Bank of America’s Global Fund Manager survey last week showed investor cash levels have reached 6.3%, a 21 year high.
Australian Share Market (ASX200) – down 1.21% in another volatile week and mixed offshore leads. The Energy sector (+1.58%) was the only sector higher led by a production upgrade from Woodside while Utilities (-3.39%), Materials (-2.99%) and Healthcare (2.97%) led the declines. The highlight of the week was the September labour force data which showed a significant deceleration in jobs growth with just 900 jobs added versus expectations for a 35,000 gain. The unemployment rate held steady at 3.5% versus expectations for a fall back to the 48-year low of 3.4% set in July. This would be welcome news for the Reserve Bank of Australia as they try to cool the economy, and supportive of their decision to slow the pace of rate hikes earlier this month. Otherwise, investors were focused on international developments. Global bond yields rose with the 10 yr. US treasury yield hitting a new 14 year high on high inflation readings from the UK, New Zealand, the Eurozone, and Canada. UK sentiment improved, where monetary and fiscal policy has been in a bit of disarray the past few weeks. The new Chancellor Hunt made a statement that scrapped most of the economic plan recently announced. Hunt will bring forward some measures in order to stabilize markets and announced other measures including the increase in corporation tax and the cut in the base rate of income tax will be cancelled unless economic conditions allow it. The reversal in the payroll tax hike, the stamp duty cut for property purchases and the investment allowance to support business investment will remain. The situation highlighted the tricky situation for fiscal policy makers in trying to manage economic growth amongst the high inflation. The US Q3 earnings went into full swing with early results from the big Banks coming in better than expected.
US Share Market (S&P 500) – up 4.74%, with the Dow (+4.89%) and Nasdaq (+5.22%) also higher with a strong move on Friday night. Rising bond yields were keeping equities under pressure but Q3 earnings, particularly from the Banks, steadied the ship early in the reporting season. The blended growth rate for Q3 S&P 500 earnings is now just 1.6% from the year ago period, down from 9.9% growth expected at the start of the quarter with analysts cutting Q3 growth projections by another 1% just in the last week and setting a low bar for earnings “beats”. The University of Michigan Consumer Sentiment rose 1.2 points, ahead of consensus and was the highest since April, but the closely watched consumer inflation expectations also rose more than expected. The New York Fed’s Empire manufacturing survey for October fell more than expected. New and unfilled orders, and shipments were stable, but the input-price component rose after falling significantly for the previous three months, also adding to the persistent inflation narrative. Some deeply depressed positioning also likely supported last week’s bounce with Bank of America’s Global Fund Manager survey showing cash levels at a 21 year high of 6.3%. It was a big week for US housing data with the October NAHB housing market index dropping to 38, well below estimates and the lowest since 2012. US housing starts fell a more than expected 8.1% for the month although building permits unexpectedly rose. The forward indicators for housing are softening under the higher interest rates (new US mortgages are now over 7%) but houses currently under construction remain strong. There are currently 910,000 multi-family units under construction, the highest level since 1974. Combined with single family homes there are currently 1.71 million housing units under construction which is a record high and should help at some stage with the surging rents in the core CPI. Some chatter on Friday night noted that the US Federal Reserve is still likely to hike by 75 basis points at the upcoming FOMC meeting next week but could be considering a smaller 50 basis point hike also likely boosting US equities late in the week.
Insurance Australia Group (IAG) announces $350 million buy back on favourable high court ruling. IAG announced a $350m buy back after receiving a favourable ruling from the High Court that denied special leave to appeal the decision of the Full Court of the Federal Court of Australia in the second test case back in February 2022. The ruling relates to Business Interruption claims from lockdowns due to the government’s pandemic responses. IAG had made a $975m provision for BI claims that it no longer believes it needs in full. IAG will reduce the provision from $975m to $615m and begin a $350m on market buyback from early November with the shares bought back to be cancelled which should provide a long-term boost to earnings and dividends per share.
Woodside (WDS) upgrades production guidance – shares rally. Woodside upgraded full-year production guidance saying they now expect to produce between 153m and 157m barrels of oil equivalent this year, up from a previous guidance of between 145m and 153m barrels. Benefiting from an upswing in energy prices, Woodside said the average realized price for its liquefied natural gas production was US$19.10 per million British thermal units, up from US$13.80 in Q2. Combined with the increase in production, the higher prices saw Woodside’s Q3 revenue jump to US$5.86b, up 70% on the prior quarter, underpinned by its takeover of BHP’s petroleum business.
Freeport McMoRan (FCX) beats Q3 estimates – profit falls. Freeport beat Q3 estimates with EPS of $0.26 vs. consensus estimates of $0.24 and revenue of $5b ahead of the $4.88b expected, although profits and revenues were down sharply on the year ago period amid lower selling prices for copper, gold and molybdenum. Copper production rose 7% to 1.06 billion of recoverable pounds, but the average realized price declined 20% to $3.50 per pound. CEO Adkerson commented, “FCX’s position as a global leader in the copper industry, together with a solid balance sheet, long-lived assets and experienced team, provide strength as we navigate the current global market uncertainties” The company did also mention that “Current prices for copper are insufficient to support new mine supply development, which is expected to add to future supply deficits”
The Week Ahead
The domestic data highlight this week is our Q3 Consumer Price Index tomorrow. Consensus is for a 1.3% quarter on quarter rise in the CPI, down from the higher than expected 1.8% in Q2 which would see the annual rate increase to 7% in Q3, up from 6.1% in Q2. So, while the year-on-year inflation is still expected to show an acceleration, markets will be looking for a stabilisation in the quarter-on-quarter rate.
Internationally, we have a raft of manufacturing and services PMIs from the US and Eurozone tonight and tomorrow night along with Germany’s IFO business survey. US consumer confidence and wholesale inventories are Wednesday night. Thursday night is significant with the ECB’s interest rate decision and the first read for US Q3 GDP. Friday is another significant data point with various inflation and GDP reports from the Eurozone and the US personal consumption expenditure report. There are 165 S&P 500 companies reporting this week including 12 Dow components. Big tech will take centre stage with the likes of Google, Microsoft, Amazon, Apple and Facebook all reporting.
Corporate reporting ramps up further this week with Woolworths AGM, Google Q3, Microsoft Q1, CME Group Q3, Thermo Fisher Q3 all on Wednesday. Wesfarmers AGM, ANZ full year, Linde Q3, Shell Q3, and Lloyds Q3 on Thursday. With Macquarie first half, Amazon Q3 and Apple Q4 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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