The Overnight Report: Grinding Sideways

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

Investors continue to rotate across indices and sectors in the US, with chip stocks falling sharply overnight as buyers shifted into software.

The S&P500 is effectively unchanged from May 8.

After a positive start to the week, ASX200 futures are pointing to a weaker start on Tuesday.

Good Morning,

The Australian market advanced on Monday, up 122 points or 1.4% to 8,894, the best session in three weeks. Technology led the rally, up 4.5%, with Energy down -3%, as oil prices fell.

Ahead on the calendar today is a plethora of quarterly updates including IGO Ltd ((IGO)), Iluka Resources ((ILU)), Liontown ((LTR)), Viva Energy ((VEA)) and Whitehaven Coal ((WHC)).

FNArena Calendar https://fnarena.com/index.php/financial-news/calendar/

Today’s Big Picture, J.L. Bernstein extract

Nvidia’s OpenAI Deal Put The Chip Trade On Edge

$NVDA is in talks to guarantee roughly US$250 billion so OpenAI can lease a data center project in southern Ohio, with a separate deal under discussion to finance the chips going inside it.

That is Nvidia funding the customer who buys Nvidia hardware.

Investors sold the whole group on it, and the S&P’s semiconductor names finished as the worst corner of the market.

Oil Fell, But The Ships Have Not Moved

Brent crude went under US$90 after the White House shelved plans to escalate in Iran.

Ship tracker Kpler counted six to twelve daily crossings of the Strait of Hormuz over the weekend, no better than last week.

So the physical supply picture is unchanged. Today’s move was a bet on talks restarting, and that is worth remembering before anyone treats it as an all clear.

Big Tech Has Three Days To Answer One Question

Ten stocks now make up more than a third of the S&P500, a record share.

Microsoft, Meta, Apple, and Amazon all report between Wednesday and Thursday.

Alphabet set the bar last week: cloud revenue hit US$24.8 billion, free cash flow came in at negative -US$5.9 billion for the first time since the 2004 IPO, and the stock sold off anyway.

CBA Economics Daily Alert, extract

Oil prices continue to drop on signs of de-escalation

Oil prices fell as President Trump said the US and Iran were holding diplomatic talks to end their conflict, but that fighting would return if negotiations did not lead to a deal.

While Iran’s foreign ministry denied negotiations were taking place, Iran and Oman flagged they are negotiating a deal to restart shipping through the Strait of Hormuz.

Positive news for oil though was offset in the US by a fresh selloff in chipmakers, as concerns heighten over the scale of investment in the sector.

US sharemarkets were mixed in Monday’s session as optimism over the US-Iran conflict was offset by concern over the scale of AI investment, as investors waited for updates from major US tech companies.

The Dow Jones index finished up 0.5%, the S&P500 index was flat and the Nasdaq index lost -0.2%.

European sharemarkets were also digesting the pause in attacks between the US and Iran as well as awaiting updates from major US tech companies and the pending US Fed Reserve rates decision.

The continent-wide FTSEurofirst 300 index ended flat, and UK FTSE100 finished up 0.4%.

US government bond yields declined on Monday as crude oil prices plunged, as investors await the US rates decision this week. The US 10-year Treasury yield dipped -3 points to 4.65% while the US 2-year Treasury yield fell -1 point to 4.32%.

The US dollar was softer as oil slumped on the latest pause in the Middle East conflict. The Euro was trading at US$1.1367, the Japanese yen at JPY163.73 and the Aussie dollar at US$69.89 cents.

Global oil prices fell to a one-week low on renewed hopes of a diplomatic solution to the conflict and the safe movement of supplies through the Strait of Hormuz.

Brent crude futures fell -8.7% to US$88.36 a barrel.

Base metal prices were higher on Monday. Copper edged up 0.3% while aluminium futures were 0.4% higher.

Gold futures were higher. The futures settled up 0.2% at US$4077 an ounce.

Iron ore futures were lower. The futures settled at US$98.35 a tonne.

Looking Ahead: In Australia, RBA Governor Michelle Bullock is speaking at a fundraising lunch in Sydney.

ANZ Bank, Australian Morning Focus, extract

The main event in the data calendar this week is the US FOMC meeting (4am Thursday AEST), where the possibility of a rate increase is likely to be discussed.

Arguments in favour of a rate hike include reinforcing rhetoric with action, the potential effectiveness of unexpected monetary policy moves, and signalling the Fed’s independence. All have merit. 

Our baseline expectation, however, is for a hawkish hold. Since taking office, Chair Warsh has argued that monetary policy cannot prevent price shocks and that the Fed should focus on addressing second- and third-round effects. 

Since the outbreak of conflict in the Middle East at the end of February, there has been scant evidence of inflation passthrough, while medium- to longer-term inflation expectations have remained well anchored. 

The decision to end forward guidance and reaffirm a commitment to the 2.0% inflation target has already resulted in tighter pricing being reflected in the curve. 

Data released since the June FOMC meeting has pointed to easing inflation pressures and moderating job creation. 

We judge that a majority of FOMC voting members will prefer to see how the data evolve over coming months before determining whether policy settings are sufficiently restrictive to return inflation to target, or whether rates need to move higher.

That said, the June dot plot highlighted clear divisions within the Committee, with half of those submitting rate projections indicating that further tightening may be appropriate by year-end.

As such, a robust discussion on monetary policy strategy and the appropriate level of interest rates can be expected.

The Pulse of the Market, Muddy Waters, Lori Calvasina, RBC Capital Markets

The big things you need to know: 

First, the stats for 2Q26 reporting season have continued to come in mixed, arguing for selectivity rather than a leadership rotation, in our view. 

Second, last week’s earnings commentary from S&P500 companies reiterated the themes of resiliency and AI tailwinds but didn’t give us much insight on how to think about recent war developments. 

Third, we review how we’re thinking about the role of the retail investor in today’s US equity market, which differs in some respects from the past, and how we’re monitoring risks on this front. 

Fourth, other things that jump out in our updates this week include the return of S&P500 Semiconductor & Semiconductor Equipment valuations to average levels and the bright spots we’re seeing in our quantitative work on Japan.

On the earnings stats we track, one thing that continues to jump out at us is our work showing that the percentage of S&P500 companies beating consensus EPS forecasts is up versus last quarter for the S&P500, but that the beat rate has fallen versus last quarter on revenues. 

This divergence is something we’ve been seeing since the early reporters started trickling in for the 2Q26 reporting season. We had been expecting it to change, specifically for the revenue beat rate to improve, once earnings season became busier, but that simply hasn’t been the case.

To us, this divergence supports the idea that companies are doing a good job managing through a tricky macro backdrop, but that they have still been impacted by it in ways they can’t escape.

Meanwhile, as we’ve been highlighting in recent weeks, our earnings revisions indicators still look soft. The rate of upward EPS estimates revisions for the S&P500, its largest market capitalisation names, the remainder of the index, AI, non-AI and the Russell2000 are all still trending lower. 

This points to a slower pace of upgrades to earnings forecasts, rather than outright downward revisions. The most important point is that the softness is being seen across the US equity market and does not currently favour either the previous market leaders or broader market participation.

Now that we are seeing more sector diversification in earnings results, we are paying closer attention to this statistic at the S&P500 sector level. 

We continue to see strong rates of upward EPS estimate revisions for Technology as a whole. Within Technology, Semiconductors remain strong, although Software has weakened. 

Industrials and Financials also continue to show positive revisions, with the constructive tone evident across the earnings call transcripts we have reviewed. 

By contrast, Consumer Discretionary and Communication Services, both highly exposed to hyperscalers and internet businesses, have experienced much weaker revisions trends. Weakness has also persisted or returned across the broader consumer sectors and commodity-related industries.

Stepping back, our earnings revisions work suggests investors should remain selective across both AI and growth stocks, as well as the broader equity market, rather than making a significant portfolio shift in either direction.

By the end of last week, updated data on 2Q26 EPS growth, based on a combination of reported earnings and consensus forecasts for companies yet to report, showed year-on-year earnings growth tracking at 27%.

While this represents a modest slowdown from the 30% growth recorded in 1Q26, it is a meaningful improvement from the approximately 23% pace seen at the start of reporting season.

Financials have recorded the largest improvement in earnings growth expectations since mid-June, followed closely by Energy, Technology and Industrials.

Of these sectors, Financials and Industrials continue to post growth rates slightly below the broader market, while Technology and Energy remain well above the market average. 

Our valuation analysis continues to suggest Industrials are expensive, Financials and Technology appear reasonably valued, and Energy remains the cheapest sector.

Corporate news in Australia:

• Evolution Mining ((EVN)) to acquire Carnaby Resources ((CNB)) in a $213m all-scrip transaction
• EQT increased its takeover offer for Perpetual ((PPT)), valuing the company at $2.6bn
• Dexus ((DXS)) sold three office properties for $715m, exceeding its FY27 asset divestment target
• Seek Growth Fund ((SEK)) is exploring the sale of a stake worth more than $500m in its education business
• Tokio Marine is assessing a potential acquisition of Insurance Australia Group ((IAG)) or Suncorp Group ((SUN)) as part of its Australian expansion strategy
• Advanced Innergy Holdings’ ((AIH)) Australian Industrial Holdings has completed its acquisition of Matrix Composites & Engineering ((MCE))
• The proposed $1bn sale of Perth Radiological has slowed as doctor shareholders negotiate with Bain Capital and Pacific Equity Partners
• Affinity Equity Partners is considering a break-up sale of Scottish Pacific
• WAM Income Maximiser ((WMX)) has launched a $151m capital raising
• Saturn Metals ((STN)) has launched a $100m equity raising to fund development of the Apollo Hill gold project in Western Australia
• Vysarn ((VYS)) has launched a $64m equity raising to fund acquisitions and support future growth
• Hancock Prospecting has backed G50 Corp’s ((G50)) $20m equity raising to accelerate exploration in Arizona and Nevada
• Lakes Blue Energy ((LKO)) has launched an $8m equity raising
• Myer Holdings ((MYR)) has issued a profit warning, citing inflation, higher interest rates and weaker housing conditions as headwinds

On the calendar today:

-US June Trade Bal

-AERIS RESOURCES LIMITED ((AIS)) Qtrly update

-ALS LIMITED ((ALQ)) AGM

-DEVELOP GLOBAL LIMITED ((DVP)) Qtrly update

-ELEVRA LITHIUM LIMITED ((ELV)) Qtrly update

-IGO LIMITED ((IGO)) Qtrly update

-ILUKA RESOURCES LIMITED ((ILU)) Qtrly update

-LIONTOWN LIMITED ((LTR)) Qtrly update

-VIVA ENERGY GROUP LIMITED ((VEA)) Qtrly update

-WHITEHAVEN COAL LIMITED ((WHC)) Qtrly update

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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