20 November 2023 | Weekly Snapshot

Did you know?

Aussie shoppers are forecast to spend $6.36 billion across the four-day Black Friday to Cyber Monday this weekend, up 3% from last year. A recent survey found that almost one in three Aussies — equivalent to 6 million people — are planning to take part in the Black Friday sales. The survey revealed Black Friday has overtaken Boxing Day in terms of popularity.

Market Movements

Australian Share Market (ASX 200) – p 1.04% with positive offshore leads as bond yields eased further with geopolitical tensions steady at elevated levels. Interest rate sensitive sectors REIT’s (+3.98%) and Info Tech (3.92%) led the gains followed by Materials (+3.11%). Energy (-1.88%), Telecoms (-1.33%) and Financials (-0.53%) were the only sectors lower. The Westpac-MI consumer sentiment index fell back to a deeply pessimistic 79.9 in November from 82.0 last month following the RBA’s recent rate hike with the survey noting a sharp fall in expectations of family finances over next 12 months and a more pessimistic medium-term outlook for the economy. The NAB business confidence survey also dipped into negative territory in October but Business conditions remained strong with sales, trading and profitability sub-indexes strengthening further. Inflation indicators in the survey also moderated further with labour and purchase cost growth falling and price growth dropping to its lowest in over 2 years. The Q3 wage price index rose 1.3% last week, matching expectations and accelerating from the 0.9% increase in Q2. It was the biggest quarterly rise in the 26-year history of the series. Annual wage growth increased to 4.0%, from 3.6% last quarter, the fastest since early 2009 and ahead of expectations for 3.9%. It was a strong report led by private sector growth of 4.2% while public sector wage growth accelerated to a 12-year high of 3.5%, although the Fair Work Commission’s recent minimum wage hike was a significant one-off factor in the report. Employment rose by 55.0K jobs in October, more than double consensus forecast for a 24.0K gain. Full-time positions increased by 17K and 38K part in another strong headline result. The participation rate increased from 66.8% back to the record high to 67% which saw the unemployment rate rise from 3.6% to 3.7%. Although there were some soft undertones with the number of unemployed people roe 5.4% during the month. Despite the strong wage and employment data RBA rate hike odds for December are just a 10% chance while longer term views on whether the RBA will tighten again this cycle are currently a 50/50 chance.

U.S. Share Market (S&P 500) – up 2.24%, with the Dow (+1.94%), and Nasdaq (+2.37%) also higher for the 3rd week in a row with large month to date gains with the S&P 500 up 7.64% and the Nasdaq up 9.92% in November so far and recovering much of the losses of the previous 3 months. US government debt wrangling continued although a clean stopgap government funding bill was passed at the last minute but not before Moody’s downgraded its US outlook to negative from stable. A lower-than-expected CPI report sparked broad equity and bond rally adding to the large month to date gains. Headline CPI was flat for the month in October with the annual headline rate of 3.2% lower than forecast. Core CPI was also lower than expected and the Producer Price Index unexpectedly fell with lower energy (gasoline) prices during the month a big contributor. The NY Fed’s November Empire manufacturing survey jumped back into positive territory and the Philadelphia Fed index was better than expected with the ongoing improvement in manufacturing indicators. Other data was soft with US retail sales declining the first time since March but were still better than expected. The weekly Initial jobless claims and continuing claims were higher than expected with continuing claims the highest since Nov 2021. The NAHB housing market index fell more than expected, the 4th straight monthly decline and lowest since Dec 2022 with the surging bond yields of recent months clearly weighing on this highly rates sensitive sector although housing starts and building permits beat. The economic data is coming in a bit soft in early Q4 following the blowout +4.9% GDP growth in Q3. It could be hard to maintain that sort of momentum with some softer data reigniting Fed “Pivot” hopes with Interest rate pricing also seeing big moves last week with markets now pricing in a 0% chance of further Fed rate hikes while the first rate cut from the Fed is now priced in for May next year, brought forward from the 2nd half of 2024 before the CPI report.

Portfolio Movements

CBA (CBA) reports solid Q1. CBA rounded out the recent domestic bank reporting season, providing a solid Q1 update with unaudited statutory NPAT of $2.5 billion in the quarter. Unaudited cash NPAT also of $2.5 billion was flat on 2H23 quarterly average and up 1% on Q1 last year. They have seen a modest increase in consumer arrears over recent months with collective and individual provisions slightly higher although Portfolio credit quality remained sound, with credit quality indicators still near historic lows. Operating expenses were up 3%, reflecting higher staff costs from wage inflation and higher amortisation, partly offset by productivity initiatives. CEO Matt Comyn said the “Australian economy remains resilient, supported by low unemployment and strong population growth. Although higher interest rates are resulting in slowing growth and consumer spending, with pressure on some households and businesses. We remain optimistic on the medium-term outlook. Our balance sheet strength combined with our strong organic capital generation allows us to support our customers through challenging times, invest in our communities and provide strength and stability for the broader Australian economy.”

Qube (QUB) provides trading update – Australia’s largest provider of integrated import and export logistics services provided an update last week saying underlying financial performance for Q1 FY24 has been solid and consistent with Qube’s guidance for delivering underlying earnings growth in FY24. They stated earnings growth is ahead of Q1 FY23 for all business units reflecting: Generally solid volumes, Margin improvement, Higher automotive volumes, Domestic forestry volumes and Increased market share and high volumes for Patrick. Although skilled labour availability and inflationary pressures continues to be a challenge in some parts of the business. The pleasing start to FY24 supports Qube’s expectation that it will deliver underlying earnings growth in FY24 compared to FY23, albeit below the strong growth rate that was achieved in FY23.

SSE (SSE) beats first half estimates -reaffirms FY guidance. UK utility SSE, formerly Scottish and Southern Energy, reported a decent first half last week with adjusted EPS of 37.0p ahead of the 32.5p estimate and beating their own guidance from 2 months ago of “at least 30p” with adjusted operating profit of £693.2M ahead of expectations for £678.7M. The interim dividend of 20p/share was also ahead of the 18p/share estimate with the company reiterating their commitment to target annual dividend increases of between 5 – 10% through to FY 2026/27. SSE reaffirmed full year guidance of more than 150p with current estimates around 155p. The group is on course to report capital, investment, and acquisition expenditure for 2023/24 of around £2.5B with leverage at March 2024 expected to be below the target of 3.5 – 4.0x net debt to EBITDA.

The Week Ahead

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

International highlights include German PPI and US Leading Indicators tonight. US Existing Home Sales are tomorrow night with Eurozone Consumer Confidence, US Durable Goods, and Fed FOMC meeting minutes are Wednesday night. The Eurozone Markit Services and Manufacturing Indexes are Thursday night. Japan CPI is Friday with German IFO business survey and US Markit Services and Manufacturing Indexes on Friday might. The US Thanksgiving Holiday is Thursday with US markets closed.

Portfolio company reporting is quiet this week with just an AGM for Qube.