The Overnight Report: Peace Deal Soon (?)

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

Overseas markets rallied higher on the prospect of yet another temporary peace deal emerging between the US and Iran (again!) easing global bond yields and energy prices.

After yesterday's sell off, ASX200 futures are pointing sharply higher ahead of the April jobs data at 11.30am AEST.

Good Morning,

The Australian market fell on Wednesday on concerns over rising global bond yields.

The ASX200 declined -108 points or -1.3% to 8,947. Miners led the falls, down by -2.1%, while consumer staples outperformed.

Earnings season continues today with Webjet Travel Group ((WEB)) and Webjet Group ((WJL), and others, alongside a swathe of AGMs including for Telix Pharmaceuticals ((TLX)) and Ventia Serices Group ((WNT)).

Goodman Group ((GMG)) is scheduled for a quarterly update and SGH Ltd ((SGH)) has organised an Investor Day.

RBC Capital on Webjet Group: “WJL revealed softer-than-expected FY27 trading, Gary Weiss (Ariadne Executive Director) assumed the role of WJL interim chair and after market, HLO disclosed they now own c.20% of WJL.

“In our view, the combination of a deal-making chair and a motivated buyer bode well for the possibility of a win-win outcome for all parties and will ultimately see WJL acquired.”

The Australian April jobs data is due out at 11.30am AEST.

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

SPI futures are pointing towards a positive start in excess of 1%.

US Market Updates:

In US news the SpaceX (SPCX) IPO filing has come in at an expected US$2trn valuation.

SpaceX is going after a US$28.5trn addressable market “to build the systems and technologies necessary to make life multiplanetary, to understand the true nature of the universe, and to extend the light of consciousness to the stars.”

Nvidia beat on earnings but is trading down slightly in the after market. Jensen Huang was quoted on the earnings call:

“This was an extraordinary quarter. Demand has gone parabolic. The reason is simple. Agentic AI has arrived. AI can now do productive and valuable work.”

“We built Nvidia Compute Platform over three decades,” (…) “…We built it ahead of this moment so that when Agentic AI arrived, Nvidia would be ready. It has arrived.”

Today’s Big Picture, J.L. Bernstein

Oil Falls hard on Iran Deal Hopes and Hormuz Traffic

Three supertankers crossed the Strait of Hormuz today, the most oil traffic since the war kicked off in late February.

Trump told reporters the US is in the “final stages” with Iran, and WTI closed below US$100 for the first time in weeks.

I think the market is getting ahead of itself, but the tanker crossings are a real signal that some countries are willing to test the waters. Literally.

Bond Market Gets a Breather After the Danger Zone

The 30-year yield hit its highest level since 2007 yesterday before pulling back today.

HSBC called Treasurys “firmly in the danger zone,” and Deutsche Bank warned yields could revisit Liberation Day panic if the ceasefire breaks down.

Fed minutes showed most officials leaning toward rate hikes if inflation stays above two percent.

Oil coming down would fix a lot of this, which is why the Hormuz crossings mattered so much.

ANZ Bank, Australian Morning Focus

The drop in oil prices sparked a recovery in risk appetite as bond yields fell.

The US S&P500 was up 1.1%. In Europe, the EuroStoxx50 and the FTSE 100 indices ended the session 2.1% and 1% higher respectively.

In bond markets, the yield on the bellwether US 10yr Treasury bond was down -9bp compared to this time yesterday, at 4.57%. In commodity markets, the active WTI oil future was down -5.4% to US$98.5/bbl, while spot gold was up 1.4% to US$4,546.0/oz.

Minutes from the Fed’s 28-29 April meeting underscored the hawkish tilt that was seen on the day, among other things noting that “The vast majority of participants noted an increased risk that inflation would take longer to return to the Committee’s 2 percent objective than they had previously expected”.

While the minutes noted “Several participants highlighted it would likely be appropriate to lower the target range for the federal funds rate once there are clear indications that disinflation is firmly back on track or if solid signs emerge of greater weakness in the labor market”, they also noted that “a majority of participants highlighted, however, that some policy firming would likely become appropriate if inflation were to continue to run persistently above 2 percent.”

Oil prices fell on reports that the finishing touches to a draft proposal between the US and Iran is close.

Financial markets responded positively indicating expectations around the duration of the conflict remain the main driver of market dynamics.

Owing to the prolonged impasse and repeated failed attempts to reach agreement, intraday market volatility has fallen as agents remain on the sidelines awaiting greater clarity.

Central banks are no different. In the UK and the euro area guidance from officials surrounding upcoming meetings has become more opaque.

Some ECB officials seem keen to create more of a two-way market from the widely expected 25bp hike at the June meeting by stressing that any decision will be data-dependent with an emphasis on incoming inflation, inflation expectations and wage data.

The data will be released at the beginning of June.

In the UK, BoE Governor Bailey played down the prospect of a June rate hike noting the unwinding of UK interest rate cut expectations represented a tightening in monetary policy.

Inflation and labour market data in the UK have also been weaker than expected.

NAB Markets Today extract

Australia releases the Labour Force Survey for April. 

The consensus and NAB forecast for the unemployment rate is an unchanged 4.3%, but after 4.26% in March, the risk is on the downside and 4.2% should the participation rate decline. 

The participation rate has very gradually eased from a high of 67.2 at the start of 2025 to 66.8, but the move has not been linear and has seen a low of 66.7.

The RBA’s May SoMP forecast did forecast resilience in the labour market in the near-term, with a Q2 average unemployment rate of 4.2%.

The consensus and NAB forecasts 15k jobs created in April, which is below trend of circa 30k, but we always caution on month-to-month volatility.

Higher yields are becoming harder for equities to ignore, Benoit Anne,  MFS Investment Management

Structural forces, including persistent fiscal deficits and sticky inflation concerns, are pushing borrowing costs higher across developed markets.

That raises the cost of capital for governments and companies alike, just as leverage is rising rather than falling.

The risk is clear: tighter financial conditions have historically weighed on equity valuations, especially as the 10-year nears levels that begin to curb risk appetite. But the picture is more nuanced.

Policy remains supportive in the US, where fiscal stimulus –including tax cuts, tariff refunds, and investment incentives– is helping offset higher energy costs and supply shocks.

That is limiting the slowdown and keeping the US relatively resilient versus other regions. A deeper shift is also emerging beneath the surface of earnings.

Rising funding costs are colliding with an investment-heavy growth model, particularly in AI and infrastructure, where capex is front-loaded and returns take time to materialize.

This is starting to pressure free cash flow and reveal the gap between companies that are merely growing and those that are genuinely high quality.

At the same time, the consumer is softening at the margin as real income growth slows and sentiment remains weak. Even so, earnings are still being supported by strong corporate investment and a resilient labor market.

For equities, the implication is clear: the era of broad multiple expansion is giving way to greater selectivity.

Dispersion should rise as markets increasingly distinguish between companies that can fund growth internally and those more exposed to higher external financing costs.

Those vulnerabilities would become more acute if economic conditions deteriorate, especially if the war takes longer to resolve than markets currently expect.

Midyear Economic Outlook: AI Drives Resilient Growth, Morgan Stanley extract

The global economy continues to expand, supported by momentum in the U.S., where investments related to artificial intelligence and spending by wealthier consumers are boosting growth.

Constricted oil and gas supplies due to the conflict in Iran have led to modest economic drag, but growth should recover in 2027 to levels seen before the energy shock.

Under its baseline forecast for its Midyear Economic Outlook, Morgan Stanley Research forecasts global GDP of 3.2% for 2026, versus 3.4% in 2025, assuming benchmark oil prices drop to around US$90 a barrel by the end of this year and moderate further next year, bringing GDP growth back to 3.4% for 2027. 

“We see growth close to potential across most major economies,” according to Seth Carpenter, Morgan Stanley’s Chief Global Economist and Head of Macro Strategy. 

“While energy is a key variable, AI-driven capex, as well as fiscal spending on energy security and defense, provide a firm floor to prolong late-cycle growth.”

AI Investment Is Driving Growth

AI-related spending is the dominant force in the current investment cycle—and critical to the resilient U.S. growth outlook.

Business spending in the U.S. should rise 7% in the fourth quarter from a year earlier and 8% in 2027 overall.

Companies’ spending on data center infrastructure continues to exceed investors’ expectations. This dynamic is consistent with an early-stage investment cycle in which scaling capacity is more important than optimizing it.

“AI capex includes data centers, power infrastructure, information-processing equipment and software,” Carpenter says. “Over time, we think this investment momentum will broaden beyond AI into non-AI business investment.”

While the AI investment boom begins as a U.S.-centered phenomenon, it is dependent on global manufacturing and supply chains.

Some 20% of U.S. imports are now linked to AI, which has increasingly become a global growth driver. Indeed, manufacturing-focused Asian economies may be poised to enter an industrial super-cycle.

Oil Prices Fuel Inflation

The global trend of slowing consumer prices has been interrupted by the energy supply shock. Headline inflation has increased, though the speed at which this passes through to core inflation, which excludes volatile items such as energy and food, varies significantly from country to country.

In the U.S., higher oil prices are being offset by a lessening in the impact of tariff-related inflation in the second half. By the end of this year, U.S. inflation should begin to get back to the modest downward trend that was seen at the start of 2026.

Europe, by contrast, is more exposed to both higher oil and liquefied natural gas prices from the supply disruption in the Middle East. Headline inflation in Europe may peak with the onset of winter, while core inflation may remain above target through much of 2027.

U.S. Federal Reserve policymakers will be waiting to see whether inflation from higher energy prices or tariffs proves to be temporary. In Morgan Stanley’s baseline forecast, the Fed will cut rates twice in the first half of 2027, by 25 basis points in the meetings of March and June to a final range of 3% to 3.25%, as inflation begins to recede.

In Europe, where energy-related inflation is more troubling, the European Central Bank is likely to tighten in the second half of this year, with two rate increases of 25 basis points, and as inflation and wages increases start to slow in 2027, cut twice again, bringing its base interest rate to 2%.

Energy Is a Wild Card

A key assumption in Morgan Stanley’s baseline forecast is that the conflict with Iran is resolved by mid-June. Less favorable outcomes for the global energy supply are certainly possible.

In a more extreme outcome, tensions re-escalate and the disruption to energy supplies gets worse. This could lead to shortages, supply-chain disruptions, sharply higher inflation, and damage to consumer and business confidence—and oil prices above US$150 a barrel.

This outcome yields a global recession.

At the same time, there are factors that could accelerate growth beyond Morgan Stanley’s baseline outlook.

One possibility is rooted in stronger U.S. demand, with wealth effects boosting consumption and business spending.

In this scenario, labor markets tighten, inflation picks up and the Fed actually raises rates by the end of 2026.

In this instance, global growth benefits from strong U.S. demand.

This helps Europe close its output gap faster than expected, and the U.K., China and Japan also benefit. 

Corporate news in Australia:

• • Dai-ichi Life could move to fully acquire Challenger ((CGF)) as conditions become more favourable  
• Quadrant Private Equity selling TSA Riley in deal expected to exceed $500m
• • Ontario Teachers’ Pension Plan preparing bid for StraitNZ in sale process valued around NZ$1bn 
• • Healthscope undergoing dual-track sale process with rival consortium preparing $400m bid 
• • James Murdoch acquired Vox Media’s New York Magazine and podcast assets for more than US$300m 
• • Catapult Sports ((CAT)) flags further acquisitions as CEO tips breakeven within a year
• • SpaceX files for Nasdaq IPO according to reports
• • Electric Optic Systems ((EOS)) shares fall after $150m capital raise to fund MARSS acquisition and improve liquidity
• • Edify Energy secures financing for major Queensland solar and battery projects with long-term customer support
• • Southern Cross Media Group ((SXL)) sees 20m share block trade worth about $11.2m executed at market open
• • Infratil ((IFT)) is selling its 5% stake in Contact Energy ((CEN)) to free capital for future growth investments
• • Early investors in Applied EV seeking share sale through secondary process led by Morgans Financial
• • Abacus Group ((ABG)) set to sell part of Abacus Storage King ((ASK)) stake amid REIT internalisation changes and ownership speculation
• • Endeavour Group ((EDV)) under pressure to raise equity due to debt levels, management prioritising cost reductions

On the calendar today:

-NZ April Trade Bal

-AU April Unemployment

-JP April Trade Bal

-UK 1Q GDP

-UK March Ind Prod’n

-UK March Trade Bal

-US April Housing starts

-XX Global PMIs

-AUSTRALIAN AGRICULTURAL COMPANY LIMITED ((AAC)) earnings report

-AFT PHARMACEUTICALS LIMITED ((AFP)) earnings report

-GOODMAN GROUP ((GMG)) Qtrly Update

-KAROON ENERGY LIMITED ((KAR)) AGM

-NINE ENTERTAINMENT CO. HOLDINGS LIMITED ((NEC)) AGM

-OCEANIA HEALTHCARE LIMITED ((OCA)) earnings report

-ORICA LIMITED ((ORI)) ex-div 28.50c

-SGH LIMITED ((SGH)) investor briefing

-TELIX PHARMACEUTICALS LIMITED ((TLX)) AGM

-TOWER LIMITED ((TWR)) earnings report

-VIVA ENERGY GROUP LIMITED ((VEA)) AGM

-VENTIA SERVICES GROUP LIMITED ((VNT)) AGM

-WEB TRAVEL GROUP LIMITED ((WEB)) FY26 earnings report

-WEBJET GROUP LIMITED ((WJL)) FY26 earnings report

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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