The Overnight Report: Markets Pricing Peace?

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

With US and UK markets closed overnight, much of the focus was on oil futures which fell on talk a peace deal is in the offing to re-open the Strait of Hormuz.

S&P500 futures are pointing to a 0.9% rise at the open with Nasdaq100 futures up 1.2%.

After a third positive day yesterday, ASX200 futures are indicating another up day for the market.

Good Morning,

The Australian market finished up 0.4% on Monday, posting its third day of gains. Materials lifted 1.8% while energy fell -2.4%.

Champion Iron Ore ((CIA)) and Aroa Biosurgery ((ARX)) are due to report earnings today with Fisher & Paykel Healthcare’s ((FPH)) details already out.

RBC Capital’s first impressions on today’s result:

“Fisher & Paykel delivered a FY26 result that was in line with guidance and consensus expectations. Hospitals revenue was a slight beat due to hardware revenue with consumables revenue missing by -1% against consensus (although still growing 16% cc).

“Management said they were pleased with the hospitals consumables performance given hospital admissions for seasonal respiratory illnesses appear to be subdued.

“Homecare revenue was in line with consensus numbers with hardware beating but consumables missing by -1%.

“Management’s guidance for FY27 is broadly in line with consensus (revenue guidance of NZ$2.45bn-NZ$2.57bn vs consensus NZ$2.554bn, and NPAT of NZ$500m-550m vs consensus NZ$543m) and we note the company usually exceeds their initial guidance.

“The stock has been weak leading into this result on cost inflation and outlook concerns, therefore we believe the stock could experience a small relief rally today.”

Flight Centre ((FLT)), Santos ((STO)) and Challenger ((CGF)) have Investor Briefings organisewd with Goodman Group ((GMG)) scheduled for a quarterly update.

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

And to stay up to date on earnings season, check out the Corporate Results Monitor

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

ANZ Bank, Australian Morning Focus extract

US markets were closed for the Memorial Day holiday and the UK had its Spring Bank Holiday, making for a quiet night in global markets. However, those markets that were open were in a positive mood as Trump said that deal talks to reopen the Strait of Hormuz were “proceeding nicely”.

The EuroStoxx50 was up 1.9% and the DAX was up 2.0%. European 10y bond yields were generally lower (with France at -10.5bp and Germany -9.2bp). The active WTI oil future fell -6.5% to US$90.3/bbl. Gold rose 1.3% to US$4,568.7/oz.

In addition to Trump’s comments overnight, Pakistan’s military chief Asim Munir reportedly told China an agreement is “close” to being reached to extend the ceasefire and reopen the Strait of Hormuz.

An Iranian delegation has travelled to Qatar to discuss the release of frozen funds. Not all details are finalised.

Potential sticking points are whether ships will have free passage through the Strait of Hormuz or be required to pay Iran and/or Oman a toll (now recharacterised as a charge for “navigation services”) and how quickly frozen Iranian funds will be released.

Australia CPI tomorrow. We expect trimmed mean inflation to have risen 0.3% m/m in April. This should see annual growth accelerate to 3.4% y/y and three-month annualised growth around 3.2%.

Headline inflation is likely to have risen 0.5% m/m, or 4.3% y/y.

For us and the RBA, the April data will be important in revealing the speed and extent to which higher input costs are flowing through to the broader inflation basket.

While we expect to see very early signs of second-order passthrough in some expenditure categories in April, the magnitude is likely to be small.

That said, these second-order impacts are likely to accelerate over the coming months. Expenditure classes such as milk, bread and fruits and vegetables are often amongst the first to record price rises.

There are also reports of sharp rises in the cost of building materials, although given the slowdown in the housing market we expect these higher costs will be harder for builders to pass on compared to a few years ago.

Policy decisions will also impact the April print, with free public transport in Victoria and Tasmania likely leading to a fall in urban transport fees.

We also expect to see there was around an -8% m/m decline in automotive fuel, partly due to the halving of the fuel excise.

Raising our estimates on the other side of the wall, Stephen Auth, Federated Hermes 

The market’s latest bug-a-boo is inflation: the war has gone on too long, the narrative goes, so higher gasoline prices are beginning to bleed into higher nominal, and core, inflation readings.

This is certainly the case at the margin, and even we have pushed out the start of the Warsh Fed rate-cutting cycle from June to probably December.

But with wages still relatively controlled, especially relative to sterling productivity gains, we continue to see the oil shock as a one-off that inevitably will end.

More importantly, a little extra inflation, when accompanied by a patient Fed and strong earnings growth, has little impact on stock returns.

Rather, as we’ve long highlighted, stocks live on nominal earnings growth, and the recent earnings season has left us, and most of Wall Street, raising our out-year earnings numbers yet again.

So with this further-improved earnings outlook, we are raising our S&P500 targets, for this year and next, to 8,000 and 9,000, respectively.

Key points:

1. Bonds get hit when inflation rises, but not always stocks. Particularly when the central bank is perceived as dovish, bonds worry that higher inflation will persist. So last week’s unexpectedly high producer price index and consumer price index prints (core CPI came in at 2.8% versus 2.7% expected) hit US Treasury bonds hard, with the yield on the 10-year rising by 24 basis points. Note that even in Europe, where growth is slower and the European Central Bank is nonetheless hinting at a hawkish rate hike, the German Bund yield also rose 15 bps. For stocks, however, the picture is more nuanced. Though stocks were down hard on Friday, for the week they were roughly flat. Historically, stocks have served as an inflation hedge, demonstrating the ability to post strong returns relative to bonds in higher inflationary environments, so long as earnings growth remains strong.
2. Particularly given a dovish Fed, the odds of a significant demand pullback due to the current setup seem low. Two important offsets are muting the impact on the consumer: the One Big Beautiful Bill (OBBB) tax cuts and the wealth effect of the market rally. In addition to lower tax withholding rates, the OBBB has also led to tax returns that are, on average, 18% larger than last year. With the benefits of the bill accruing primarily to low- and middle-income consumers, this should provide a buffer from higher gas prices, with the increase in tax returns offsetting six to eight months of US$4.50 gasoline, and for higher-income consumers, the positive wealth effect from higher equity prices has helped to bolster spending. Both sides of the “K” are covered, at least for now. For stocks, this is important. Despite the inflation fears, nominal economic growth should remain high.
3. Stocks can pass through and/or manage inflation, especially when productivity is booming due to AI. Earnings beats this season were actually very broad, with all sectors beating consensus, and 82% of stocks beating. Earnings growth y/y was double digit in eight of 11 sectors. Productivity gains over the last four quarters have been 3% vs the longer-term average of 2%, and the pace of margin expansion is now at levels only seen during the peak of the dot-com boom. Historically, stocks do about equally well in low and high inflation environments, as long as earnings growth is strong.
4. Another welcome development last week was a pivot in the US-China relationship from “Cold War”-like to something closer to a normalization. China gave President Trump a warm welcome, and we expect further positive details to emerge as we approach the upcoming September 24 summit: while rare earths and semiconductors remain strategic choke points for both nations, we expect to see the rollback of tariffs on less-strategic goods (e.g. “toys”), as well as increased Chinese imports of US energy and agricultural and aerospace products. The US-China Board of Trade was another step towards both sides developing a more constructive relationship. 
5. Following earnings season, we are raising our earnings forecasts for this year through 2028, basically predicated on a continuation of the accelerated margin expansion that we’ve seen in recent quarters alongside strong nominal GDP growth. We are now at US$450 in 2028 (previously US$410), implying an S&P500 target for 2027 of 9,000 (previously 8,200). Note that 9,000 utilizes a relatively conservative 20x multiple, which we may reevaluate (higher) should the quarters ahead continue to surprise to the upside. For 2027, we are raising our earnings number on the S&P to US$390, implying a year-end 2026 market level of about 8,000. 
6. Eventually, we anticipate inflation will subside given the Goldilocks labor market and little sign that higher oil is translating to higher wages. Both sides of the Iran conflict need the war to end, as does the rest of the world. So, inevitably, it will end. When that happens, the y/y inflation prints will face easy comparisons which will provide a favorable disinflationary tailwind. With this, the Warsh Fed, already inclined to cut rates to help the rate-sensitive parts of the economy that are suffering, will likely begin a new rate-cutting cycle. That will be more good news for stocks ahead.

One last point: For all the talk of market narrowness, the market has actually broadened out year-to-date, not narrowed, and that trend is likely to continue.

Although the AI-related stocks, for sure, have led the market in percentage terms off its lows, that’s partly because the AI stocks got hit hardest earlier in the year. On a year-to-date basis, the “broadening-out trade” that we’ve been anticipating is actually happening.

Small caps, value indices, and the emerging markets have all generated double digit returns year to date, and have all outperformed the Magnificent Seven.

We expect these trends to continue as fear around the Iran conflict and inflation fades, the Fed resumes cuts, and economic growth re-accelerates.

This kind of leadership rotation is a common feature of sustainable bull market runs. We are maintaining our overall equity overweight/bond underweight in our balanced models, with that overweight balanced among US value, US growth, small caps, and emerging markets.

The only area we are underweight, besides bonds, is developed markets equities, where the growth story is less compelling and stagflation concerns are more realistic.

Corporate news in Australia:

•  Coronado Global Resources ((CRN)) sells a US mine to sharpen focus on core metallurgical coal operations
• Beach Energy ((BPT)) offloads a -60% stake in the Otway Basin for $130m as part of capital reallocation efforts
• Atlas Arteria ((ALX)) considers selling its Chicago Skyway stake following ROFO expiry and a panel ruling
• Service Stream ((SSM)) acquires RIE Group for up to -$8m to broaden its utilities services offering
• Zembl advances sale discussions with Ellerston as non-binding indicative offers emerge from bidders
• Agilex Biolabs attracts private equity interest despite a softer valuation backdrop
• Quadrant Private Equity prepares multiple asset sales amid pressure to realise exits
• Singtel explores a potential Optus stake sale with infrastructure investors 
• CDC Data Centres prepares a $1bn hybrid financing deal after securing a major client contract to support balance sheet strength
• Harvest Technology Group ((HTG)) launches a capital raising to support defence-focused expansion plans
• Regal Partners ((RPL)) backs the Boresight IPO, increasing exposure to drone and defence technology investments
• SoftBank shares hit record highs on investor optimism around possible IPOs tied to its OpenAI stake and other assets
• Greencross IPO delayed as TPG evaluates alternative transaction structures
• Firmus IPO delayed amid market uncertainty despite strong AI-related listing momentum

On the calendar today:

-US May Consumer Confidence

-ARISTOCRAT LEISURE LIMITED ((ALL)) ex-div 50.00c

-AROA BIOSURGERY LIMITED ((ARX)) FY26 earnings report

-CHALLENGER LIMITED ((CGF)) investor briefing

-CHAMPION IRON LIMITED ((CIA)) FY26 earnings report

-ELDERS LIMITED ((ELD)) ex-div 18.00c (100%)

-FLIGHT CENTRE TRAVEL GROUP LIMITED ((FLT)) investor briefing

-FISHER & PAYKEL HEALTHCARE CORPORATION LIMITED ((FPH)) earnings report

-GOODMAN GROUP ((GMG)) Qtrly update

-INFRATIL LIMITED ((IFT)) FY26 earnings report

-NEWMONT CORPORATION REGISTERED ((NEM)) ex-div 25.44c

-NICKEL INDUSTRIES LIMITED ((NIC)) AGM

-RYMAN HEALTHCARE LIMITED ((RYM)) earnings report

-SANTOS LIMITED ((STO)) investor briefing

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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