The Overnight Report: Futures Looking Up

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US markets eeked out positive gains led by the Dow Jones, with the US government investing US$2bn in quantum computing companies.

After a positive rebound yesterday, ASX200 futures are signalling another positive session ahead before the weekend.

Good Morning,

The Australian market rebounded on Thursday, with the ASX200 rising 125 points or 1.5% to 8,622.

Miners rose 2.6% leading the gains while energy lagged by -1%.

After multiple financial results and trading updates yesterday, the corporate calendar looks bare for today:

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

https://fnarena.com/index.php/reporting_season/

Today’s Big Picture, J.L. Bernstein

Iran Peace Deal Flips Markets Midday 

The morning started ugly. Iran’s supreme leader ordered that near-weapons-grade uranium must stay in the country, a direct challenge to Trump’s stated red line.

Oil ripped above US$108. Then Iranian media reported a Pakistan-mediated deal that includes a ceasefire and free navigation through the Strait of Hormuz.

Secretary of State Rubio confirmed “some good signs.”

Oil reversed hard and dropped below US$97 on WTI.

Nvidia Posted Record Numbers and the Stock Still Flopped

Revenue came in at US$81.6 billion. Data center revenue alone hit US$75.2 billion, a record.

The company mapped out a brand new US$200 billion CPU market through its Vera chip and expects US$20 billion in standalone CPU revenue this year.

None of it was enough. Investors want more from this name and I’m not sure what “more” looks like at this point.

US Government Bets US$2 Billion on Quantum Computing 

The Trump administration is granting US$2 billion to nine domestic quantum companies and taking equity stakes in return.

IBM gets US$1 billion of the total. GlobalFoundries gets US$375 million. D-Wave Quantum, Rigetti Computing, and Infleqtion each get US$100 million.

This moves quantum from the research lab into the core of US industrial policy.

NAB Markets Today, extract

Risk has been on and off through the session. The latest 14-point framework from Washington was reported by Iranian media as having “narrowed the gap,” and Secretary of State Rubio told the FT there were some “good signs.”

But the optimism quickly unravelled as Iranian Supreme Leader Khamenei issued a directive: near-weapons-grade uranium must not be sent abroad. Oil spiked, Treasury yields rebounded about 8bp from their session lows, the Dollar gained and stocks retreated.

By the end of the session, however, sentiment was turning cautiously positive again with an unverified social media post claiming an agreement could indeed be signed within hours.

All-in-all, lots of tete-a-tete but not much has changed. Oil was unsurprisingly amongst the more volatile markets: Brent futures for June had ebbed to US$104 before the reports of the Ayatollah’s diktat on uranium remaining in Iran, but eventually reached US$109 before falling as far as US$102.

There was a modest recovery into the close at US$104.50.

Turning to the data: Thursday’s flash PMIs told a general story that manufacturing is a bit more resilient and services are not. France’s composite fell to a 66-month low of 43.5, and the Eurozone composite missed at 47.5. 

UK services collapsed to 47.9 against a 51.7 consensus — the first time that index has been in contractionary territory in over a year. And even with manufacturing PMIs mostly faring better, Germany’s manufacturing index slipped back below 50.

In the US, the composite PMI held at 51.7 and manufacturing beat at 55.3. Some pull-forward of activity to get ahead of supply chain disruptions. However, this seems to be hitting differently in Pennsylvania where the Philly Fed survey found a wild divergence between current activity –-dipping more than 27 points in May– whilst future activity expectations jumped to a five-year high.

In rates the 10Y UST yield initially fell with the Iran deal hopes, jumped higher with their fading, and then regained ground as optimism rebuilt later in the session to leave it little-changed at 4.57%.

The Gilt curve gently bull-flattened (10Y yield down -3bp to 4.96%) but continental European sovereign curves bear-flattened slightly. Australian rates have been significant outperformers, with the pricing of RBA hikes trimmed from a terminal rate of 4.67% to 4.63%.

In FX, the AUDUSD is barely changed in 24 hours at 0.715; indeed, the USD is barely changed on any of the major crosses. The AUD’s swoon from 0.716 to 0.710 after the employment data release yesterday has been reversed.

US equities ended modestly higher, with the S&P 500 up 0.2%, and the Dow Jones up 0.55%, led by IBM.

The VIX fell -3.4% to 16.9, reflecting a broadly constructive risk tone despite the volatile Iran headlines. European markets were mixed — the FTSE edged up 0.1% while the DAX and CAC each fell around -0.4–0.5%, weighed by the weak PMI data.

Australia’s April labour market report delivered a surprise.

Unemployment rose 0.2pp to 4.5% — the highest since November 2021 and a clear challenge to the RBA’s SoMP forecast of a Q2 average of 4.2%.

Employment fell -19k, with both full-time (-11k) and part-time (-8k) contributing. The job finding rate fell sharply and participation fell to 66.7%. Four months of solid gains had preceded the miss, and the trend unemployment rate held at 4.3%, but this print makes the Board’s framing of a tight labour market difficult to sustain.

We have noted some tension between the SoMP assessment that the labour market would remain tight this year and RBA Board’s framing of competing concerns on both sides of the mandate.

Today’s data challenge the SoMP forecast while highlighting risks on the full employment side of the mandate.

There is now less urgency for the RBA Board to lean more firmly against inflation risks, and the balance of risks has shifted in favour of the Board’s characterisation that they have some ‘space’ to monitor incoming data for both inflation and activity impacts due to higher oil prices and uncertainty coming out of the Middle East.

As a result, we have pushed our expectation for a further 25bp increase in the cash rate to the August meeting. 

Gold at Risk Amid Hawkish Fed Expectations, Zaheer Anwari, The Revacy Fund

Gold remains vulnerable in the near term amid increasingly hawkish monetary policy expectations and elevated bond yields.

Minutes from the latest Federal Reserve meeting showed growing concern among policymakers that inflationary pressures linked to Middle East tensions could prove more persistent.

This has strengthened the higher-for-longer narrative and supported Treasury yields, weighing on non-yielding assets such as gold.

However, renewed diplomatic efforts have improved the prospect of de-escalation. Any progress toward a reopening of the Strait of Hormuz could push oil prices lower, ease inflation concerns and, in turn, bring bond yields down, which could reduce some of the pressure on gold.

If tensions flare again, the market will have to weigh two competing forces: safe-haven demand on one side, and higher oil, firmer inflation expectations, and higher yields on the other.

Despite these near-term headwinds, structural support for bullion remains intact, as ongoing central-bank purchases continue to provide an important floor under the market.

Looking ahead, gold is likely to remain highly sensitive to geopolitical developments and, more specifically, to how they feed through into oil, inflation expectations, and bond yields.

From a technical perspective, gold continues to trade within its range, with the all-time high printed in January acting as resistance and the daily 200 SMA providing support.

From a portfolio perspective, we remain flat after selling the long positions we had held since March 2024 above US$5,000 at the start of the year.

For now, we are waiting for a breakout and a clearer trend direction.

With the broader trend still bullish, we favour a move to the upside, but we will wait for confirmation before buying back in, with US$10,000/oz remaining the next long-term target.

Software in the “Age of Intelligence” Franklin Templeton

Enterprise software is undergoing its most significant reset in a generation.

Artificial intelligence (AI) is reallocating value within software—creating clear winners and exposing vulnerabilities in business models that have worked well for the past two decades.

We believe investors who treat software as a uniform asset class will make costly mistakes.

The cost of writing software has collapsed. AI coding tools now perform at the level of elite human programmers, meaning more software will be created and deployed than ever before.

AI is automating knowledge work at scale. Enterprises can now do more with fewer people, putting direct pressure on software companies whose revenue depends on human headcount (seats) growing predictably.

The “software as a service” model is fracturing. The industry is splitting into distinct camps, and this past earnings season made that division even clearer.

• Seat-based software incumbents that have not yet adapted their business models may face increasing pressure.
• Companies that benefit from AI-driven usage expansion—infrastructure, security, orchestration—and systems of record deeply embedded in enterprise workflows will be better positioned.
• Analysis requires a disciplined framework: pricing power, gross margin stability, consumption-based monetization and evidence that AI is accelerating the business.

Two separate, but related, forces are reshaping enterprise software.

The first is the collapse in the cost of creating software. Since 2022, AI has moved from a novelty to a genuine engineering peer.

By late 2025, leading AI coding tools had nearly matched the output of skilled human developers and are continuing to improve. The consequence is straightforward: The volume of software written and deployed globally will increase dramatically.

The barrier to creation has effectively fallen, forcing enterprise software investors to re-evaluate how these companies operate.

The second disruption is broader. The same AI systems that write code can now draft documents, synthesize research, manage workflows and automate complex analysis, as well as engage in other agentic knowledge work.

Enterprises are realizing that AI doesn’t just make developers more productive; it can make entire organizations leaner. That realization raises an uncomfortable question for many software vendors: If AI can perform the work, how many human software seats does an enterprise customer need?

Together, these forces are not destroying software, they are shifting value around and repricing it.

We believe the most important insight from this past earnings season is that “software” is no longer a single investment narrative.

We think the sector has split into three distinct camps:

1. AI workload beneficiaries. As enterprises deploy AI at scale, the underlying systems become more complex. More needs to be monitored, secured, governed and orchestrated. Companies that manage this complexity have started to experience accelerating demand. AI is the engine driving their growth, not a threat to it.
2. Seat-model incumbents under pressure. Companies built on the assumption that enterprise headcount would grow predictably (and that each employee would need a license) are facing change. They are not all in decline, but they face a painful transition: reinventing how they capture value at the precise moment customers are questioning how much value they need.
3. AI operating platforms. The most compelling long-term opportunity sits here. These are companies whose products serve as the connective tissue of enterprise AI deployment—workflow orchestration, process automation and systems of record with critical enterprise context on how work is done. Their value proposition is strengthening as AI complexity grows and the best of them are growing faster than their pre-AI trajectory with pricing power intact.

AI is not replacing software. It is repricing software by reallocating value away from human-seat models and toward companies embedded in AI-driven infrastructure, data and enterprise orchestration.

The total volume of software consumed globally will almost certainly grow. But we believe the distribution of that value will look very different from the past decade.

Corporate news in Australia:

• The ACCC has approved the $1.5bn takeover of Moorabbin Airport by a consortium including Barings, Aware Super, and Rest Super
• Stonepeak is nearing a $2.5bn acquisition of Estia Health from Bain Capital, expanding its exposure to the aged-care sector
• Monvia Insurance is planning a $100m IPO to support expansion of its insurance software platform business
• Jarden is transitioning to a staff-owned investment bank through a $30m capital raise and asset divestment
• New Aim is preparing for a potential IPO after appointing advisers and conducting investor roadshows
• Lendlease Group ((LLC)) is facing growing debt pressure and leadership uncertainty, delaying planned asset sales and increasing speculation around a potential capital raising
• Five V Capital invested $55m in hospitality ordering platform Ordermentum, valuing the company at more than $150m and allowing for partial secondary share sales

On the calendar today:

-NZ April Mfg PMI

-JP April PPI

-CH 1Q BoP

-UK April retail sales

-US April housing starts

-US May Empire Manu

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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