17 February 2025 | Weekly Snapshot

Did you know?

Household consumption in China is abnormally low at less than 40% of GDP, similar to Saudi Arabia. The US is at the other end of the curve (over 65% of GDP). A change in domestic Chinese policy to improve household consumption, such as expanded life and health insurance coverage, is a growth opportunity and something we will be watching out for.

Market Movements

The Australian market was up 0.5% last week. Sector performance was led by Industrials (+2.93%), Technology (up 2.9%) and Consumer Staples (+2.42%). Healthcare was the worst-performing sector, down 3.75%. Computershare surged 20.7%, leading the ASX 200. On the downside, Cochlear Ltd fell 15.2%, marking the worst performance of the index, while AMP Ltd (-13.62%) and Insurance Australia Group (-11.75%) also saw significant declines.

In the USA, markets rose 1.5% amidst a busy reporting and macro backdrop. Materials and Info tech led the market (up 2% and 2.4%), whereas energy was the only negative sector (down 0.5%)

Leading cybersecurity business Palo Alto reported results with Q2 EPS of $0.81 and a slight beat on the $0.78 expected. Total revenue for grew 14% year over year to $2.3 billion.

Overall, roughly 77% of S&P 500 companies have reported fourth-quarter results, with 76% exceeding earnings expectations, driving the highest year-over-year earnings growth since late 2021 at 16.9%. The below chart draws some regional comparisons over the past 6 months in terms of earnings per share (EPS), which shows the strong earnings in the US market (S&P500) in orange and the US tech index (Nasdaq, pink line). Interesting to see that earnings for the Chinese market has actually kept pace with the S&P500 over this 6-month period.

January retail sales in the US fell 0.9% for the month vs expectations for a 0.1% decline and the largest monthly drop in 2 years. The below chart shows the seasonality of retail sales in January. At the same time last year, retail sales fell -0.7% for example.

Trump was busy last week. He initiated peace deal negotiations to end the Russia Ukraine war. A Reciprocal tariff plan was also announced that will take aim at countries that have tariffs and other taxes on US goods and services, but details won’t be finalised for a few months. The US specially announced it will impose 25% tariffs on steel and aluminium imports.

Headline CPI in the US rose 0.5% for the month well ahead of the 0.3% expected and was the biggest monthly increase since August 2023 with the annual rate rising to 3% from 2.9%. The head of the US central bank commented that interest rates will stay put for the time being …“with our policy stance now significantly less restrictive than it had been and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance”.

Portfolio Movements

Westpac provides Q1 update

• Westpac, our 2nd largest lender, has reported a first quarter update. The unaudited net profit was $1.7 billion with the impact of notable items driving a 9% decline in net profit.
• Operating momentum was pleasing with business loan growth of 3% and institutional loan growth of 6%.
• The Q1 net-interest margins (NIM) was 1.82% and CET1 capital ratio was 11.9%.
• The share price was down 4.6% this morning on the news.

South 32 reports solid first half results

• Diversified base metals producer South 32 reported a solid first half result with profit increasing by US$307M to US$360M in H1 FY25 due to strong operating results and improved commodity prices.
• The sale of Illawarra Metallurgical Coal for up to US$1.65B strengthened the balance sheet and construction continued on the large-scale, long-life Taylor zinc-lead-silver project at Hermosa in Arizona (USA). Strategically, this is a transformation to be aligned with the energy transition.
• S32 also received crucial Australian government approval for its Worsley Mine Development Project in WA last week.
• Shares were higher by 5%

Treasury Wine Estates reports first half results – Revenue up 20%

• Leading luxury wine company and Penfolds owner Treasury Wine Estates has reported first half results with EBIT (earnings before interest and tax) up 35.1% to $391.4, a slight beat on the $390.8 expected. Revenue rose 20% to $1.57 billion, also a slight beat on the $1.57 billion expected. The interim dividend of $0.20 per share is up 18% on last year.
• The proposed sale of the lower-margin commercial division sale isn’t going ahead as planned. The high margin Luxury division which includes Penfolds saw a 52% revenue increase and now represents 56% of group revenue.
• Updated FY guidance could disappoint with F25 EBITS now expected to be approximately $780m, which is at the lower end of the previously guided $780-810m.
• The share price was basically unchanged for the week.

The Week Ahead

• Tuesday: Australia: RBA Cash Rate Target expected at 4.10%, previous 4.35%. Markets will be watching for any shift in the central bank’s tone on inflation and growth.
• Wednesday: United States: Empire Manufacturing Index (Feb) expected at -2.0, previous -12.6. A key measure of business conditions in the New York region. Australia: Employment Change (Jan) expected at 20K, previous 56.3K. Unemployment Rate (Jan) expected at 4.1%, previous 4.0%.
• Thursday: United States: Housing Starts (Jan) expected at 1.397M, previous 1.499M. Building Permits (Jan) expected at 1.460M, previous 1.482M.
• Friday: Philadelphia Fed Business Outlook (Feb) expected at 20.0, previous 44.3. This will provide insight into business conditions in the U.S. manufacturing sector. Initial Jobless Claims (Feb 15) expected at 215K, previous 213K. Continuing Claims expected at 1.879M, previous 1.850M
• Saturday: United States: University of Michigan Sentiment (Feb) expected at 67.8, previous 68.7. Existing Home Sales (Jan) expected at 4.13M, previous 4.24M. S&P Global U.S. Manufacturing PMI (Feb) expected at 51.2, previous 51.2. S&P Global U.S. Services PMI (Feb) expected at 53.0, previous 52.9.