Did you know?

The US budget deficit is expected to be much larger under Trump compared to Harris, whereby the markets have a central case (budget deficit) of US$7.75 trillion for the coming 10 years. At the margin, this is supportive for all asset prices including equities, gold, etc.

Market Movements

Australian and US equities were higher again on Friday closing out a strong week following the decisive Trump election victory sparking a big rally across risk assets.
The ASX was up 2.17% over the week, reversing the -1.13% fall the week before. During the week the RBA left Australian interest rates on hold at 4.35%, repeating recent messaging that they are not ruling anything (cuts or hikes) in or out with returning inflation to target within reasonable timeframe remaining their highest priority and that underlying inflation remains too high. Tabcorp Holdings was up 13.2% over the week after, following on from its new CEO, Gillon McLachlan, plans to simplify the business and reduce costs, aiming to make Tabcorp a more agile and efficient organisation. Computershare Ltd was up 9.88% after hitting a record high, likely on the back of few interest rate cuts which is a positive for the Companies earnings. Domino’s Pizza fell 8.82% over the week after a market presentation with new CEO Mark van Dyck, who has taken over the Founder and former CEO, Don Meij.

The ASX Information Technology Index was the strongest group last week, gaining 5.83%, led by Megaport Ltd up 8.66% and Life360 up 7.26%. The Real Estate Index fell -1.38%, driven by GPT Group falling -3.82% and Goodman Group down -2.22%

On the S&P 500 Tesla was one of the strongest performers, gaining 29.01%, likely spurred on by the fact that its CEO, Elon Musk, is expected to play a significant role in President-elect Donald Trump’s upcoming administration. Musk’s involvement in high-level discussions indicates his growing influence in the administration. First Solar fell during the week and was one of the weaker performers, with the re-election of Donald Trump it has raised concerns among investors regarding the future of renewable energy policies. Trump’s previous administration was known for favouring fossil fuels over renewable energy sources, leading to apprehension about potential policy shifts that could adversely affect the solar industry.

Portfolio Movements

 NAB reports FY results

• NAB, our second largest bank, reported Full Year (FY) results with cash earnings of $7.10B, which was a slight beat on the $7.06B expected. Net profit for the 12 months of $6.96 billion, compared with $7.41 billion a year earlier, or down 6.1% on lower lending margins with the Net Interest Margin slipped to 1.71% from 1.74% a year earlier. Operating expenses rose by 4.5% to $9.43 billion on salary increases, restructuring costs and technology investments.
• Revenue was flat at $20.65 billion as expected and the board declared a final dividend of A$0.85 a share, up from $0.84 a year earlier.
• Andrew Irvine NAB CEO commented on the outlook “In Australia, growth has been weak, in part due to the adjustment by households to higher interest rates and cost of living pressures. While the first half of 2024 will likely mark the trough in real GDP growth, the pick-up in growth from there is expected to be gradual with 1% forecast this year and around 2.25% over 2025 and 2026. Easing inflation, tax cuts and energy subsidies will all help put households in a better position through the second half of 2024 but early indications of how this affects consumption and economic growth are mixed, with some of the benefit likely to be saved initially.

US Stock Market – Q3 earnings reporting season winding down

• With 90% of S&P 500 companies now having reported for Q3, the blended EPS growth rate of 5.3%, up 0.2pp on last week and still tracking ahead of the 4.3% expected at the end of the quarter. So far 75% of S&P 500 companies have reported a positive EPS surprise and 60% have reported a positive revenue surprise. For Q4 guidance 53 S&P 500 companies have issued negative EPS guidance and 24 companies have issued positive EPS guidance.
• But with share prices rallying much more than earnings growth, the forward 12-month P/E ratio for the S&P 500 is currently 22.2. This P/E ratio is above the 5-year average (19.6) and above the 10-year average (18.1) and the highest in over 3 years.

Novo Nordisk beats Q3 estimates

• Novo Nordisk reported Q3 results with EPS of DKK6.12 ahead of the DKK6.00 estimate. Sales in North America Operations increased by 31% and sales of the blockbuster weight-loss drug Wegovy climbed 79% to 17.3 billion Danish kroner ($2.5 billion) as it became available in more countries.
• Novo has led the wave of new obesity drugs to become Europe’s biggest company and is now vying with Lilly for supremacy in obesity drugs, the pharmaceutical industry’s fastest-growing new business. The market is expected to reach $130 billion by the end of the decade.
• Novo narrowed the range of its forecasts slightly, predicting total sales would grow 23% to 27% this year at constant exchange rates, while operating profit grows 21% to 27%.

The Week Ahead

• Thursday: US CPI Month on Month (MoM) for October is expected to be 0.2%, no change from September’s 0.2% reading and CPI Year on Year (YoY) is expected to reveal 2.6%, a slight increase on September’s 2.4%. Australia Employment Change is expected to be 25k for the month, a slow down on the 64.1k recorded in September and the Unemployment rate is expected to hold steady at 4.1%
• Friday: US PPI Final Demand MoM is expected to be 0.2% for October, compared to 0.0% IN September, and YoY PPI Final Demand is excepted to 2.3% compared with the prior reading of 1.8%. Initial Jobless Claims are expected to be 223K compared with 221k the week earlier. China Industrial Production YoY is expected to be 5.6% compared to the prior reading of 5.4% and Retail Sales YoY is expected to increase to 3.8% from 3.3% over the month. United Kingdom GDP QoQ for Q3 is expected to show a contraction to 0.2% compared to Q2 of 0.5% however, YoY GDP is expected to show an acceleration to 1.0% from 0.7%