10 February 2025 | Weekly Snapshot

Did you know?

The interest rate on US government debt is approx. 3.3%.

As we move forward in time and new debt replaces matured debt, this interest rate is expected to increase given headline interest rates are higher at 4.3%.

On US$36 Trillion of US government debt, small increases in interest rates are going to impact the government balance sheet a lot and the department of government efficiency (DOGE) is going to have to work hard to find big savings to counter this.

Market Movements

Global equity markets faced a challenging week, with declines across the board. The ASX200 slipped by 0.24%, mirroring the performance of the S&P 500, while the Dow Jones Industrial Average and Nasdaq Composite saw steeper losses, falling by 0.54% and 0.53%, respectively. This uniform weakness reflected broader market concerns, including geopolitical tensions and mixed corporate earnings results.

In Australia, the ASX200’s decline was led by significant losses in the Health Care sector (-3.28%), while Utilities (-2.13%) and Energy (-1.54%) also underperformed. However, strength in Information Technology (+1.99%) and Materials (+1.73%) provided some offsetting support. Among individual stocks, Domino’s Pizza Enterprises surged 19.41%, while Collins Foods gained 10.74%, supported by positive sentiment in the fast-food sector. On the downside, Zip Co Ltd fell 9.84%, as profitability concerns weighed on investor sentiment, and Beach Energy dropped 10.49%, reflecting weakness in the broader energy market.

US markets grappled with a combination of disappointing earnings and renewed trade tensions. In the S&P 500, Palantir Technologies led gains, soaring 34.38%, followed by Super Micro Computer (+27.21%) and Expedia Group (+18.38%). On the downside, FMC Corp, who makes herbicides and insecticides, was the worst performer, plunging -38.08%, with Skyworks Solutions (-25.99%) and Estee Lauder Companies (-22.05%) also seeing significant declines.

Economic data further complicated the outlook. Nonfarm payrolls increased by 143,000, while hourly wages rose 0.5%, fuelling concerns about persistent inflation. Additionally, President Trump’s announcement of reciprocal tariffs on key trading partners, including Mexico, Canada, and China, heightened fears of economic disruption and further price pressures. Looking ahead, market participants will closely monitor the January Consumer Price Index (CPI) release for signs of continued inflationary trends. Corporate earnings and geopolitical developments, particularly the impact of new tariffs, will also be critical in shaping investor sentiment and market direction in the weeks to come.

Portfolio Movements

ASX reporting season to ramp up

• The ASX first half reporting season ramps up this week with some optimism emerging following the largely downbeat FY24 reporting season in August.
• Along with the rise in the market, earnings revisions have turned positive more recently with ASX 200 forward EPS estimates up around 4% heading into the reporting season although analysts still see growth flat to slightly negative in FY25 following the recent period of earnings decline.
• Prospects for a near term RBA rate cut is seen boosting consumer and housing stocks. Slowing inflation is also underpinning hopes for margin resiliency. Capital returns could surprise with balance sheets in good shape and dividends are forecast to rise after declining in recent reporting periods.
• Elevated valuations make for a high bar though with the ASX 200 hitting an all-time high in Jan and driving up the market forward P/E to around 18 x and well above average levels.

Amazon reports strong Q4 results – Guidance weighs

• Amazon reported solid Q4 results last week with Q4 EPS $1.86 a decent beat on the $1.49 expected. Q4 revenue of $187.79B was largely in line. For the full year (2024) net sales increased 11% to $638.0 billion.
• Amazon Web Services (AWS) grew ~19% for a third straight Quarter, largely in line with expectations with AWS’ AI (Artificial Intelligence) business reaching a multi-billion-dollar revenue run-rate and launching a suite of new services. Retail takeaways were also positive with CEO Andy Jassy noting the recent holiday shopping season was the most successful yet for Amazon.
• Outsized capex a key area of focus across the big tech stocks this reporting season with Amazon guiding for over $100B spending for 2025. Q1 operating income guidance in the $14.0-18.0B range with the midpoint around 13% below consensus was a bit disappointing although they did flag an unusually large $2B+ headwind from FX as the USD has surged

REA Group reports strong first half

• Leading property portal Realestate.com owner REA group reporting what looks like a solid first half result last week.
• Some highlights include revenue of $873m up 20%, Net profit of $314m, up 26%, EPS of $2.38, up 26%, interim dividend of $1. 10 per share fully franked, up 26% and look to be ahead of estimates.
• Outgoing CEO Owen Wilson commented: “REA’s exceptional first half result was driven by strong yield growth in a healthy listings environment. Vendors remained confident during the half with sales volumes consistently higher than the prior year, demonstrating the depth of demand, while buyers benefitted from more choice and some moderation in price growth.

The Week Ahead

• Thursday: United States: Consumer Price Index (CPI) for January is expected to show: Monthly change at +0.3%, down from +0.4% in December. Year-over-year CPI growth at 2.9%, unchanged from December. CPI excluding food and energy is expected to rise +0.3% MoM, matching the prior month, with annual growth of 3.1%.
• Friday: United States: Initial Jobless Claims are expected to rise 217k from the prior 219k. Continuing Claims for February 1 are forecasted at 1.888 million, up slightly from 1.886 million. United Kingdom: Quarterly GDP (QoQ) for Q4 is expected at +0.1%, slightly below the prior +0.2%, while GDP (YoY) for Q4 is anticipated at +1.1%, down from +1.2% previously.
• Saturday: United States: Retail Sales for January are projected to show: -0.1% change in advance retail sales, down from +0.4%. Retail sales excluding autos and gas expected at +0.3%, down from +0.7%. Import Price Index is expected at +0.4% MoM for January, compared to +0.1% previously. Industrial Production is anticipated to grow by +0.3%, down from +0.9%.