The Overnight Report: AI Down Ahead Of Nvidia

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This story features BHP GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: BHP
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

The S&P500 and Nasdaq finished lower with AI-related shares under pressure ahead of Nvidia's results after the close on Wednesday.

The Dow rose as oil prices slipped.

The Australian market rallied yesterday, as BHP Group ((BHP)) shares hit a record high.

On Tuesday morning, ASX200 futures are pointing to a positive start.

Good Morning,

The Australian market advanced to start the week, with the ASX200 up 44 points or 0.5% to 9,103. Miners rose 2.4% led by BHP Group ((BHP)) which hit a record high. Consumer staples and banks lagged.

Today, the RBA’s August meeting minutes are out at 11.30 AEST, with markets looking for more details around the Board’s discussion to hold or hike interest rates.

August reporting season is in the final, busy week. Check out the the FNArena Calendar https://fnarena.com/index.php/financial-news/calendar/

Some of the companies reporting today include AUB Group ((AUB)), Coles Group ((COL)), Dalrymple Bay infrastructure ((DBI)), SiteMinder ((SDR)) and Viva Energy ((VEA)), among many others.

Barrenjoey’s early response to Monadelphous‘ ((MND)) market update:

“MND reported a solid result. EBITDA of $226.0m is +1% vs Cons and NPAT of $127.3m is +1% vs Cons helped by tax and interest revenue.

“Cash result well ahead of Cons, operating cash flow 28% ahead and net debt ex lease +14% vs Cons.

“MND provided outlook commentary that “FY27 is a year to consolidate and position for future growth”; Cons currently sees 3% revenue growth.

“Stock has outperformed into result, we think a key question on the call will be quantum and drivers of revenue base in FY27 to position for growth.”

RBC Capital’s early assessment of Vulcan Steel‘s ((VSL)) release:

“Vulcan Steel (VSL) has delivered a soft FY26 result.

“While Underlying EBITDA +16% yoy to $130m was in line (+0%/+1% to RBCe/Cons), VSL missed estimates at EBIT +10% yoy to NZ$68m (-3%/-4% to RBC/Cons) and Adj NPAT +21% yoy to NZ$22m (-12%/-17% to RBC/Cons).

“VSL has declared a final dividend of 4.5cps (100% franked) compared to RBCe/Cons 4.3/5.5cps.”

Don’t forget the FNArena corporate results monitor to track the earnings reports.

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

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

Chip leaders hit a wall

Memory stocks led the selling, and 19 of the 20 best S&P500 performers this year finished lower.

Nvidia closed down for a seventh straight day, its longest slide since September 2022.

The damage stayed in one corner of the market.

Six of the 11 sectors finished green with consumer staples on top, which is not what a broad selloff looks like.

Iran sanctions now reach past Iran

Treasury sanctioned more than 60 people, companies and vessels tied to Iran, and put every other country on a clock.

Asked directly about Chinese banks, Scott Bessent said no one is exempt.

China buys nearly all the oil Iran exports, and Xi is due at the White House next month.

Oil still closed lower, which tells you traders think enforcement is the hard part.

The Canada fight moved into cars

Trump said Canadian cars, trucks, auto parts and steel get fifty percent tariffs on January 1, 2027, double the current rate on autos.

Canada’s dollar-for-dollar retaliation starts September 8, and Ottawa sees no talks before the midterms.

Bank of America says the direct economic hit to Canada is small, since the tariffs touch a thin slice of its exports.

The confidence hit to investment and hiring is the one that matters.

ANZ Bank, Australian Morning Focus

Equity markets declined, led by technology stocks, while bond yields declined as oil fell. 

The S&P500 was down -0.28%. The EuroStoxx50 fell- 0.2%, while the FTSE100 rose 0.3%.

The yield on the US 10y Treasury note fell -4bp to 4.70%.

The active WTI future fell -2% to US$85.3/bbl. Gold rose 0.9% to US$4,643.4/oz.

US: The Chicago Fed’s National Activity Index eased to -0.08 from 0.06 in July. It has remained close to its trend level (0) through 2026.

US reveals plans to sever Iran’s access to the global economy: Treasury Secretary Bessent announced a campaign to cut Iran off from the global economy, warning that any country continuing economic ties could face US sanctions.

The administration is targeting five of Iran’s key economic lifelines: digital assets, technology, gold, aviation and shipping. He said world leaders are being given a timeline to end cooperation with Iran, after which the US may act unilaterally.

However, no specific measures or deadlines were announced, and questions remain about whether tougher sanctions will alter Iran’s behaviour.

Fed watch: It was a quiet start to a busy week, with markets looking ahead to Fed Chair Warsh’s speech at the annual Jackson Hole symposium, along with the release of July’s PCE deflator.

Fixed income markets have been highly sensitive to Warsh’s communications amid a perceived lack of clarity over the Fed’s reaction function following the end of forward guidance.

We think it is unlikely that Warsh will stray from his current approach, but we expect he will affirm the Fed’s commitment to price stability.

It will be interesting to hear if he chooses to provide an update on the progress of the five monetary policy taskforces and the Fed’s future operating framework, though we anticipate markets will have to wait until closer to the end of the year on that front.

The July PCE deflator will be key for the FOMC’s upcoming September policy meeting. The market consensus is for the core PCE deflator to rise 0.2% m/m, with portfolio management fees, tied to stock market gains, set to make an outsized contribution.

There is a risk that the core PCE deflator comes in higher, but we think that, if it is concentrated in one component, policymakers will be prepared to look through that strength, given the softer tone of data in recent months.

We think the Fed is on an extended hold, but policymakers have been clear that progress on inflation is needed, so the risk of rate hikes remains.

Energy fell amid mixed messages over supply disruptions. Precious metals extended gains as US fiscal concerns mounted.

From the US Market Desk: Operation Twist, Franklin Templeton extract, Chris Galipeau

US Treasury Secretary Scott Bessent seems to have brought back “Operation Twist” with the move to buy long bonds last week. The nominal dollar amount is not significant (US$2 billion), but this could be a signalling event for markets.

As our Head of Research Larry Hathaway noted to us, the risk is that the peashooter becomes a bazooka. Our Senior Market Strategist Rick Polsinello also notes that the additional US$2 billion will begin in early September and continue for months to “improve liquidity”—Bessent’s words, not Rick’s.

Breakeven rates have moved higher. One-year breakeven rates are 1.85%, up 20 bps on the week. Two-year breakeven rates are 2.25%, up 13 bps on the week, and five-year breakeven rates are 2.30%, up 8 bps. These numbers represent the bond markets’ pricing of annualised inflation out one, two, and five years.

Breakevens are still at odds with the message from two-year yields, but they are beginning to converge higher. This data can and does change very quickly. As I have said many times before, I am not sure how to rectify these seemingly opposite signals.

Two-year notes say hike rates, while breakeven rates say maybe not.

Meanwhile, the fed funds futures market is indicating there is a 35% chance of a 25-bps hike in September and a 38% chance of a hike in December. This data moves very fast, so this picture can and will change quickly depending on incoming data.

On the currency front, we are expecting the US dollar to be essentially flat for the year despite the recent volatility. The US Dollar Index is trading at 98.76, lower following the “Operation Twist” announcement but still firmly rangebound, as it has been for the past 17 months.

We are constructive on US equities and have established a year-end target range of 7400-7800 for the S&P500, driven by 15%-plus  y/y earnings-per-share (EPS) growth. Second-quarter (Q2) earnings season is over, with the exception of market-mover NVIDIA, which reports results on August 26.

All in, earnings power has been very strong in the first six months of the year. Consensus expectations for 2026 now sit at US$363.20, up 23% y/y. For 2027, the consensus earnings estimate is US$406.23, representing a 12% y/y growth rate versus 2026.

Bloomberg reports that in Q2, 25 firms in the S&P500 Index have quantified the use of artificial intelligence (AI) on their income statements, saying that, on average, they have seen 180 bps of margin growth. This is the first inning of hearing about AI impact, I suspect. Meaning, going forward, I’d expect to hear more companies quantify the impact of AI on their businesses. Accretive to margins is bullish.

If we assume the consensus earnings estimates are reasonably correct, that puts the tape at 21.22x this year’s earnings and 18.97x 2027 estimates. The long-term historical forward multiple is about 17x. Portfolio managers are now focusing their efforts on corporate earnings power for calendar year 2027.

I can’t make a strong argument that the tape is “cheap” here, but I also can’t make the argument that an 18.97x forward multiple is crazy rich either—unless bond yields move significantly higher. We don’t expect that, but that is a risk.

What would Bessent do if this happens?

Here’s the next thing I’m thinking about: the concept of peak rate of change in earnings growth. Not peak earnings power in dollars, but peak rate of change y/y. Just looking at consensus estimates for the S&P500 out to 2028, the data says 2026 is the peak y/y rate of change.

If this is accurate, I’d expect a higher level of volatility going forward.

The tape is recognising broad fundamental strength. Consider this: the cap-weighted S&P500 Index is up 13.40% year-to-date (YTD) through August 19, and the S&P500 Equal Weight Index is up 16.99%.

The S&P400 MidCap Index is up 17.23% and its equal-weighted version is up 15.94%. The Russell2000 Index is up 23.21% and its equal-weighted version is up 21.70%. No single name is dominating. Everything is participating.

Bottom line: We think it’s prudent to have a diversified equity playbook that includes US large-, mid- and small-cap exposure with a balance of growth and value. The same can be said for ex-US equity exposure; emerging markets and Japanese stocks look attractive. That involves reducing concentration and spreading one’s bets.

We favour buying on pullbacks.

Corporate news in Australia:

• Canyon Resources ((CAY)) is preparing a key update on its Minim Martap bauxite project as it faces a takeover bid from A2MP, with the bidder’s offer characterised as low-ball
• EVT Limited ((EVT)) has identified around $800m of non-core properties that could be sold and appointed Rothschild & Co to assess restructuring options, including a potential sale or break-up of the group
• Blackstone is weighing a potential takeover of EVT Limited ((EVT)) as the cinema, hotel and property group considers its strategic options
• Oaktree Capital is reportedly in preliminary discussions to acquire SkyCity Entertainment ((SKC)) as the casino operator weighs strategic options amid elevated debt and regulatory pressures 
• Australian Retirement Trust has agreed to acquire a 50% interest in Westfield Mt Gravatt from Scentre Group ((SCG)) for $882.5m
• AustralianSuper has increased its stake in Reliance Worldwide ((RWC)) to 11.96% following Brookfield’s $4.75-per-share takeover proposal, potentially strengthening its influence over the outcome of the bid
• Pemba Capital has acquired a majority stake in Melbourne-based Hewison Private Wealth, which advises on around $3bn of client assets
• NRF has provided $120m of debt financing to Wesfarmers-backed Built Living
• Benz Mining ((BNZ)) has raised $150m to accelerate drilling and target a maiden resource for its Glenburgh gold project in 1H27
• L1 Group ((L1G)) is seeking to raise up to $500m for its $1.1bn listed Gold Fund through a one-for-three entitlement offer, with eight brokers supporting around $160m of the raising
• GDI Property Group ((GDI)) has announced a discretionary on-market buyback of up to 5% of its stapled securities
• Xenitra ((XEN)) has raised $1.5m to accelerate growth in its higher-margin healthcare and digital commerce businesses

On the calendar today:

-AU Aug RBA Minutes

-US Aug Consumer confidence

-US Aug Philly Fed

-US Aug Richmond Fed

-US July Bldg Permits

-US July New home sales

-US June HPI

-GE 2Q GDP final

-GE Aug IFO

-GE Aug IFO

-GE Aug IFO survey

-29METALS LIMITED ((29M)) 1H26 earnings report

-ABACUS GROUP ((ABG)) FY26 earnings report

-ACUSENSUS LIMITED ((ACE)) FY26 earnings report

-AUSTRALIAN ETHICAL INVESTMENT LIMITED ((AEF)) FY26 earnings report

-AGL ENERGY LIMITED ((AGL)) ex-div 26.00c (100%)

-AMOTIV LIMITED ((AOV)) ex-div 23.00c (100%)

-ALLIANCE AVIATION SERVICES LIMITED ((AQZ)) FY26 earnings report

-AUB GROUP LIMITED ((AUB)) FY26 earnings report

-BEGA CHEESE LIMITED ((BGA)) ex-div 7.50c (100%)

-BOOM LOGISTICS LIMITED ((BOL)) ex-div 2.25c

-BIG RIVER INDUSTRIES LIMITED ((BRI)) FY26 earnings report

-CHALLENGER LIMITED ((CGF)) ex-div 1.50c (100%)

-CHALLENGER LIMITED ((CGF)) ex-div 16.00c (100%)

-COLES GROUP LIMITED ((COL)) FY26 earnings report

-CORPORATE TRAVEL MANAGEMENT LIMITED ((CTD)) FY26 earnings report

-DALRYMPLE BAY INFRASTRUCTURE LIMITED ((DBI)) 1HFY26 earnings report

-DETERRA ROYALTIES LIMITED ((DRR)) ex-div 10.80c (100%)

-FISHER & PAYKEL HEALTHCARE CORPORATION LIMITED ((FPH)) FY26 earnings report

-G8 EDUCATION LIMITED ((GEM)) 1HFY26 earnings report

-INTEGRAL DIAGNOSTICS LIMITED ((IDX)) FY26 earnings report

-INGENIA COMMUNITIES GROUP ((INA)) earnings report

-MA FINANCIAL GROUP LIMITED ((MAF)) ex-div 8.00c (100%)

-MONADELPHOUS GROUP LIMITED ((MND)) FY26 earnings report

-MYSTATE LIMITED ((MYS)) FY26 earnings report

-NANOSONICS LIMITED ((NAN)) FY26 earnings report

-PROPEL FUNERAL PARTNERS LIMITED ((PFP)) FY26 earnings report

-PERENTI LIMITED ((PRN)) FY26 earnings report

-PEXA GROUP LIMITED ((PXA)) FY26 earnings report

-REDOX LIMITED ((RDX)) ex-div 6.50c (100%)

-SCENTRE GROUP ((SCG)) 1H26 earnings report

-SITEMINDER LIMITED ((SDR)) FY26 earnings report

-TYRO PAYMENTS LIMITED ((TYR)) FY26 earnings report

-VICINITY CENTRES ((VCX)) ex-div 6.20c

-VIVA ENERGY GROUP LIMITED ((VEA)) FY26 earnings report

-WOODSIDE ENERGY GROUP LIMITED ((WDS)) H1 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.

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