Crude rose 0.8% to US$111.0/bbl. Gold fell -1.3% to US$4,484.0/oz. 

Canada: Headline inflation accelerated from 2.4% y/y to 2.8% y/y, though well below the market consensus of 3.1% y/y. Measures of core inflation eased more than expected. CPI excluding food and energy slowed 0.4ppt to 1.5% y/y, while weighted median inflation and trimmed mean inflation both slowed 0.2ppt to 2.1% y/y and 2.0% y/y, respectively. 

With the Bank of Canada having guided that it will look through the short-term inflation impacts of higher energy prices, while monitoring for transmission to underlying inflation, April’s inflation data cements expectations of the Bank remaining on hold in the near term. 

UK labour market data argue strongly against the case for near-term rate hikes from the Bank of England.

The unemployment rate rose from 4.9% to 5.0% in the three months to March, remaining near the highest level in a decade, excluding the pandemic. Growth in private sector wages excluding bonuses eased to 3.0% y/y, from 3.2% y/y, now below the Bank of England’s central estimate for the level of wages consistent with the 2% inflation target. 

Payrolled employees fell -100k in April, although this is highly likely to be revised higher, given typical volatility at the beginning of the tax year. Nonetheless, the broad suite of labour market data confirms increasing slack, which in our view provides a buffer against the transmission of the energy price shock to underlying inflation. 

We expect the Bank of England will remain on hold until late this year and ultimately will resume its easing cycle in Q4.

NAB Markets Today, RBA Update extract

Yesterday saw three updates from the RBA, in the form of May Board meeting minutes, a speech from Assistant Governor and chief economist Sarah Hunter, and a Research Discussion Paper (RDP) detailing the implications of a shift in price-setting behaviour around large shocks.

On the latter, the conclusion is that “Overall, our findings suggest that when price-setting frequencies pick up –-particularly during supply side inflationary shocks-– monetary policy can be tightened more aggressively to achieve faster disinflation with limited additional cost to output and unemployment.” (For the economists among you, the Phillips curve is steeper).

This is, of course, not how the RBA chose to respond to the 2022-2023 post-pandemic inflation shock, though as Steve Coogan’s character Don notes in the excellent Netflix series, Legends, “The problem with hindsight is, it always arrives late”.

Given we are in a new period of high frequency price changes, the RDP conclusion helps to explain why the RBA’s latest SoMP unemployment rate forecasts were lower than one might have expected given their forecast used the prevailing market-implied terminal rate of around 4.7%.

At the same time, it implies tension between the lack of urgency felt by the Board to endorse the rate assumptions in the SoMP underlying their forecasts and the contention that in agreeing to the May cash rate hike to 4.35%, this gave them ‘space to see how the conflict in the Middle east develops and Australian households and businesses respond’.

That same tension is evident in respect of Hunter’s comments that she is ‘more worried about inflation expectations than in the past’ and that ‘petrol isn’t the only price that matters for expectations’,

NAB has maintained its forecast for a (final) June hike to 4.60% but acknowledges the clear risk that the Board instead opts to wait.

Upcoming data and events relevant to the June decision are tomorrow’s Employment data, April CPI on 27 May, Q1 GDP on 23 June and scheduled appearances from Board members Hewson, Harper and Hauser between 27 May and 5 June.

Why the bond market suddenly matters more than Nvidia, Nigel Green, deVere

The AI rally powering Wall Street to record highs is running into a rapidly rising threat from the bond market, with Treasury yields now climbing fast enough to challenge the extreme valuations driving Nvidia and the wider tech sector.

If 10-year Treasury yields keep moving toward 5%, investors are going to stop paying 30, 40 or 50 times earnings for growth stocks.

This is where the pressure on AI valuations becomes much more serious.

The S&P500 has surged roughly 12% since April’s temporary Middle East ceasefire reignited risk appetite, powered largely by Nvidia and a narrow group of AI-linked megacaps dominating index performance.

At the same time, the US 10-year Treasury yield has climbed to its highest level in more than a year as investors rapidly reprice inflation risks tied to oil above US$100 a barrel and expectations interest rates could stay elevated for much longer.

Wall Street has convinced itself AI can outrun interest rates. Bond markets are now challenging that in a serious way.

Oil remaining above US$100 a barrel following disruption linked to the Strait of Hormuz is intensifying fears inflation pressures are beginning to rebuild across the global economy.

A key market measure of inflation expectations, the one-year, one-year inflation swap, has now climbed above 4% for the first time since early 2025, reinforcing concern inside bond markets that central banks may struggle to bring inflation fully under control.

Markets that only months ago aggressively priced Federal Reserve rate cuts are now moving sharply in the opposite direction.

The AI trade works best in a falling-rate environment and bond markets are suddenly pointing in the opposite direction.

Markets that spent months pricing aggressive Federal Reserve rate cuts are now rapidly reversing those expectations.

The implications for the wider AI sector are becoming increasingly difficult for investors to ignore.

High-growth tech companies are especially vulnerable to rising Treasury yields because much of their valuation depends on future earnings expectations. As bond yields rise, the discount rate applied to those future profits rises too, reducing the present value investors are willing to pay for expensive growth stocks.

Nvidia has become the clearest symbol of the concentration driving the current market rally.

The company’s explosive gains have helped propel US equity indices to repeated record highs, while a relatively small group of megacap tech stocks now accounts for a disproportionate share of overall market performance.

In addition, concentration risk across US equities is becoming increasingly dangerous. Nvidia is now functioning almost like a macro asset rather than simply a semiconductor company.

When one theme and a handful of stocks are carrying such a large percentage of market momentum, any repricing in yields can hit the broader market very quickly.

Pressure inside bond markets is also continuing to build globally.

Government borrowing costs have risen sharply across developed economies as investors reassess the outlook for inflation, central bank policy and fiscal spending. Markets that spent months pricing rapid monetary easing are now confronting the possibility rates stay higher for much longer.

History teaches us that major market corrections are often preceded by instability in fixed income markets rather than equities themselves.

Bond investors tend to react earlier to inflation risks, tightening liquidity conditions and deteriorating fiscal dynamics. Equity markets frequently adjust later — and often aggressively.

Investors focusing only on AI earnings momentum are missing the broader macro shift underway.

Cheap money has been one of the foundations of the explosive move in AI stocks.

If yields continue moving sharply higher while oil remains elevated, the risk increases that bond markets —not earnings— become the catalyst for the next tech sell-off.

Corporate news in Australia:

– Metrics Credit Partners ((PNI)) is launching a consumer-loan-backed fund as part of a broader expansion into asset-backed finance and a reset of its growth strategy

– Firmus has delayed its IPO due to weak investor demand, although improving sentiment around global AI infrastructure may support a future listing

– Quadrant Private Equity is reviewing its investment in Junior Adventures Group ahead of a potential exit process

– Atlas Arteria ((ALX)) is facing difficulties finding buyers for its Chicago Skyway stake amid concerns over valuation and subdued investor appetite

– Pub owners are resisting new Tabcorp Holdings ((TAH)) contract terms, with some venues considering removing TAB areas because of declining profitability

– Telstra Group ((TLS)), Optus and TPG Telecom ((TPG)) have warned mobile prices are likely to rise after regulators imposed $7.3bn spectrum fees with limited concessions

– Grok Ventures is increasing investment in Antora through funding for a large thermal storage project aimed at reducing industrial emissions

On the calendar today:

-JP March BoP

-EZ April CPI

-UK April CPI, PPI

-US April FOMC Minutes

-CATAPULT SPORTS LIMITED ((CAT)) FY26 earnings report

-DALRYMPLE BAY INFRASTRUCTURE LIMITED ((DBI)) AGM

-GULLEWA LIMITED ((GUL)) ex-div 0.70c (100%)

-GULLEWA LIMITED ((GUL)) ex-div 0.70c (100%)

-JAMES HARDIE INDUSTRIES PLC ((JHX)) FY26 earnings report

-PLENTI GROUP LIMITED ((PLT)) earnings report

-RESOLUTE MINING LIMITED ((RSG)) AGM

-SMARTGROUP CORPORATION LIMITED ((SIQ)) AGM

-SERKO LIMITED ((SKO)) earnings report

-STANMORE RESOURCES LIMITED ((SMR)) AGM

-WAYPOINT REIT LIMITED ((WPR)) AGM

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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