20 May 2024 | Weekly Snapshot

Did you know?

Much of the historic equity market return has been driven by the growth of money supply. This is shown by the below chart, where the black line is the price performance of the S&P500, whilst the red line shows what is left of the price return after removing the impacts from money supply growth. This is why money supply is a key indicator for equity market performance.

Market Movements

The Australian market rose 1.5% this week.

The consumer discretionary sector was the best performer this week, up 3.4%, led by Aristocrat Leisure (ALL), up 16.6%. ALL announced first half results, which showed revenues up 4% and profits up 13%. Industrials were the weakest, down 1.4% this week, led by BlueScope steel, which fell 3.9% on no news.

March employment data showed the unemployment rate climbed to 4.1%, which was above expectations for 3.9%. The actual job numbers were strong (lost 6k full-time jobs, but gained 38k part-time jobs), but because the participation rate rose from 66.6% to 66.7%, this had the effect of lifting the unemployment rate. Futures markets are ‘pricing-in’ a 90% probability of an RBA rate cut by December, compared to 60% prior to data.

In the USA, equities were also higher by 1.6%. Info tech was the strongest sector up 3.7% led by ‘Super-Micro Computer’, which was up 13.3% as part of a broader resurgence into ‘AI’ stocks this week. Boosting this resurgence into growth-equities was the weaker-than-expected retail sales data , where retail sales were flat in April, which was down from +0.9% a month prior. The immediate market reaction was a fall in bond yields, which contributed to the outperformance in growth/tech stocks. Consumer stocks were the only group down for the week (-0.3%). Some broader context is shown in the below chart, which depicts that the US consumer has now spent their way through the government COVID-19 handouts. Have we just seen the peak of the US consumer?

Commodity prices were strong this week with both copper and gold closing at/near record highs. Supply disruptions are causing shortages in the copper space, being chiefly driven by the indefinite suspension of operations in Panama’s First Quantum copper mine (chart below).

Record gold prices are being driven by multiple converging factors. One of which includes the ongoing and structural budget deficits in the USA, as per blue line in chart below. The red line, in comparison, is showing Australia’s fiscal deficit, which is much shallower. Fiscal deficits are having the effect of higher levels of government debt and money supply.

Portfolio Movements

BHP’s improved takeover offer for Anglo-America is knocked-back.

  • BHP launched an improved all-script (non-cash) takeover offer for London-listed Anglo America for A$67bn. This was rejected by Anglo.
  • The combined entity would make BHP one of the world’s largest copper producers and for BHP shareholders, copper would become 40% of total revenues.
  • BHP has another week to improve their offer (again), after which, and according to UK law, BHP will be required to walk away for 12 months. BHP’s market value is A$227bn in comparison
  • The Anglo board has reportedly not engaged with BHP, which is making a deal seem unlikely in this context.

Palo Alto Networks to buy IBM’s QRadar

  • Leading cyber security firm Palo Alto Networks announced last night they are buying IBM’s QRadar cloud software assets and will be moving customers over to its own platform, Cortex Xsiam
  • The purchase of the cloud security software assets from IBM will be part of a broader partnership that will give Palo Alto access to more consultants and a bigger customer base. IBM said they will train more than 1,000 of its consulting employees on Palo Alto’s products.
  • The purchase amount was undisclosed with the companies saying the transaction should close by the end of September, subject to regulatory approval and other conditions.

Sony reports better than expected Q4 – Buyback announced – Rethinking Paramount bid

  • Sony reported better than expected Q4 results yesterday with net income attributable of ¥189.0B, a decent beat on the ¥153.96B expected. Q4 revenue of ¥3.481T was also better than the ¥2.866T expected although yen-denominated revenue figures were boosted by foreign exchange rates.
  • The company announced up to a ¥250.0B buyback, to repurchase up to 30.0M shares over the next 12 months.
  • A media report out also mentioned Sony could be “rethinking” its part in the recently announced bid to acquire Paramount in conjunction with private-equity firm Apollo Global Management for US$26 billion which weighed on the Sony share price since announced.

The Week Ahead

  • Monday: All members of the US Federal Reserve will individually share their interest rate views to the market across a series of press released speeches. The interest rate backdrop has become a key drive of equity markets so far in 2024.
  • Tuesday: not to be outdone by our American counterparts, the RBA will also release the minutes of the last meeting.
  • Thursday: Global manufacturing PMI data will be released. The outcome of which will provide updated insight into the breadth of economic strength, particularly across the industrial and manufacturing sectors. A reading above 50 signals growth.

Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice

The information presented in this publication is general information only, and is not intended to be financial product advice. It has not been prepared taking into account your investment objectives, financial situation or needs, and should not be used as the basis for making an investment decision. Before making any investment decision you need to consider (with your financial adviser) your particular investment needs, objectives and financial circumstances.

Some numerical figures in this publication have been subject to rounding adjustments. Akambo Pty Ltd (including any of its directors, officers or employees) will not accept liability for any loss or damage as a result of any reliance on this information. The market commentary reflect Akambo Pty Ltd’s views and beliefs at the time of preparation, which are subject to change without notice.