US TECHNOLOGY: Microsoft: 1Q26 Results
Credit neutral - Azure growth is solid but continues to be supply constrained. We see little impact to MSFT's credit profile from increased capex.
• Revenue was above street consensus at $77.67B ($75.55B est.), and was +17% YoY in constant currency.
• Azure grew 39% YoY ahead of 37% estimates. The company guided to 2Q26 Azure growth of 37% YoY (36% YoY est.).
• EBITDA increased by 32% YoY and margins increased by 8ppts to 70%.
• FCF was $19.5B compared to $13.7B in the prior year quarter and the company bought back $5.7B of stock.
• Gross and net leverage ended the quarter at 0.5x and -0.1x, stable sequentially.
• 2Q26 revenue guidance was in line with estimates at $80.1B ($80.0B est.).
• FY26 capex growth rate is expected to be higher than FY25 capex growth.
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AUSSIE 10-YEAR TECHS: (Z5) Reversal Lower Extends
- RES 3: 95.960 - High Apr 7 (cont.)
- RES 2: 95.875 - High Jul 2 (cont.)
- RES 1: 95.780 - High Sep 12, 18 and 19
- PRICE: 95.650 @ 15:54 BST Sep 29
- SUP 1: 95.510 - Low Sep 3
- SUP 2: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 3: 95.275 - Low Nov 14 (cont) and a key support
Aussie 10-yr futures are trading closer to their recent lows. It is still possible that the recent move down is a correction. Near-term resistance to watch is 95.780, the Sep 12 high. A clear break of this level would signal scope for a continuation higher and open 95.875, the Jul 2 high on the continuation chart. On the downside, key short-term support to watch has been defined at 95.510, the Sep 3 low. Clearance of this level would instead be bearish.
AUD: AUD/USD - Drifts Higher
The AUD/USD had a range overnight of 0.6560-0.6581, Asia is trading around 0.6575. US stocks moved back close to the highs before the market thought a shutdown might not be that great for risk, the USD can’t find any friends and a potential shutdown brought out all the bears again. The AUD has drifted higher in sympathy, I suspect some initial resistance back towards 0.6600/0.6625 initially. The Payrolls data this week was to be critical so should we not get it due to a shutdown the ADP print could take on larger significance. RBA today.
- MNI AU RBA - The RBA decision is announced today and we believe that it will maintain its cautious approach to policy and keep rates unchanged at 3.6% in line with a unanimous Bloomberg consensus. Given the Board's data dependency and focus on quarterly CPI data, it is likely to want to wait for Q3 CPI on 29 October and other information before easing again. With ongoing significant uncertainty around global growth, rates still considered “restrictive” and domestic activity possibly starting to recover, further cuts remain likely at this stage but the timing has become less clear.
- MNI SECURITY: Trump Admin Will Proceed w/AUKUS Following Pentagon Review - Nikkei. Nikkei Asia reporting, “The Trump administration will proceed with the AUKUS defense pact linking the U.S., U.K. and Australia, maintaining the original timeline that includes the sale of three Virginia-class submarines to Canberra beginning in 2032...” The report comes after a Pentagon review in June, ordered by US Undersecretary of Defence Elbridge Colby, threw doubt over US participation in the nuclear submarine alliance.
- Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6417(AUD597m), 0.6600(AUD820m), 0.6800(AUD525m). Upcoming Close Strikes : 0.6600(AUD1.5b Oct 3), 0.6600(AUD1.7b Oct 2), 0.6700(AUD1.64b Oct 1) - BBG
- CFTC Data last week shows Asset managers added back to their recently reduced shorts, -48580(Last -41095). The Leveraged community did likewise, -6358(Last -1519).
- Data/Event: Building Approvals, RBA
Fig 1: AUD/USD spot Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
US TSYS: Yields Move Lower, Led By The Long-End
TYZ5 reopens at 112-17, up 0-00+ from closing levels in today’s Asia-Pac session.
- Overnight the US 10-year yield had a range of 4.1329% - 4.1658%, closing around 4.139%.
- Treasury yields ended lower overnight; the move was led by the Long-end causing the yield curve to flatten(2s10s -1.43 at 51.616, 5s30s -1.38 at 96.810).
- 10-Year yields drifted lower as the market prices in a US shutdown, I suspect buyers continue to be around 4.20% initially and look to fade the move higher. The jobs data if released will be key this week and if not then the ADP starts to take on a lot more relevance.
- MNI BRIEF: Fed's Musalem Urges Caution On Further Rate Cuts.The Federal Reserve must be cautious cutting interest rates further because inflation remains too high, St. Louis Fed President Alberto Musalem said Monday. "I'm open-minded to future potential reductions in interest rates. I do believe we need to tread cautiously because the room between now and the point where policy can become overly accommodative is limited," he said
- MNI US DATA: BLS's Shutdown Plan Confirms Key Data Wouldn't Be Published. The Bureau of Labor Statistics' key economic releases would be postponed in the event of a government shutdown, per the Department of Labor's plan for such an event. "BLS will suspend all operations. Economic data that are scheduled to be released during the lapse will not be released.
Fig 1: 10-Year US Yield Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
