Good morning. United States equities recovered part of last week's losses overnight as investors returned to the semiconductor makers that had led the sell-off. S&P 500 futures are trading at 7,737 this morning, up 0.4 per cent, after the Nasdaq 100 fell 5.5 per cent last week, its largest weekly fall since April 2025. Investors were buying back positions they had cut quickly: in the five sessions to 15 October hedge funds reduced their technology holdings by the largest proportion in Goldman Sachs prime-brokerage data going back to 2016, the AFR reported. The rebound came with higher borrowing costs, as the US 10-year Treasury yield rose 4 bps to 5.1 per cent.
Europe did not share the recovery. Weekend rioting and looting across French cities extended the sell-off in French government bonds and took every major European index lower. Security risk in the Gulf rose again: Saudi Arabia postponed its flagship Future Investment Initiative conference to 2027 after Houthi strikes on Riyadh, and Brent is trading at US$109.36 a barrel this morning, down 0.5 per cent, after unconfirmed reports of new US strikes on Iran lifted crude through the US session.
Locally, RBA Assistant Governor Christopher Kent said the exchange rate carries more of the effect of this year's four rate rises than mortgage repayments do, as money markets scaled back the odds of a fifth increase on 3 November. On the ASX, Cleanaway signed a binding agreement to be taken private by EQT and Challenger received a proposal from its largest shareholder, Japan's Dai-ichi Life, to buy the rest of the company.
Nasdaq 100 futures are trading at 29,717 this morning, up 1.1 per cent, while Dow futures are at 52,181, down 0.1 per cent, as Monday's buying went to technology rather than the broader market. Memory-chip makers led: Sandisk rose more than 6 per cent and Micron almost 4 per cent, and Intel gained 2 per cent after a JPMorgan upgrade, CNBC reported.
The Stoxx 600 fell 1.1 per cent to 638, the FTSE 100 1.1 per cent to 10,765 and the DAX 1.7 per cent to 25,187. French government bonds extended their sell-off after weekend riots and looting, with authorities introducing curfews and admitting police had mishandled oversight of the protests, the FT reported.
In the prior session, the Nikkei 225 closed 0.6 per cent lower at 64,917 and the Shanghai Composite rose 0.4 per cent to 3,731, while Hong Kong did not trade. Indonesia's Jakarta Composite fell as much as 5.4 per cent, extending a 12 per cent fall on Friday after MSCI warned it may reclassify the country as a standalone market. The 10-year Indonesian government bond yield rose 12 bps, and the exchange cut the maximum daily fall allowed for a single stock to 7 per cent from 15 per cent until year end, the AFR reported.
The ASX 200 finished yesterday's session up 39 points, or 0.4 per cent, at 8,846, with seven of the 11 sectors higher and energy leading, the AFR reported. Takeover activity added to the gain. The Australian dollar is at US69.80 cents this morning, and the 10-year Australian government bond yield closed unchanged at 5.2 per cent, 10 bps above the US 10-year.
Retail sales rose 1.1 per cent in the year to September, against 0.6 per cent expected and the strongest growth since March, while industrial output rose 5.5 per cent, in line with expectations and up from 5.2 per cent in August. Growth over the first nine months was 4.6 per cent, inside Beijing's 4.5 to 5.0 per cent target, and some analysts told Reuters that leaves the authorities under less pressure to add stimulus in Q4. China buys most of Australia's iron ore exports.
Only 48 per cent of reporters have beaten forecasts, against a usual 61 per cent, which Wells Fargo described as one of the weakest starts to an earnings season on record. About 40 per cent of S&P 500 banks beat on both earnings and revenue in the first week, against all of them last quarter, according to Bank of America strategists.
Shearing puts global inflation at 3.6 per cent in August, from 2.6 per cent in January, with most of the rise from energy, and expects it to exceed 4 per cent in early 2027 before falling, on an assumption that Brent holds near US$100 a barrel into early 2027 and falls to US$70 by the end of that year. He expects core inflation in the major developed economies to stay below 3 per cent, and says the risk is that a longer disruption to Gulf energy supply forces faster tightening.
The conference was due to start on 26 October with the chief executives of Citigroup, Goldman Sachs and BlackRock among the speakers. Air-raid alerts sounded in Riyadh on Monday night, adding to the risk to Gulf energy supply that has carried Brent up 2.5 per cent over five sessions.
The complaint concerns how bank financing of private credit lenders is reported to supervisors, the same funding line the AFR reported last week that global banks including Goldman Sachs and UBS are now extending more selectively to Australian private credit funds.
The Bank of Canada's core measure eased to 2.2 per cent from 2.4 per cent and was flat for the month, which analysts read as support for holding the 2.25 per cent policy rate on 28 October, although Scotiabank and Bank of Montreal still forecast a 25 basis point increase that day, FX Street reported.
The shift followed last week's weaker September employment data, and the Australian dollar recovered to US69.73 cents on Monday from below US69 cents last week. Bank of America's Oliver Levingston forecasts US73 cents by Christmas and said a strong September-quarter inflation report on 28 October could bring an increase on 3 November, while Barclays' Themistoklis Fiotakis called pricing of at most one more 25 basis point rise over the next nine to 12 months excessively dovish.
RBA modelling shows the currency's response to rate changes accounts for up to two-thirds of monetary policy's effect on GDP and inflation, while a 1 percentage point rise in the cash rate cuts aggregate household spending by an estimated 0.1 to 0.2 per cent through repayments, the AFR reported from Kent's remarks to the Commonwealth Bank's Global Markets Conference. Westpac chief economist Luci Ellis said the more explicit references to the exchange rate mark a shift in how the RBA has communicated through this tightening cycle.
The view rests on September's labour data, which showed employment down 39,000 and unemployment at 4.7 per cent, and on the trimmed mean slowing to 0.2 per cent in August from 0.5 per cent in July. AMP expects home prices to fall 10 to 15 per cent from peak to trough by the June quarter of 2027, with about 5.2 per cent of that already recorded.
Data-centre construction has been one of the largest sources of growth in the Australian economy over the past year, and Bank of America estimates the pipeline of data-centre projects at $180 billion. Victoria introduced rules last month requiring developers to supply their own renewable energy and to build at least 150 metres from homes, and NSW has since set a 75-day fast-track approval limit for projects that meet its conditions.
Octopus Australia has raised $1.7 billion from institutions since July 2025, with Dutch pension fund APG, Hostplus and the Clean Energy Finance Corporation among its investors. The deal follows Treasurer Jim Chalmers' October visit to Tokyo, after trade relations had been strained by the government's planned restrictions on gas exports.
The price is EQT's August indicative offer of $3.13 less the 3.5 cent final dividend paid on 8 October, a 32.1 per cent premium to the $2.37 close on 12 August before the approach was announced. The board unanimously recommends the scheme absent a superior proposal and subject to an independent expert's report, with implementation expected by the end of March 2027 after shareholder, court and regulatory approval. Cleanaway and Challenger led Monday's takeover-driven gains on the ASX, the AFR reported.
The offer is a 19.8 per cent premium to Friday's close of $9.85, and Challenger shares closed 19.3 per cent higher at $11.75 on Monday. The proposal is non-binding and conditional on due diligence, regulatory approval and a board recommendation; Challenger's board is considering it, Bloomberg reported.
“It's important to emphasise to people there are many channels, and the cash flow is probably the least important in terms of the macroeconomics.”
“For mortgage holders that are struggling and haven't had a chance to build up those buffers they can rely on, that really is a painful experience for them.”
“We thought [the AI build-out was] going to be restricted by power restrictions or social licence restrictions, but now it looks like it could be just funding restrictions.”
“AI's tentacles are now filtering through most aspects of the portfolio… but there are things around the edges you can do in a portfolio to try to diversify away.”
“We've not invested domestically in private credit in Australia, just because we don't think the market has… the depth, the breadth, and liquidity that we would seek from a private credit universe.”
“We're working to unlock more Japanese investment in Australia, and that's exactly what I was doing in my meetings in Tokyo this month.”
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Sources: Yahoo Finance, FRED, RBA, company filings.