The Overnight Report: A Positive End To July

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This story features CAPSTONE COPPER CORP., and other companies.
For more info SHARE ANALYSIS: CSC
The company is included in ASX200, ASX300 and ALL-ORDS

Oh, what a difference a day makes.

Better-than-expected Microsoft results and Citadel swooping in to buy a distressed hedge fund's portfolio on the cheap underpinned the Nasdaq's best day since March.

After yesterday's sell-off on the Australian market, ASX200 futures are pointing to a strong rally to end July.

Good Morning,

The Australian market fell on Thursday by -71 points or -0.8% to 8,968 following the sell off on Wall street and higher oil prices.

Materials declined -1.6% and tech rallied 0.6%.

More quarterly updates are on the calendar today, including Fortescue ((FMG)) and Origin Energy ((ORG)). 

Capstone Copper ((CSC)) has already released its quarterly financials this morning.

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

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

Microsoft made the case for AI spending

Microsoft added about US$484 billion (or 15%) in market value today, the biggest one-day gain any US company has ever posted.

The old record was Nvidia’s US$440 billion in April 2025.

Azure revenue passed US$100 billion for the fiscal year and grew at its fastest pace in four years, even with quarterly capital spending at US$41 billion.

Investors will fund the buildout when the revenue shows up.

The most crowded AI trade got unwound

Situational Awareness, the US$24 billion fund run by Leopold Aschenbrenner, sold its entire public stock book to Ken Griffin’s Citadel after heavy losses.

The fund was long AI hardware and short software, and both sides went against it at once.

It had been up more than fourfold this year through June.

Forced selling looks ugly while it happens, and JPMorgan told clients this one is now largely finished.

Bonds didn’t get the memo

The 30-year Treasury yield sat near 5.24, its highest since 2007, while stocks rallied.

Three Fed voters wanted a rate hike this week and didn’t get one.

Traders are less worried about growth here than about how long inflation sticks around, and that always shows up in long bonds first.

Leopold’s Situational Awareness Fund Blowup Timeline @Gurgavin, X 

July 1: Leopold’s hedge fund Situational Awareness reaches US$45 billion, up 450% YTD

July 10: SK Hynix US IPO marks the top of the AI sector

July 10-20: Major sell-off across all AI stocks, with most down more than 30% in two weeks

July 10-20: His short positions start going up, causing more losses (he was short Adobe and other software stocks)

July 24: He sends investors a letter calling the sell-off a buying opportunity and asks for more money

July 27: Citadel Securities says the Fed is going to deliver a surprise rate hike

July 28: The market sells off after Citadel’s report and Leopold tries to raise and borrow more money

July 29: Banks issue margin calls

July 30: Citadel comes in and buys his entire portfolio at a massive discount

Leverage is the main reason people go broke in the stock market. Always be careful

ANZ Bank, Australian Morning Focus extract

Equity markets rebounded, led by technology stocks after days of heavy selling. 

Bond yields fell following softer-than-expected US PCE inflation data. 

The S&P500 was up 1.7%, the EuroStoxx rose 1.5%, while the FTSE100 fell -0.1%. 

The US 10yr yield fell 3bp to 4.67%. WTI eased to US$83.6/bbl and gold was at US$4,102.8/oz.

The advance estimate of GDP rose 1.5% saar in Q2, below expectations of 2.0% saar. But, the underlying details were firm. Personal consumption expenditures rose 3.2% saar and private fixed investment was up 7% saar. 

The June core PCE price index rose 0.1% m/m, below the consensus of 0.2% m/m. The annual rate eased from 3.4% to 3.3%. Supercore PCE prices rose 0.1% m/m vs 0.5% m/m prior. 

Euro area GDP expanded 0.4% q/q in Q2, above the consensus of 0.2% q/q. Growth was boosted by a 3.9% q/q expansion in Ireland, which is volatile due to the large presence of multinational corporations. That alone contributed over 0.1%pts to headline GDP growth. 

The Bank of England held the Bank Rate at 3.75% in a 6-3 vote. That marked one additional dissent in favour of a hike from the June meeting. However, Governor Bailey pushed back against the view that the BoE was moving closer toward delivering a hike.

Markets now see around a 33% chance of a hike at the next meeting in September and are fully pricing in one hike by year end. We think the next move is more likely to be a cut than a hike. 

Following yesterday’s FOMC decision to keep policy settings unchanged, market expectations for near-term rate hikes have been further pared, reinforced by June’s softer-than-expected core PCE deflator print. 

The market now sees around a 60% chance of a rate hike at the next meeting in September, down from being fully priced going into yesterday’s meeting. The FOMC remains data dependent. 

Whilst our baseline forecast is that the Fed is on an extended hold, forthcoming data will be crucial. The FOMC will have two months of inflation and labour market data before the next meeting in September, and the onus is on the data to endorse a hike.

Thus far, there has been scant evidence of the relative price shocks from tariffs and the energy shock broadening into underlying inflation.

However, we acknowledge the risk that the FOMC could hike if evidence of broadening emerges.

Mr Warsh, How Soon Is Now? Franklin Templeton, Sonal Desai

Federal Reserve (Fed) Chair Kevin Warsh a dove after all? Financial markets interpreted his second press conference as dovish, with expectations of a near-term rate hike falling, long-term bond yields rising, the US dollar weakening and equities retreating.

Judging by the initial analysis, the dovish interpretation appears to stem from two factors: what Warsh did not do, and what he did say.

What he did not do:

Warsh did not lead the Federal Open Market Committee (FOMC) to raise interest rates. This was not a major surprise, as most analysts and market participants had assigned less than a 50% chance of a July rate hike.

Nonetheless, reporters repeatedly challenged him during the press conference. Inflation has remained above target for five years, and if the Fed is committed to returning it to 2%, why not raise rates now, particularly with the economy still appearing robust?

Warsh’s response was unconvincing. He pointed to the sharp rise in bond yields since the June meeting, arguing this had tightened financial conditions. He suggested that reducing forward guidance encouraged markets to focus more on economic fundamentals rather than Fed signalling.

He later added that monetary policy influences the real economy not only through what the Fed says or does, but also through its impact on financial market prices.

The comments appeared to imply the Fed deserved some credit for higher market yields, as removing forward guidance allowed investors to better price macroeconomic conditions.

While that may be partly true, markets had also priced in a more hawkish Fed following Warsh’s strong anti-inflation rhetoric at the June meeting.

What he did say:

Some analysts interpreted Warsh’s comments on higher bond yields as meaning further rate increases were unnecessary because markets had already tightened financial conditions.

Another dovish interpretation stemmed from his comments on the inflation target. While reiterating that the Fed remains formally committed to 2% inflation based on the Personal Consumption Expenditures (PCE) deflator, Warsh said policymakers also assess a broader range of inflation measures.

Some commentators viewed this as a willingness to rely on more forgiving inflation metrics to justify holding or even lowering rates.

A third point was his indication that interest rates would be part of any future policy response, without suggesting they would necessarily be the primary tightening tool.

As a result, Warsh has quickly been labelled a dove by many commentators. That is somewhat ironic given many of the same observers showed little concern when former Fed Chair Jerome Powell cut interest rates by -75 basis points late last year, or by -100 basis points during the final four months of 2024, despite inflation remaining above target.

It is premature to conclude Warsh is simply another dove.

There was a credible argument for leaving rates unchanged this month. Inflation remains above target, but it is not accelerating dangerously, and recent core inflation data provide little evidence that higher energy prices are feeding into broader inflation pressures.

Having only assumed the Fed chairmanship two months ago, Warsh has an opportunity to build consensus within the FOMC before changing policy direction.

Having left rates unchanged, the most hawkish signal would have been to indicate further tightening was likely in coming months. However, that would have amounted to explicit forward guidance, something Warsh has pledged to avoid.

Importantly, one hawkish comment has received relatively little attention. Warsh warned that after five years of elevated inflation, some households, businesses and investors had mistakenly concluded the Fed had effectively raised its inflation target. He firmly rejected that view, reiterating there is only one inflation target, and it remains 2%.

That clarification is significant because it directly addresses concerns over the Fed’s inflation-fighting credibility.

The current environment reflects heightened uncertainty as markets adjust to a new monetary policy framework. Many initially assumed Warsh would be dovish because he was appointed by President Trump. His hawkish tone in June surprised markets, while the lack of action in July revived those earlier assumptions.

Beyond reaffirming the Fed’s commitment to price stability, however, there is little Warsh can currently say. He has abandoned forward guidance, making it difficult to signal either a tightening or easing bias.

Likewise, he is reluctant to provide detailed commentary on inflation measures or policy tools while broader reviews remain underway.

Warsh is overseeing significant changes at the Federal Reserve, and the transition is proving challenging for both policymakers and investors. Markets will continue trying to anticipate the Fed’s next move, while the Fed must determine how much guidance it can provide without markets treating every comment as an explicit policy forecast.

Ultimately, actions will matter more than words. If the neutral federal funds rate is closer to 4%, as many believe, returning inflation sustainably to target will likely require policy rates to move higher over time.

The three dissenting votes at the July meeting may point in that direction.

Bond yields have already adjusted towards levels more consistent with the macroeconomic outlook and ongoing fiscal expansion. Following the press conference, the yield curve steepened as investors priced greater policy uncertainty and higher inflation risks.

While 10-year US Treasury yields are likely to remain range-bound, the transition to this new policy regime is likely to add another layer of volatility alongside existing uncertainties surrounding economic growth, technology and geopolitics.

Corporate news in Australia:

• Ironbark is targeting its largest private wealth acquisition after securing funding from Merchant Investment Management
• Morrison is reviewing strategic options for utility provider Altogether Group
• Volue has offered $565m to acquire Energy One ((EOL)) via a scheme of arrangement
• Service Stream ((SSM)) has emerged as the leading bidder for Programmed in a sale process valuing the business at around $1bn
• Janus Henderson has acquired three Insignia Financial ((IFL)) funds management businesses overseeing around $33bn in assets
• Ingenia Communities Group ((INA)) is seeking funding partners for its takeover bid for Peet ((PPC))
• Apax has launched the sale of Pickles Auctions in a process expected to value the business at more than $1bn
• Crimson Australia has formally launched its takeover bid for Kip McGrath Education Centres ((KME))
• Brett Blundy’s BBFIT Investments has agreed to acquire the Bras N Things, Bonds, Berlei and Sheridan brands in a deal valued at around $700m
• Canva’s revenue growth of around 30% has reinforced its reported US$42bn valuation ahead of a potential IPO
• Centuria Capital Group’s ((CNI)) Bass refinanced loans to Bathla became distressed within three months
• Situational Awareness is seeking fresh capital and selling assets after losses on AI infrastructure investments triggered margin calls
• Firmus is seeking approval for a US$2bn equity raising to fund Australian AI projects

On the calendar today:

-NZ July ANZ consumer confidence

-AU 2Q PPI

-AU June private sector credit

-JP BoJ rates decision

-CH July PMI

-EZ July CPI

-US July Chicago PMI

-US July U. Mich sentiment

-CORONADO GLOBAL RESOURCES INC ((CRN)) Qtrly update

-CAPSTONE COPPER CORP. ((CSC)) Q2 earnings report

-FORTESCUE LIMITED ((FMG)) Qtrly update

-GENESIS MINERALS LIMITED ((GMD)) Qtrly Update

-NOVATTI GROUP LIMITED ((NOV )) Qrtrly update

-ORIGIN ENERGY LIMITED ((ORG)) 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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