The Overnight Report: Profit Taking Time

Array
(
    [0] => Array
        (
            [0] => ((TWE))
            [1] => ((WGX))
            [2] => ((S32))
            [3] => ((SFR))
            [4] => ((MIN))
            [5] => ((BHP))
            [6] => ((RIO))
            [7] => ((PLS))
            [8] => ((ALD))
            [9] => ((MQG))
            [10] => ((MP1))
            [11] => ((LFG))
            [12] => ((TWE))
        )

    [1] => Array
        (
            [0] => TWE
            [1] => WGX
            [2] => S32
            [3] => SFR
            [4] => MIN
            [5] => BHP
            [6] => RIO
            [7] => PLS
            [8] => ALD
            [9] => MQG
            [10] => MP1
            [11] => LFG
            [12] => TWE
        )

)

This story features TREASURY WINE ESTATES LIMITED, and other companies.
For more info SHARE ANALYSIS: TWE
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

Rising oil prices and US bond yields on top of a rising conga line of equity issuances, including by Google, SpaceX and Anthropic, finally put the breaks on US equities.

All major US indices retreated overnight.

After a robust rally on the Australian market yesterday, ASX200 futures are pointing to a pullback today.

Good Morning,

Softer than expected GDP growth increased hopes of the end of the RBA rate hiking cycle and boosted the ASX200 up 61 points or 0.7% to 8,786.

Energy and miners led the gains with tech suffering from profit taking, having rallied hard earlier in the week.

Treasury Wine Estates ((TWE)) is hosting its Investor Briefing today.

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

In the US, SpaceX has announced its IPO details, SpaceX is selling 555,555,555 shares raising US$75bn, which would value the company at around US$1.75trn. The IPO price is US$135 per share.

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

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

Today’s Big Picture, J.L.Bernstein

Oil Wakes Up on Middle East Strikes 

The ceasefire is cracking. Iran fired its biggest barrage in weeks, hitting US bases in Kuwait and the Navy’s 5th Fleet base in Bahrain, and the US hit back at Qeshm Island.

Crude climbed and stocks gave back a chunk of their record run.

Markets spent weeks treating this war like background noise.

Today they stopped.

Strong Jobs Flip the Rate Story 

Companies added 122,000 jobs in May, the best month in over a year and well past the 110,000 economists penciled in.

Yields climbed and the rate cut bets faded fast.

Wall Street came into this year sure the Fed would cut.

Now it’s bracing for a hike. Hard to cut when the economy keeps picking up speed.

Private Markets Tighten the Exits

Two funds slammed the door on investors this week.

Partners Group in Switzerland capped withdrawals from one of its funds, a day after Cliffwater did the same with its private credit fund.

KKR, Blackstone, and Apollo all fell on the fear it spreads.

When investors can’t pull their cash out, the question becomes who freezes up next..

ANZ Bank, Australian Morning Focus

The S&P500 was down -0.74%. The EuroStoxx 50 ended its session down -0.9%, while the FTSE100 lost -0.4%. 

The yield on the US 10y note rose around 2bp to 4.49%. WTI lifted 0.5% to US$96/bbl. Gold was weaker at US$4434.1/oz. 

US ADP private payrolls rose by 122k in May, the largest monthly gain since January 2025. Eight of the ten industries reported payroll growth, led by education and healthcare (up 57k) and trade, transportation and utilities (up 36k).

Payrolls in the information industry fell by -9k. Employment in the sector is now down nearly -8% from its early 2023 peak, the largest decline of any industry over that period. 

US ISM Services Index rose 0.9pts to 54.5, above the consensus of 53.8. New orders rose 3.8pts to 57.3, prices paid rose 0.6pts to 71.3, while inventories rose 9.4pts to 62.5, the equal highest reading on record with May 2010. 

Strikes by Iran on Persian Gulf targets and US retaliation mark the most serious flare-up since the April ceasefire, with oil markets reacting sharply.

However, both sides reportedly remain engaged diplomatically, with ongoing communication and draft texts still under consideration. US resilience amid uncertainty.

US economic data continue to hold up in the face of heightened uncertainty, but vulnerabilities remain. In our view, growth driven by the narrow base of the AI investment boom is masking broader weakness across the economy.

Signs of stabilisation in the labour market in recent months have reduced some of the tension between the Federal Reserve’s two mandates. That said, labour market conditions, in our assessment, remain consistent with ongoing underlying disinflation. 

Upside inflation risks have intensified, reflecting the energy price shock, but there is little evidence to suggest this shock is broadening into more generalised inflation pressure.

Against this uncertain backdrop, maintaining current policy settings appears appropriate, as New York Fed President Williams noted today.

Geopolitical developments continue to drive the ebb and flow of market pricing for US monetary policy.

At this stage, uncertainty remains too elevated to draw firm conclusions about the path ahead, pending greater clarity on the outlook for the Middle East.

2026 Australian Mining Commodity Deck Update, RBC Capital extract

Gold forecasts are reduced, with 2026 and 2027 lowered -16% and -19% respectively to US$4,772/oz and US$5,250/oz, reflecting rising yields and reduced expectations for monetary easing. 

Despite the downgrade, we continue to expect elevated pricing relative to historical levels given geopolitical uncertainty and resilient investor demand. Long-term gold remains unchanged at US$4,000/oz. 

Silver forecasts are also revised lower alongside gold, with 2026 reduced -23% to US$77/oz and 2027-2029 lowered 0 to -17% to US$83-65/oz, though structural deficits and investment demand remain supportive. 

Copper 2026-2028 forecasts remain at US$5.88-6.00/lb, representing a 3%-9% premium to consensus, supported by electrification, power demand & constrained mine supply. 

Lithium forecasts are upgraded materially, with 2026 spodumene increased significantly to US$2,606/t and so too carbonate, reflecting tighter-than-expected market balances, accelerating ESS demand growth and delayed supply normalisation. 

Aluminium forecasts are revised higher on Middle East supply disruptions, constrained Chinese capacity growth near the 45Mtpa ceiling and rising marginal costs. 2026 aluminium increases 9% to US$1.64/lb, with 2027 and 2028 forecasts raised to US$1.63/lb and US$1.53/lb respectively. 

In contrast, Alumina forecasts are lowered -6% to -9% through 2026-2027 as refinery disruptions normalise and new refining capacity ramps across China, India and Indonesia. 

Iron Ore forecasts remain broadly unchanged at US$103/t in 2026 and US$89/t in 2027, while Metallurgical Coal and Nickel see only modest revisions. We have also lifted our AUD expectations higher.

Broad downgrades across gold coverage while lithium is upgraded: the largest earnings reduction have come from our gold equity coverage, with price targets declining on average around -15%. The largest reductions have come from those with rising CY26/2027 production.

Among our Outperform ratings, we still have a relative preference for producers with near-term production growth, minimal debt, limited hedging, strong FCF generation, and established capital return policies (such as Westgold Resources ((WGX))). 

In our view, mid-cap gold miners offer more attractive upside potential given their production growth profiles and more modest valuations. 

On our base-and-bulks coverage, earnings and price targets were largely unchanged, with commodity upgrades were largely offset by rising costs. Lithium remains the largest positive contributor to model revisions. On average price targets were lifted by 11%, with low-cost producers benefitting the most.

Our Outperform ratings in the base-and-bulks sector include South32 ((S32)), Sandfire Resources ((SFR)) and Mineral Resources ((MIN)).

We continue to favour BHP Group ((BHP)) over Rio Tinto ((RIO)) in the large-cap diversified miners on copper exposure/growth and iron ore margins.

Our lithium coverage sees earnings increases as we lift near-term pricing, with PLS ((PLS)) remaining our preferred lithium producer.

We make one recommendation change, lowering Rio Tinto to Underperform from Sector Perform.

Macro Taking Points for the Week, Benoit Anne, MFS Investment Management extract

Fed speakers signal a higher-for-longer bias. Last week’s Fed commentary reinforced a clear theme: inflation remains uncomfortably high, and policymakers are not yet confident it is on a durable path lower. 

Across speakers, the tone skewed hawkish, with multiple officials emphasizing that upside inflation risks –from tariffs, energy prices, and geopolitical tensions– remain front and center.

Importantly, several policymakers reopened the door to further tightening, explicitly signaling a willingness to hike if disinflation stalls, while others stressed that inflation remains “too hot” and not convincingly transitory.

More measured voices emphasized optionality, underscoring that cuts are not imminent and hikes cannot be ruled out. The Fed also appears increasingly wary of relying on structural “offsets.”

Hopes that AI-driven productivity could ease inflation were broadly dismissed as premature. In fact, Richmond Fed President Tom Barkin noted that AI-related investment may be adding to near-term inflation and pushing the neutral rate higher, suggesting policy may need to stay restrictive for longer than previously assumed.

 At the same time, the labor market is seen as balanced but fragile, with Fed Governor Lisa Cook highlighting rising downside risks. 

That complicates the policy outlook: persistent inflation alongside softer employment could sharpen the trade-off.

For investors, the key takeaway is that the Fed’s reaction function has shifted back toward inflation control, with asymmetric risks skewed toward tighter policy. Markets are adjusting accordingly — rate cuts are no longer priced for 2026, and the possibility of a hike cycle extending into 2027 is now entering the conversation.

Overall, this makes the case for favoring long duration exposure more difficult (contribution from Zach Knope, Strategist – Insights Analysis).

AI Capex: a durable opportunity that will require more selectivity. 

AI capex still looks more durable than many expected, and the market may still be underestimating the earnings power that could emerge as today’s investment translates into broader monetization.

What began as a concentrated build-out in compute is now broadening across the ecosystem, suggesting the cycle is evolving rather than ending.

The next phase may still require substantial capacity expansion, but the market is likely to focus less on the scale of spending and more on who can convert that spending into returns. Early investment was about securing capability and scale.

From here, the focus is likely to shift toward monetization, utilization and the conversion of elevated capex into durable earnings and cash flow. The key risk is less that spending stops than that returns take longer to emerge in relation to market expectations.

The first phase of the cycle largely rewarded exposure to the most direct beneficiaries of capex growth. The next phase may reward a different mix of attributes: resilience, pricing power, ecosystem strength and capital discipline.

As the cycle broadens, we would expect greater dispersion between companies that can translate elevated investment into durable cash flows and those still relying mainly on continued spending momentum.

We continue to believe AI capex will remain a durable theme, but the market is moving into a more selective phase.

While the opportunity remains significant, capturing it may depend less on broad exposure and more on identifying businesses with the balance sheets, competitive advantages and return discipline to convert investment into long-term value (Contribution from Ross Cartwright, Lead Strategist – Strategy and Insights Group).

Corporate news in Australia:

• IREN announced the signing of a transmission connection agreement to support a planned 800MW data center campus in Bundey, South Australia
• ACCC approved Ampol’s ((ALD)) $1bn acquisition of EG Australia, subject to divestment of 41 service station sites
• Clydesdale Engineering resolved its $182m claim relating to the Tahmoor coal mine ahead of the final sale process
• Macquarie Group ((MQG)) and IG4 Capital agreed to sell a controlling stake in Brazil’s CLI port operator to AD Ports Group for US$835m
• Direct Couriers is exploring the acquisition of Phoenix Transport 
• Cricket Victoria denied claims it is forcing asset sales while progressing plans to restructure and replace BBL franchises
• Uncertainty surrounds Sojitz’s planned sale of Gregory Crinum as the preferred bidder group faces financing challenges despite strong sector interest
• Kroll has renewed interest in acquiring KPMG’s restructuring business following the audit scandal and increasing momentum behind advisory spin-offs
• Megaport ((MP1)) raised $827m to support AI-related customer contracts and expand Nvidia GPU infrastructure
• SpaceX is seeking to raise US$75bn through IPO at a proposed share price of US$135
• Jardine is arranging a US$1bn loan package to finance its acquisition of Australia’s I-MED imaging business
• Majority Capital Partners secured backing from Caledonia founders Vicars and Messara

On the calendar today:

-NZ 1Q Building Vols

-AU April Trade Bal

-EZ April retail sales

-LIBERTY FINANCIAL GROUP LIMITED ((LFG)) ex-div 7.50c

-TREASURY WINE ESTATES LIMITED ((TWE)) 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.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author’s and not by association FNArena’s – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms