The Overnight Report: Can’t Get More Bullish

Array
(
    [0] => Array
        (
            [0] => ((LNW))
            [1] => ((ARG))
            [2] => ((NXE))
            [3] => ((PNI))
            [4] => ((QAN))
            [5] => ((MGH))
            [6] => ((MQG))
            [7] => ((RIO))
            [8] => ((ARG))
            [9] => ((LNW))
            [10] => ((PNI))
        )

    [1] => Array
        (
            [0] => LNW
            [1] => ARG
            [2] => NXE
            [3] => PNI
            [4] => QAN
            [5] => MGH
            [6] => MQG
            [7] => RIO
            [8] => ARG
            [9] => LNW
            [10] => PNI
        )

)

This story features ARGO INVESTMENTS LIMITED, and other companies.
For more info SHARE ANALYSIS: ARG

The Dow and the S&P 500 rallied to new all-time highs as oil prices fell on expectations of a pending peace deal announcement between the US and Iran.

US earnings continue to surprise to the upside as momentum in the AI trade recovered following the July sell-off.

After a strong session locally yesterday, ASX200 futures are pointing to another positive start on Wednesday.

Good Morning,

On Tuesday, the ASX200 rallied 126.5 points or 1.4% and closed at the high of the day at 9146.00.

Intra-day the market hit a high of 9145.90, the highest level in 5 months, and -58 points or 0.67% away from the intra-day high of 9,202 on February 28th.

The rally was led by Tech and Banks with Utilities the laggard.

This morning, Light & Wonder ((LNW)) released Q2 financials.

RBC Capital’s early assessment of the released market update:

“We view Light & Wonder’s Q2 result as positive for the company as earnings and cashflow were above market expectations, notwithstanding that revenue was 2% below market. AEBITDA was up 9% on pcp and it was 5% ahead of market expectations while EPSa was up 26% on pcp and 13% ahead.

“The earnings beat was primarily driven by lower than expected Corporate costs while SciPlay was 5% ahead, Gaming was slightly ahead and iGaming was in-line with market expectations. Gaming AEBITDA was up 10% on pcp on revenue growth of 5%, SciPLay AEBITDA was down 3% on a 9% decline in revenue and iGaming AEBITDA was up 18% on a 14% increase in revenue. Net operating cashflow was up 127% to $241m, which was ahead of market, and FCF was up 50% to $156m, which was slightly below.

“Net leverage declined to 3.4x, however, it was slightly above market expectations of 3.3x.

The company maintained its full-year guidance for mid-to-high single digit AEBITDA growth and the company stated that its focus would be to pare back the share buyback and rapidly de-lever its balance sheet to below 3.0x.”

On the calendar today to also report earnings are Argo Investments ((ARG)), NextGen Energy ((NXE)) and Pinnacle Investment Management ((PNI)).

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

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

Hormuz Deal Talk Knocks The Wind Out Of Oil

Treasury Secretary Scott Bessent said on CNBC there is a chance of a deal with Iran today or tomorrow, and that it would mean freedom of movement through the strait.

Brent traded under US$80 for the first time since early July.

Goldman says Gulf oil flows are running near a third of prewar levels, so a real reopening puts a lot of barrels back on the water.

A cargo ship still took a projectile off Oman this morning, so today’s move is priced on hope, not on paper.

Palantir Reminds Everyone Why They Own It

Palantir did US$1.94 billion in revenue, close to double last year, and lifted its full-year outlook to US$8.16 billion.

It closed 220 deals worth a million dollars or more, and 73 of those were worth ten million or more.

Citi moved its target to US$245. One quarter wiped out most of the stock’s loss for the year and pulled chips and software up with it.

Caterpillar Shows The AI Build Is A Physical Business

Caterpillar cleared US$20 billion in quarterly sales for the first time, with construction and power each above US$8 billion.

It converted a plant in Wamego, Kansas to build turbine engines and is restarting 10-megawatt generators it stopped making in 2022.

When a company brings a dead product line back, that demand is not a forecast. It is a backlog.

ANZ Bank, Australian Morning Focus extract

Equity markets rose, bond yields declined and oil fell sharply on expectations of an imminent deal to reopen the Strait of Hormuz. 

The S&P500 was up 1.8%. The EuroStoxx50, and the FTSE100 were up 0.9% and 0.2%, respectively. 

The yield on the US 10y Treasury note fell -8.3bp to 4.61%. 

In commodities, the active WTI future fell -6.9% to US$75.6/bbl. Gold rose 0.4% to US$4,077.2/oz as the prospect of Fed funds rates remaining on hold for an extended period subdued investor interest. 

US JOLTS job openings declined -178k to 7.359m in June. The ratio of job openings to unemployed persons was little changed near 1.0. The hiring rate, quits rate, and layoffs rate were all broadly stable. 

Overall, the data continue to signal that labour supply and demand are in broad balance, and the labour market remains a source of mild disinflationary pressure. 

A US-Iran deal to reopen the Strait of Hormuz is reportedly near. Qatar’s Foreign Minister said that draft language for a resolution has been circulated between parties. Bessent said “there is a chance we may have a deal today or tomorrow to reopen the Strait”. 

US market expectations for Fed hikes fell following the announcement. The market now sees around a 60% chance that the Fed will hike at its next meeting in September, down from around 70% yesterday. 

Chair Warsh and other policymakers have said there is little that monetary policy can do to compensate for relative price shocks.

Well-anchored inflation expectations provide space to look through transitory shocks. However, the energy shock is nearing the six-month mark. Inflation is above target and has been so for over five years. 

The FOMC needs to see further progress on underlying inflation in coming months to remain on hold. The Fed remains data-dependent and will not hesitate to act if the data show action is necessary. 

We are acutely aware of that risk, though our baseline remains that the Fed is on an extended hold. The labour market is a source of mild disinflationary pressure, shelter inflation is cooling, tariff passthrough to core goods prices looks to have run its course and there has been no evidence of higher energy prices leading to generalised inflation. 

We are therefore of the view that underlying inflation will continue to moderate in the months ahead, endorsing an on-hold stance, but calling the Fed in the current environment is a game of fine margins.

You Can’t Get More Bullish Than A Market At All-Time Highs, Chris Weston, Pepperstone 

It’s been a strong day for risk assets, with many of the inputs needed for a more sustained risk rally falling into place.

The result has been fresh all-time highs in both the S&P500 and the Dow, joining European and UK equity indices in record territory. The range expansion, market breadth and flow-based activity in the Nasdaq100 also suggest fresh record highs may not be far off.

On a cross-asset basis, a -6-8bp move lower in US Treasury yields has been helpful, with forward Fed rate hike assumptions being revised lower.

This has seen higher-beta and cyclical currencies (AUD, NZD and SEK) outperform, while the US dollar has weakened against the G10.

In commodities, platinum and palladium have broken decisively out of recent consolidation ranges. Silver looks poised to follow, although gold still has more work to do before confirming a similar breakout.

Crude Oil Leads the Macro Story

Crude oil was once again the first market to react to the news flow. A series of headlines from the Iranian Foreign Minister, US Treasury Secretary Scott Bessent and officials in Qatar all pointed towards constructive negotiations and the increasing prospect of a deal.

The market interpreted these developments as reducing geopolitical risk, prompting another wave of selling in oil.

Brent crude has now extended its decline from the US$102 highs seen on 23 July to trade below US$79. Activity has been strong, with volumes in front-month Brent futures reaching just over 546,000 contracts, around 80% above the 30-day average.

Meanwhile, 331,000 contracts were traded in WTI crude futures, around 24% above the 30-day average.

The decline has triggered additional selling from systematic investors, with short-term momentum strategies adding to short crude positions. Should these flows continue, the market could increasingly target a retest of the lows around US$70 seen in early July.

Lower Oil Supports the Macro Backdrop

The fall in crude has helped drag short-term US inflation expectations lower, with US one-year inflation swaps breaking down to new cycle lows and providing another supportive factor for broader risk assets.

While the US JOLTS job openings report came in slightly weaker than expected, US equity markets instead focused on the supportive moves in rates. Treasury yields declined by -5-7 basis points across the curve, real yields edged lower, and the Fed pricing curve now implies around 6 basis points fewer rate hikes than previously expected.

Taken together, these developments created an ideal backdrop for equity markets to continue higher.

Broad-Based Equity Participation

Participation on the day was upbeat, with 71% of S&P500 constituents closing higher, while technology led the advance, gaining 4.1%.

Financials also contributed strongly, with the Financial Select Sector SPDR Fund (XLF) breaking to fresh all-time highs. Materials outperformed as well, setting up the potential for positive follow-through across Asian markets.

A market trading at fresh all-time highs is difficult to interpret as anything other than bullish. While valuations may invite debate, albeit supported by the earnings-per-share upgrade cycle, price remains the final arbiter and the trend continues to deserve respect.

New highs also shift the distribution of potential outcomes higher, increasing the probability that buyers remain willing to add exposure on shallow pullbacks.

Focus Turns to SpaceX and AMD

Following the close, attention shifted to quarterly earnings from SpaceX and AMD. Both companies delivered results and guidance that, on balance, appeared strong. Yet despite that, both stocks traded sharply lower in the after-hours session.

This appears to be another example of a classic “sell the fact” reaction. At first glance, there seems to be no single obvious weakness in either report capable of explaining the magnitude of the declines.

SpaceX Delivers, But Cash Flow Remains the Debate

Analysts and investors faced a challenging task in pricing risk around SpaceX’s numbers and guidance, given this was its first earnings report as a publicly listed company. Investors were effectively establishing a valuation framework for the business in real time.

Operationally, the company delivered. Revenue exceeded expectations across its major business segments, including AI infrastructure, connectivity and space operations.

Capital expenditure totalled US$18.37 billion in the second quarter, with AI-related investment accounting for a substantial proportion. That figure was broadly in line with expectations, although perhaps marginally lower than some had anticipated.

While the company did not explicitly report free cash flow, the combination of elevated capital expenditure and adjusted EBITDA of US$3.5 billion provides investors with a reasonable indication of its current negative cash flow profile.

Another important consideration is the impending release of approximately 930 million restricted shares over the coming days. As that lock-up overhang gradually clears, the share price may begin to trade more freely as uncertainty around potential selling pressure diminishes.

For now, however, both equity and credit investors are likely to remain focused on one key issue: funding.

SpaceX continues to execute strongly operationally, but its ambitious investment program means additional capital will almost certainly be required over the medium to longer term.

How management funds that growth, and at what cost, is likely to remain a central theme for investors over the coming quarters.

Corporate news in Australia:

• Qantas Airways ((QAN)) has sold its remaining stake in Jetstar Japan to the Development Bank of Japan for $7.4m
• Maas Group Holdings ((MGH)) will invest $300m to increase its stake in Firmus, has upgraded FY26 earnings guidance and secured $855m of AI infrastructure work
• Aware Super and Prime Super are exploring a merger that would create a combined $254bn superannuation fund
• Allegro Funds has emerged as a leading bidder for Continental-backed mycar in the private equity sale process
• Ranchland Capital Partners has agreed to acquire Macquarie-backed ((MQG)) Paraway Pastoral in a deal valued at around $3bn
• Clearlake Insurance Brokers is seeking a minority private equity investor with Barrenjoey advising on the process
• Private equity firms are circling Rio Tinto’s ((RIO)) infrastructure asset sale, which is expected to fetch between $2bn and $3bn
• Into The Wild Escapes is seeking a $7m minority investment to support a nationwide expansion of its cabin accommodation business
• Wahlburgers Australia has been caught up in debt recovery action as creditors move against the Mustaca business empire
• The collapse of Zen Energy has left creditors facing potential losses on more than $200m of outstanding debt

On the calendar today:

-NZ 2Q wages & unemployment

-US July ADP

-US July ISM services

-XX Global PMIs

-ARGO INVESTMENTS LIMITED ((ARG)) FY26 earnings report

-LIGHT & WONDER INC ((LNW)) 1H26 earnings report

-PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED ((PNI)) FY26 earnings report

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