18 March 2024 | Weekly Snapshot

Did you know?

The S&P 500 declined for the 2nd week in a row last week – the first consecutive weekly decline in almost 5 months.

Market Movements

Australian Share Market (ASX 200) – down 2.25% pulling back from the prior week’s all-time high. The Utilities sector (+1.21%) led the gains along with REITs (+0.81%) and were the only sectors higher with REITs continuing to find support as the interest rate cycle appears to be at its peak. Our market was dragged down by our 2 largest sectors, Materials (-3.36%) and Financials (-3.17%). The Materials sector was weighed down by the big Miners with the iron ore price trading below $US100 per tonne, a 7-month low and now down 26% year to date. The fall is largely being attributed to lower demand from China with China stockpiles now largely replenished but construction activity there remaining lacklustre. The annual National People’s Congress concluded early last week without any large stimulus measures that some might have been hoping for with China seemingly taking a muddle through approach to working off some of the excesses particularly in property. The Financials sector was weighed down by what looked like profit taking in the big 4 Banks that had enjoyed very strong gains in recent months that had seen share prices rise to multiyear or all-time highs with valuations starting to look quite stretched in the short term. Offshore leads were also weak as recent US inflation data continued to come in higher-than-expected last week with some doubts around the timing for disinflation and rate cuts maybe starting to creep into the narrative with rate cut expectations getting pushed out further last week. The Aussie economy is demonstrating resilience in early 2024 with the February NAB business surveys last week showing their Aussie business confidence index slipped to zero (neutral) from +1 last month with manufacturing seeing an improvement while retail sector confidence remains deeply negative. But business conditions picked back up to +10 from +7 last month and is back above long-term averages led by improvements in trading and profitability sub-indexes. Other details were mixed with forward orders down but capex higher. Inflation pressures persisted with producer prices climbing though were able to pass on costs with retail price growth bouncing sharply from what had been muti year lows.

U.S. Share Market (S&P 500) – down 0.13%, with the Dow (-0.02%) and the Nasdaq (-0.70%) also lower. The S&P 500 declined for the 2nd week in a row last week, the first consecutive weekly decline in almost 5 months as the equities rally came under some pressure from the surprise pick up in recent inflation data. Nonfarm payrolls showed a 275K jobs gain, a decent beat on the +200K expected but there were some large downward revisions to prior months. The unemployment rate rose 0.2% to a higher than expected 3.9% and the highest since January 2022. Headline CPI up 0.44% for the month was the highest in 6 months with annualized CPI up 3.15% and annualized Core CPI up 3.75% all higher than expected. Capturing the recent pick up, the 3-month annualized headline pace was the highest since Sep 2023, and core 3 month annualized was the highest since May 2023. February Producer Price Index (PPI) was also higher than expected with annualized PPI increasing 1.58% which is still low but was well above the 1.1% estimate and the highest since September. February US retail sales were a bit softer than expected, up a decent 0.6% for the month but below the 0.7% estimate with January was revised down 0.3% to a hefty 1.1% decline and the 2nd monthly downward revision in a row. There was some notable outperformance from inflation hedges following the inflation reports with gold testing all-time highs after the recent break out, the oil price testing 8-month highs, and the Copper price hitting the highest in almost a year. Despite the recent pickup in inflation, markets are still currently expecting the first Fed rate cut in June, although now pricing for a 54% chance are less sure than they were. The higher-than-expected inflation data also saw the expected year-end Fed funds rate rising 0.2% last week to 4.7%, or 55-80 basis points worth of cuts by years end from the current Fed funds rate of 5.25%-5.5% — a significant change from the 175 basis points worth of year end cuts that were priced in at the beginning of the year.

Portfolio Movements

Shell (SHEL) publishes Energy Transition Strategy 2024 – LNG a critical fuel. Shell published their energy transition strategy last week with energy majors seeking to find the right balance between providing reliable affordable energy and reducing emissions, saying liquefied natural gas (LNG) is a critical fuel in the energy transition. CEO Wael Sawan noted “Energy has made an incredible contribution to human development, allowing many people around the world to live more prosperous lives. Today, the world must meet growing demand for energy while tackling the urgent challenge of climate change”. Shell said they will continue its drive to halve emissions from its operations and by the end of 2023 had achieved more than 60% of this target. Shell are investing $10-15 billion between 2023 and the end of 2025 in low-carbon energy solutions, making them a significant investor in the energy transition. In 2023 they invested $5.6 billion on low-carbon solutions, more than 23% of total capital spending.

Transurban (TCL) – Independent review of NSW toll roads creates uncertainty. A 230-page independent review of Sydney’s toll roads released last week has recommended the government pass legislation to create a new system of “network tolls” to replace the varying model set under individual concession agreements and that toll fares be set by a government body. The NSW state government said it will wait for a final report later this year before deciding on what if any changes to make. Transurban, the country’s largest toll road operator, said they long supported toll reform and believes in the potential for outcomes that are positive for customers and recognises its investment in Sydney’s roads. And noted the NSW Government has recognised the importance of honouring contracts that are in place. Transurban also noted its partners have invested over $36 billion to enhance the Sydney road network, including more than $20 billion over the past five years.

Treasury Wines Estates (TWE) expects China Aussie wine tariffs determination in coming weeks. Treasury Wine Estates announced yesterday that the Chinese Ministry of Commerce has released an interim draft determination outlining a proposed removal of the current tariffs on Australian wine imports into China. With a final determination expected in the coming weeks. TWE referred to its recent results announcement where it outlined the key initiatives it would pursue should the tariffs be removed. In such a scenario, TWE expects that the incremental EBITS contribution from the re-establishment of its Australian country of origin portfolio in China would be minimal through the remainder of FY24. But could assume it would have significant impact on FY25.

The Week Ahead

Domestic economic data releases this week include the RBA meeting tomorrow with RBA meetings now held every 6 weeks instead of the first Tuesday of the month. A hold decision is widely expected. Our employment data on Thursday is another highlight with a 35K jobs gain and the unemployment rate to fall back to 4% from 4.1% expected.

International economic data releases include China Foreign Investment today and US NAHB Housing Market Index tonight. Bank of Japan rates decision is tomorrow with German ZEW Sentiment and US Housing Starts tomorrow night. German PPI, UK CPI, Eurozone Consumer Confidence, and US FOMC meeting on interest rates is Wednesday night. The Markit Composite PMIs are Thursday night along with Bank of England rates decision, and US Existing Home Sales and Leading Indicators. Japan CPI is Friday.

There is no Portfolio company reporting this week although Novo Nordisk hold their Annual General Meeting on Friday.