11 December 2023 | Weekly Snapshot

Did you know?

Despite the weakness in the Chinese economy, the official market price of iron ore price has remained remarkably strong this year, touching a year high of US$137 a tonne last week. That will likely ensure BHP retains its current position as the world’s biggest dividend payer.



Market Movements

Australian Share Market (ASX 200) – up 1.72% for the 2nd week in a row. The REIT sector (+3.51%) led the gains followed by Consumer Staples (+2.59%) and Info Tech (+2.14%). It was a strong week with just Energy (-1.3%) and Utilities (-0.76%) lower with the Energy sector weighed down by the oil price falling to the lowest level in 5 months. Talk of a potential merger between Woodside and Santos reversed some of the decline late in the week. Our October housing finance data was stronger than expected, up 5.4% for the month to $26.7 billion, a 4.9% increase on October last year and the first year-on-year increase since April 2022. Owner-occupiers, first home buyers and investors have surged back into the property market this year despite all the rate hikes with housing finance up 17% since bottoming in February. The RBA held interest rates steady at 4.35% as expected, repeating that further tightening will depend on data and an evolving assessment of risks. Most of the weekly gain came on Wednesday when the ASX200 surged 1.65% on the weaker than expected Q3 GDP data. The annual growth rate at 2.1% was steady on Q2 and ahead of expectations for a 1.9% increase. But quarterly growth of 0.2% was a big miss on the 0.5% expected. Net exports (-0.6%) were a big drag offset by positive contributions from government expenditure (+0.2%), investment (+0.2%) and inventories (+0.4%). Weak household consumption growth slowed to the lowest since the Covid lockdowns in 2021. However, on closer inspection, a very large 17% reduction in Electricity, Gas and Other Fuel spending was the main contributor due to increased government assistance and the warmer than usual end to winter. Productivity metrics improved and growth in unit labour costs slowed. Per capita GDP (growth adjusted for population increases) contracted again for the 3rd quarter in row was another weak spot. Market pricing moved to a 50% chance of a 25-basis point RBA rate cut by June next year following the miss, and a 100% chance of a cut by November 2024, with equities up on the weaker data and rate cut prospects.

  

U.S. Share Market (S&P 500) – up 0.21%, with the Dow (+0.01%), and Nasdaq (+0.69%) also higher with the S&P 500 and Nasdaq on a 6-week winning streak and closing at new 2023 highs. US factory orders fell more than expected to start the week with the Q4 eco data continuing to come in slower than Q3. The softer data has been a key driver of the equity gains (bad news being good news for equites) in a near full reversal of what we saw from August to October when good news was bad news for equities. Although data was a bit better as the week progressed with the November ISM Services index at 52.7, better than the expected and up from last month’s 51.8. The December University of Michigan consumer sentiment index at 69.2 was also well ahead of estimates and a 3-month high. The 1-year inflation expectations in the report also fell to 3.1%, the lowest since March 2021 after jumping to 4.5% last month. Nonfarm productivity, which measures hourly output per worker, increased a more than expected 5.2% rate in Q3, the fastest pace in 3 years. While unit labour costs – the price of labour per single unit of output – fell more than expected, the first drop since late 2022. Employment data was in focus with the October JOLTS report at 8.7 mill job openings well below consensus for 9.3 mill and the lowest reading since March 2021. JOLTS are now well off the 12 mill all time high early last year, but still around 25% higher than pre pandemic. The weekly Continuing claims were well below consensus after hitting a 2-year high the week prior. November Nonfarm payrolls Friday night rounded out a better week following a recent run of weaker than expected data, with payrolls increasing by 199K jobs, ahead of the 175K gain expected. It was a strong report, even with the participation rate up 0.1% to 62.8% (highest since Feb 2020) the unemployment rate ticked down 0.2% to 3.7%, below consensus expectations to hold steady at 3.9%.



Portfolio Movements

CVS Health (CVS) introduces CVS CostVantage, initiates 2024 guidance, raises dividend. CVS CostVantage is a new approach that evolves the traditional pharmacy reimbursement model and brings greater transparency and simplicity to the system. CostVantage will define the drug cost and related reimbursement with contracted pharmacy benefit managers (PBMs) and payors, using a transparent formula built on the cost of the drug, a set markup, and a fee that reflects the care and value of pharmacy services. These changes will also help ensure that CVS Pharmacy locations will continue to be a critical touchpoint for consumers to access affordable health care in their communities. CVS also raised the quarterly dividend and provided FY24 guidance that was ahead of consensus estimates.

   

Google (GOOG) launches Gemini AI model – Shares up 5%. Google surprised the market last week with the launch of its latest artificial intelligence model, Gemini. This had been expected by the end of the year, but then got pushed into next year a few months ago. Gemini will start being licensed to customers through Google Cloud later this month. Google execs said Gemini outperforms OpenAI’s GPT-3.5 chatbot, but the company didn’t say how it compares with the latest model, GPT-4 Turbo.
AI optimism has been a key theme across big tech names this year with the longer-term AI narrative still seemingly intact.

   

Intel (INTC) wins US appeal to overturn $2.18 patent infringement. A U.S. appeals court threw out a $2.18 billion patent-infringement award won by patent owner VLSI Technology against Intel last week, overturning one of the largest verdicts in the history of U.S. patent law. The Appeals court reversed a 2021 verdict that Intel infringed one VLSI patent when a jury awarded VLSI $2.18 billion in the first trial from the dispute. The jury found that technology in Intel microprocessors infringed patents that VLSI had acquired from Dutch chipmaker NXP Semiconductors. An Intel spokesperson said the company was pleased with the ruling and will argue at the new damages trial that VLSI’s patent is “of little value.”



The Week Ahead

Domestic economic data highlights this week include the Westpac MI Consumer Confidence and NAB Business Conditions tomorrow. Consumer Inflation Expectations are Thursday along with the November Labour Force data.

International highlights include China Loan growth today. UK Unemployment is tomorrow night along with German ZEW Economic Sentiment, US NFIB Small Business Index, and the highlight of the week – US CPI data. Japan Tankan Manufacturing Index is Wednesday with Eurozone Industrial production, US PPI and the final FOMC meeting of the year on Wednesday night. The final Bank of England and ECB rates meetings are Thursday night along with US Retail Sales and Business Inventories. Eurozone Markit Services and manufacturing PMIs are Friday night.

There are Annual General Meetings for Westpac on Thursday and NAB on Friday this week.

Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice

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