15 January 2024 | Weekly Snapshot

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Japan’s Nikkei 225 stock market index hit the highest since 1990 last week, continuing the recent strength after advancing more than 25% last year, its best performance in a decade.

Market Movements

Australian Share Market (ASX 200) – up 0.12% with positive offshore leads as market participants filtered back to work after the break. Info Tech (+2.76%) led the gains followed by Consumer Discretionary (+1.92%) and REITs (+1.89%). Utilities (-2.83%), Materials (-1.83%) and Consumer Staples (-1.27%) led the declines. Economic data was positive with Aussie retail sales surging 2.0% for the month in November on increasing Black Friday / Cyber Monday sales popularity, well ahead of consensus for a 1.2% increase. The $36.5 billion in retail sales for the month was a new record high, after struggling to break above the $36 billion per month level since November 2022. Strength in discretionary items was the biggest driver likely on front-loading of Christmas purchases but there were broad-based increases across all segments. Job vacancies decreased by a slim 0.7% in the three months to November, halting a steeper decline over the previous 5 quarters with the 388,800 job vacancies still 70% higher than they were in February 2020, prior to the pandemic with the high level of vacancies reflecting continued labour shortages in many industries. The monthly inflation indicator showed consumer prices rising 4.3% for the year in November, slightly below expectations for 4.4% increase and down from 4.9% in October. It was the lowest rate of consumer price growth since January 2022. Details showed some food & beverage-related components logging smaller price increases, though remaining elevated. Housing increased to 6.6% for the year from 6.1% with new dwellings reflecting higher construction costs, as well as still rising rents amid low vacancy rates. Electricity prices were also still rising sharply, up 8.8% since June after government rebates (up 19% without rebates). While auto fuel price growth dropped sharply to 2.3% in November from 8.6% in October. Takeaways were mixed but the more comprehensive Q4 inflation report due later this month will be key ahead of the RBA’s first meeting of the new year in early February. The consensus view is RBA will leave rates unchanged next month, but that the RBA will have cut rates by years end.

U.S. Share Market (S&P 500) – up 1.84%, with the Dow (+0.34%), and Nasdaq (+3.09%) also higher and recovering the decline in the first week of 2024 although geopolitical risks remained elevated. New York Fed President Williams (voter) said that rates are restrictive enough to bring inflation back to the 2% target echoing other recent Fed speakers. But in what looked like an attempt to cool speculation of imminent rate cuts that drove an almighty rally late last year as the Fed unexpectedly pivoted from hawkish to dovish also said the Fed may need to maintain restrictive stance of policy for some time to hit their goals, and only dial back once they are confident inflation is moving toward 2% on sustained basis. The Consumer Price Index increased 0.3% for the month vs 0.2% expected and accelerating from November’s 0.1% increase. Annualized CPI was up 0.3% to 3.4% also ahead of the 3.2% expected. Although Core CPI was up 0.3% for the month, in line with expectations for an annual increase of 3.9% and the lowest since May 2021. Takeaways were mixed although did seem like the inflation pulse is waning but still present. Following the CPI report Cleveland Fed’s Mester (voter) said that March is probably too early for a rate cut as the report indicated there is more work to do. Despite that, market pricing still had a 70% chance of a March cut. Markets seemed to look through the higher-than-expected CPI report, focusing instead on Friday’s lower than expected Producer Price Index that declined 0.1% for the month for the 2nd month in a row with headline PPI up just 1% for the year with March Fed rate cut pricing increasing to an 80% chance and a year-end fed funds rate of 4%, implying 125-150 basis points of cuts by year’s end. Some US banks got the Q4 earnings season underway with results supporting the recent jump in share prices with earnings season ramping up over coming weeks, but US markets are closed tonight for Martin Luther King day.

Portfolio Movements

Bank of America (BAC) Q4 EPS beats – Revenue misses – Provides positive outlook. Bank of America reported Q4 EPS of $0.70 ex-items last week, well ahead of the $0.53 consensus estimate. Q4 revenue of $21.96B was a miss on the $23.70B consensus estimate. Q1 Net Income guidance of $13.9-14.0B was ahead of the $13.79B estimate with the Bank also expecting expenses to decline from Q1 reflecting a drop in the elevated payroll tax expense and additional operational excellence initiative work. CEO Brian Moynihan said “We reported solid Q4 and full-year results as all our businesses achieved strong organic growth, with record client activity and digital engagement. This activity led to good loan demand and growth in deposits in the quarter and full-year net income of $26.5B. Our expense discipline allowed us to continue investing in growth initiatives. Strong capital and liquidity levels position us well to continue to deliver responsible growth in 2024.”

Currency Hedged Japan Equities ETF (HJPN) hits all-time high. Japan’s Nikkei 225 stock market index hit the highest since 1990 last week, continuing the recent strength after advancing more than 25% last year, its best performance in a decade. Japan stocks were boosted by low valuations, a fading of the decades-long deflation, a weak yen supporting exporter earnings, and investors /asset allocators preferring Japan over other countries in the region for their Asian exposure. We hold the HJPN ETF as our Japan equities exposure, hitting an all-time high last week.

Intel (INTC) to launch automotive versions of its newest AI-enabled chips. Intel announced they will launch automotive versions of its newest AI-enabled chips to compete with taking on Qualcomm and Nvidia in the market for semiconductors that can power the increasingly complex computers of future cars. Chinese automaker Zeekr will be the first to use Intel’s AI system on a chip to create “an enhanced living room experience” in vehicles, including AI voice assistants and video conferencing. Intel also said it will acquire Silicon Mobility, a small French startup that designs system-on-a-chip technology and software for controlling electric vehicle motors and onboard charging systems.

The Week Ahead

Domestic economic data releases this week include ANZ Job Ads today, Westpac Consumer Confidence tomorrow, and the December Labour Force data on Thursday where the unemployment rate is expected to hold steady at 3.9%.

International economic data releases include Eurozone Industrial Production tonight. UK Unemployment, German ZEW Economic Survey and US Empire State Index are tomorrow night. China GDP is Wednesday, with UK CPI and US Retail Sales, Capacity Utilization, Industrial Production, Business Inventories, and NAHB Housing Market Index all on Wednesday night. Thursday night is US Housing Starts and Philadelphia Fed Index. Japan CPI is Friday with UK Retail Sales, and US Existing Home Sales and Michigan Consumer Sentiment Friday night.

Portfolio company reporting this week includes Rio Tinto Q4 results tomorrow, BHP Q2 Thursday and Schlumberger Q4 results Friday night.