According to Macquarie, the average increase in a companies’ share trading activity on the day of their AGM is 40%. The study also showed the average share price move post AGM is lower.
Australian Share Market (ASX200) – flat (down 0.06%) in a volatile week with mixed offshore leads. The Financials sector (+3.09%) led by the Banks (+4.09%) held up the market on some net interest margin upgrades due to the higher interest rates combined with a still strong economy that is keeping impairments low. Consumer Staples (+0.36%) and Consumer Discretionary (+0.24%) were the only other sectors higher with Info Tech (-3.04%), Healthcare (-2.88%) and Utilities (-2.27%) leading the declines and giving up some of the prior week’s large gains. It was a fairly quiet week domestically with investors awaiting the key US consumer inflation report and some defensive positioning heading into the US Q3 earnings season. Global financial stability concerns due to the aggressive rate hikes were in focus with the Bank of England intervening in the UK bond market again, as issues have arisen for UK pension funds. The very low yields on offer from long term bonds over recent years have seen pension funds leveraging up their bond portfolios in order to boost their income returns which has backfired as interest rates have risen. Westpac’s consumer confidence index fell to 83.7 in October from 84.4 in the previous month and is close to an historical low which is difficult to reconcile with the 48-year low unemployment rate and solid retail spending. Westpac noted consumer sentiment is “deeply pessimistic” with the main drags continuing to be a surge in the cost of living, rising interest rates and near-term concerns for the economy. NAB’s monthly business survey on the other hand strengthened further in September on the back of strong trading conditions that are now above their pre-COVID peak with both the employment and profitability indexes remaining elevated. Conditions remained strong across industries and states – with wholesale and retail business conditions rising notably in the month. Overall, the survey indicated the domestic economy has remained resilient through Q3, despite the challenges noted in the Westpac consumer survey, with the cost and price growth measures easing further and adding weight to the view that the peak in inflation may be near.
US Share Market (S&P 500) – down 1.55%, with the Dow (+1.15%) and Nasdaq (-3.11%) mixed in volatile trading. Equities markets were nervous ahead of another key US inflation report with the S&P500 falling for six sessions in a row heading into the release that showed inflation was again higher than expected. Headline September CPI was up 0.4% for the month, double the 0.2% rise expected and the highest since June. Core CPI (ex-food and energy) rose 0.6% for the month, also higher than the 0.4% expected with services inflation accelerating further. Despite the higher-than-expected inflation, US equities staged a big intraday turnaround from early losses to close significantly higher, likely due to short term positioning and sentiment indicators that had moved into deeply depressed territory ahead of the report. By the end of the week the “persistent inflation” theme continued to weigh on equities and bond prices, particularly those of a longer duration nature, with the US 10 yr. treasury yield closing above 4% for the first time since early 2008. Investors were likely also cautious heading into the US Q3 reporting season that will likely be the next big driver of sentiment. According to FactSet’s earnings season preview report S&P500 earnings are now expected to increase 2.4% year on year in Q3, down from the 9.9% expected at the start of the quarter. S&P500 revenue is expected to grow a still high 8.5%, down from 9.7%. Due to their size, big tech names are expected to be among the biggest drags on Q3 earnings while Energy is expected to see earnings growth more than double. A key debate revolves around inflation driven pricing power as a revenue tailwind, versus the inflation headwinds on profit margins from higher input costs, with USD strength one of the biggest headwinds on Q3 sales. CY2022 earnings estimate cuts have led to talk of a lower bar, like the “better-than-feared” takeaways surrounding the Q2 earnings season. But guidance has been flagged as a downside risk given current estimates for CY2023 may still need to come down a bit.
Amazon (AMZN) to invest 1 billion euros in electric vehicles. Amazon announced last week that they plan to spend €1 billion, or US$972 million, on electric vehicles for its European fleet. The investment would increase the company’s fleet to at least 10,000 electric delivery vans by 2025, up from 3,000 currently, and more than 1,500 long-haul electric trucks. It is part of Amazon’s goal to produce net-zero carbon emissions by 2040. Delivery vans on short routes are relatively easy to recharge nightly at a company’s warehouse or depot. Electric trucks are more of a challenge as they tend to be on longer distance routes that make efficient recharging difficult. “Our transportation network is one of the most challenging areas of our business to decarbonize, and to achieve net-zero carbon will require a substantial and sustained investment,” said Amazon CEO Andy Jassy.
Google (GOOG) to accept crypto currency for cloud payments. Google will start allowing a subset of customers to pay for cloud services with digital currencies early next year saying it will explore using Coinbase Prime, a service for storing and trading cryptocurrencies. The deal was announced at Google’s Cloud Next conference and could help lure cutting-edge companies to Google in a fast-growing market where Google’s top competitors do not currently permit clients to pay with digital currencies. Coinbase will move some of its applications to Google’s cloud from Amazon Web Services with Coinbase shares up 8% on the news, although still down over 70% for the year, it was a rare bit of positive news in what has been a tough year for crypto assets.
Citigroup (C) posts better than expected Q3 earnings. Citigroup reported better than expected Q3 earnings on Friday night with earnings per share of $1.63 versus estimates of $1.42 and revenue of $18.51b versus estimates of $18.26b for the quarter. Treasury and Trade Solutions saw revenues up 40% year-over-year, with growth across all segments, and Securities Services was up 15%. Fixed Income matched last year, while Equities was lower. Banking was the business most adversely impacted by the macro environment with reduced deal flows and a lower appetite for M&A. The backdrop for wealth management was difficult but U.S. Personal Banking further solidified its growth trajectory with double digit revenue growth in both of the cards businesses, according to comments from CEO Jane Fraser. A CET1 ratio of 12.2% provides a strong balance sheet, capital levels and liquidity with the CEO stating the bank is well positioned to help clients navigate the challenging market conditions and slower growth.
The Week Ahead
The domestic data highlight this week is the labour force and unemployment rate on Thursday with the unemployment rate expected to fall from 3.5% to 3.4%. Our Annual General Meeting season ramps up with the AGM season taking on heightened significance with many companies declining to provide guidance during the recent full year reporting season.
Internationally, inflation data remains key with inflation readings this week from the Eurozone, Japan, New Zealand, the UK and Canada. Chinese 3Q GDP tomorrow will be in focus as will US housing data with the NAHB housing market index on Wednesday and existing home sales Friday. The US Q3 earnings season starts to ramp up with 66 S&P500 companies including 8 DOW components reporting this week.
Corporate reporting increases this week with Bank of America Q3 results tonight, Johnson & Johnson tomorrow night, BHP Q1 sales on Wednesday, Transurban AGM and Q1 sales update, Woodside Q1 sales, and Freeport McMoRan Q3 earnings on Thursday, and Insurance Australia group AGM on Friday.
Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice
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