ASX 200 Live Today - Monday, 14th September

Welcome to our live ASX coverage for Monday, September 14. Expect a high volume of posts pre-market and more periodic updates throughout the day. We'll be wrapping the blog up around 2:00 pm AEST. Let us know how we can make it even better.

Saudi pipeline shut as Iran war widens

[8:46 am] Saudi Arabia has closed its main Hormuz workaround after drone strikes from Iraq, just as the Houthis close in on the other end of the Arabian Peninsula.

• The 7m barrel a day East-West pipeline was shut as a precaution after multiple drone attacks in the Riyadh and Madinah regions on Thursday, with pump stations hit, injuries reported and no repair timeline given

• Saudi exports fell to about 3m barrels a day in August, the lowest in records back to early 2017, with the kingdom reporting crude production at its weakest since 1990

• Hormuz is moving roughly 1m barrels a day of oil products versus about 4m before the war, though Energy Secretary Chris Wright puts total crude and products transit at 10m barrels a day and says bypass pipelines lift flows back to around two-thirds of prewar levels

• Monday's Muscat meeting between Iran and Gulf states on a temporary Hormuz shipping lane has been postponed, with Bahrain having already ruled out attending and fee negotiations between Iran and Oman still unresolved

• Houthi forces seized Mokha and Perim Island last week, putting Iran and its proxies on course to control both Bab al-Mandeb and Hormuz, with Aramco shares down 1.1% on Sunday to their lowest since March

OpenAI weighs slowing frontier AI development

[8:40 am] Sam Altman has told staff the company could pace its AI development, potentially alongside rival labs, as safety concerns build across the industry.

• Altman said in a company-wide meeting that OpenAI could pace development in conjunction with several other labs, while acknowledging some may not agree to do so

• Top scientist Jakub Pachocki has publicly argued AI companies should coordinate to slow future development as needed, hoping voluntary slowdowns become commonplace until shared safety bars exist

• OpenAI said it has already slowed parts of model development and paused certain internal training runs on safety grounds, and Altman raised the need to pace development with White House officials in July

• The backdrop for investors is that both OpenAI and Anthropic filed confidential paperwork to go public earlier this year, making the pace debate directly relevant to two of the largest pending listings

• Staff pressure is mounting, with more than 1,000 employees across the major labs signing a petition in late July calling for a slowdown mechanism and several safety staff resigning in recent months

• Concerns escalated after OpenAI AI agents worked together to breach containment and hack a third-party website, stoking fears about model cyber capability and lab controls

Source: Bloomberg

Private credit looks fragile as yields climb

[8:40 am] Andromeda Capital's Alberto Gallo argues the $1.8tn direct lending market is the weak link if government bond yields push through 5%.

• Traders are pricing roughly a 70% chance of a Fed hike next week, with Gallo warning that being long credit is very dangerous in the current environment

• Net private credit returns of 8% to 9% compare with 7% to 8% from high yield, a spread Gallo says does not compensate investors for the added illiquidity and risk once government bonds trade above 5%

• Life insurers are the largest buyers and many are owned by private credit and private equity firms such as Athene and Global Atlantic, raising the prospect that some losses end up on the taxpayer's balance sheet

• Gallo points to payment in kind debt as evidence losses are being obscured, describing an opaque ecosystem where aggregate data already shows damage building

• On hyperscaler lending, he calculates that at $1tn to $1.5tn of annual capex over a decade the AI builders must double current revenues just to break even, a problem if liquidity tightens first

• Andromeda counts private credit among its biggest shorts, spanning managers, insurers and data centres, with smaller data centre issuers still pricing at just 200 to 400 basis points

Source: Bloomberg

US convertible bond sales hit a record on AI funding

[8:39 am] AI capex needs have driven US convertible issuance to its highest annual total on record, with issuers capturing unusually cheap terms.

• Companies with US listings have raised $131bn from convertible bonds so far this year, with August's $25bn pushing the annual total past the previous record set two years ago

• AI-related companies account for about 44% of this year's issuance according to Goldman Sachs strategist Spencer Rogers, spanning both hyperscalers and specialist AI cloud names

• Alphabet produced the year's largest deal at $20.5bn of mandatory convertible preferred in a two-part June offering, part of its $85bn fundraise, followed by Oracle's $5bn in February and Nebius raising $5.75bn across two issues last month

• Nearly 30% of new convertibles carry no coupon even with 10-year Treasury yields pushing toward 5%, with elevated volatility lifting what investors will pay for the embedded option

• The cost saving is material, with J. Wood Capital Advisors CEO Jason Wood noting a borrower facing 7.5% on straight debt can issue a convert at 1.5%, worth close to $50m a year on an average $800m deal

• Wells Fargo's Craig McCracken said issuance is cresting well above historical levels because the AI build-out financing need is so much greater, combined with a re-emergence of investment grade issuers

Source: Bloomberg

S&P 500 stalls short of 8,000

[8:39 am] Bloomberg reports equity bulls are still waiting on a catalyst to clear the next round-number milestone, with the index drifting sideways since mid-August.

• The index closed at 7,591.70 on Thursday, roughly 2.7% below the 13 August intraday record of 7,816.7, leaving 8,000 some 5.4% away

• Traders are pricing a 90% chance the Fed lifts rates on 16 September after a hotter than expected CPI print, with soaring bond yields and weak consumer sentiment capping the advance

• CFRA's Sam Stovall lifted his year-end target to 8,050 from 7,400 on the back of better than expected earnings, but says a 5% to 10% drawdown from here would not be abnormal given the S&P 500 has averaged an 18% peak-to-trough fall in midterm years since WWII

• History argues for patience, with the index taking a median 578 trading days to clear each successive 1,000 milestone since 1998, implying 8,000 does not arrive until around mid-2028

• Positioning sits at the 65th percentile of the past decade per Deutsche Bank, below what current earnings growth implies, suggesting dry powder remains

• UBS strategist Maxwell Grinacoff said volatility has not budged because the rally is underpinned by strong corporate profits, adding the macro risks sit in other asset classes, particularly bonds, and have yet to spill into equities

Source: Bloomberg

Good morning!

[8:22 am] ASX 200 futures are up 18 pts (+0.20%). Here's what happened overnight:

• Relief rally to end an ugly week, with major US benchmarks broadly higher and snapping a four-day win streak, but still lower for the week

  • US overnight recap: S&P 500 (+0.86%), Nasdaq (+0.96%), Dow (+0.98%), Russell 2000 (+0.45%)

  • US weekly recap: S&P 500 (-0.80%), Nasdaq (-0.66%), Dow (-1.57%), Russell 2000 (-2.41%)

• A Fed hike is now the base case after in-line headline CPI masked a hotter core print, with traders moving to roughly 86% odds of a 25 bp increase on Thursday and two hikes priced by year-end

• Energy is still the macro driver as Brent settled near US$104 on Friday after spiking toward US$110 on the Saudi pipeline shutdown, while US diesel hit a record and Hormuz diplomacy stalled over the weekend (although Brent is up ~3% to US$107 as of this morning)