18 September 2023 | Weekly Snapshot

Did you know?

According to US real estate data provider Black Knight, while new mortgage rates in the US are currently around 7%, the portion of US homeowners with a mortgage rate under 4% (having locked in lower rates prior to the rate increases of the past year) is an astonishing 62%.

Market Movements

Australian Share Market (ASX 200) – up 1.71% with the 2 largest sectors Materials (+3.88%) and Financials (+2.52%) leading the gains while REITs (-0.97%) and Healthcare (-0.87%) led the declines. Global equity markets started the week higher as sentiment around the Chinese economy improved from low levels. New loans in August were ahead of expectations and CPI data also returned to positive territory after last month’s negative print raised deflation issues. China August economic data on Friday saw Industrial Production and Retail Sales increasing more than expected, although Fixed Asset Investment missed expectations and Real Estate remains a clear weak spot. The iron ore price rose to a 5-month high with the rise being attributed to positive sentiment around the latest China policy measures, a 3yr low in port iron ore inventories, and strong demand elsewhere. NAB’s business survey showed conditions rose in August, continuing a run of resilience with trading conditions, profitability and employment all rising and a broad-based uptick in conditions across most industries. The confidence and forward orders components also rose but remain below average with the retail sector a notable drag while cost and price growth measures remained above average. The Westpac-MI Consumer Sentiment Index slipped in September and remains deeply pessimistic even though fears of further RBA rate rises have eased. Confidence of mortgage holders bounced 7.8% but was offset by a 6.1% drop in the confidence of renters as rental vacancy rates hit a nationwide record low of 1.1%. Our August employment data smashed expectations with 64.9K jobs added for the month, well ahead of the 25K estimate. The participation rate rose keeping the unemployment rate steady at 3.7%. Composition was a bit soft though with 62.1K part-time jobs added compared to a 2.8K increase in full-time positions but was still a very strong number. Data last week showed significantly fewer distressed property listings in Australian capitals with the proportion of distressed listings in Sydney falling to 3.3% in August from 4.7% a year earlier, and from 2% to 1.6% in Melbourne. However, distressed listings remain high in mortgage belt suburbs.

U.S. Share Market (S&P 500) – down 0.16% with the Dow (+0.12%) and Nasdaq (-0.39%) mixed. Waning disinflation trends were in focus last week with the oil price hitting 10-month high adding to recent resurgent inflation concerns and the 10yr US Treasury yield closing the week at 16-year high of 4.34%. The NFIB small business survey was down slightly and the 20th consecutive month below average with the report contrasting with prevailing disinflation and labour market softening themes. The report noted 23% of small business owners said inflation was the single most important problem, 27% reported raising average selling prices, and 40% said job openings were still hard to fill. The August CPI report showed inflation persisting at a slightly higher than expected rate. Headline CPI increased 0.6% for the month, higher than the 0.5% expected and the biggest monthly increase in 14 months. Annualized CPI rose to 3.7%, higher than the 3.6% expected and up from 3.2% last month. Core CPI (ex. food and energy) of +0.3% for the month was also slightly above expectations, with annualized Core of 4.3% in line with consensus and down from 4.7% last month. Energy was the biggest contributor to the headline increase, although plenty of other core items remaining sticky. The European Central Bank hiked by 25 bps last week to 4% as expected and revised their 2023 and 2024 inflation forecasts upwards but takeaways were dovish with the ECB seemingly joining the view of other major Central Banks (the Fed and RBA in particular) that rates have now reached levels that if maintained long enough will see inflation return to target. US Retail Sales for August jumped 0.6% for the month and a big beat on the 0.1% gain expected. The New York Fed’s Empire Manufacturing survey was also a big beat at +1.9, well ahead of consensus for -10. and a big improvement from August’s -19.0 with manufacturing data continuing to improve recently although the University of Michigan Consumer Sentiment fell more than expected (to 67.7 vs consensus 69.0). The week’s data provided further evidence the US economy is still performing relatively well considering the 500-basis point increase in interest rates since early last year.

Portfolio Movements

Bank of America (BAC) provided guidance commentary at the Barclays 21st Annual Global Financial Services Conference last week with Chief Financial Officer Alastair Borthwick relatively upbeat. For the current Q3 they reiterated Net Interest Income of $14.2-14.3B slightly ahead of the $14.1B consensus. The investment banking fee pool is currently down 30-35% year on year for the sector although Borthwick thinks it will be slightly better by end of quarter. And global markets are up low single digits year on year based on the current run rate. Other Commentary included: Current deposits flat to up, slightly better than they thought overall. A flattening out in consumer and wealth, and growth in global banking. Loan growth is definitely slower although card growth is strong.

Novo Nordisk (NOVO) completes 2 for 1 share split. With their first half results in August, Danish pharmaceutical giant Novo Nordisk announced it would be conducting a 2-for-1 share split. That split occurred last week so shareholders wondering why the Novo share price has halved, also now hold twice as many shares so there is no change the dollar value of client’s holdings. This marks the fifth split in the company’s storied history, and its first since a 5-for-1 split took place back in January 2014.

Ramsay (RHC) debt rating downgrade – Provides update on sale of Sime Darby. With debt servicing costs higher than expected during last month’s full year results, Ramsay announced on Friday that credit rating agency Fitch has downgraded the investment grade credit rating it ascribes to Ramsay’s Funding Group1 from BBB/Negative to BBB-/Stable. The financial impact of this change in rating on the Company’s $1.5B Sustainability Linked Loan is a 10-basis point increase in interest costs but said the change in rating is not expected to impact Ramsay’s ability to access funding and liquidity in the future. As announced in June, a decision had been made to explore the sale of its Asian based joint venture Ramsay Sime Darby (RSD) with a number of non-binding indicative offers being received and a number of parties now in a phase 2 due diligence process which is expected to conclude towards the end of October.

The Week Ahead

Domestic economic data highlights this week include the September RBA meeting minutes tomorrow and the Westpac Leading Index on Wednesday.

International highlights include the US NAHB Housing Market Index tonight, US Housing Starts tomorrow night. UK CPI and PPI are Wednesday night. The highlight of week is the Fed’s FOMC meeting Thursday morning our time. Expectations are for no change but will be interesting to see what they make of the pickup in economic growth and inflation data since their last meeting in July. The Bank of England have their interest rate decision Thursday night along with Eurozone Consumer Confidence, and US Philadelphia Fed Index, Existing Home Sales, and Leading Indicators. Japan CPI is Friday along with Bank of Japan interest rate decision with US and Eurozone Markit Manufacturing, Services and Composite PMIs.

There is no corporate reporting for our portfolio companies this week.