25 September 2023 | Weekly Snapshot

Did you know?

In the “Battle of Brisbane” over the weekend where the Lions defeated the Blues in the AFL and the Broncos defeated the Warriors in the NRL preliminary finals, a reported 30,000 fans flew into the city, consuming an additional 110,000 beers and 7,000 hotdogs with the events, combined with the school holidays, bringing in an estimated $1.5 billion to the Queensland capital.

Market Movements

Australian Share Market (ASX 200) – down 2.89% and broad declines and weak offshore leads as longer term bond yields rose to new cycle highs. All sectors were lower for the week with Info Tech (-4.78%), Health Care (-4.48%) and REITs (-4.44%) leading the declines. Following global bond yields higher, our 10yr Australian government bond yield hit a decade high 4.37% as government bond prices continued to decline. The US Federal Reserve FOMC meeting last week was a highlight and weighed on resurgent bullish equities’ sentiment with the updated Summary of Economic Projections (the dot plots) showing the Fed maintaining their forecasts for another hike this year, and reduced their median forecast for the 2024 pivot (from hiking to cutting) to 50 basis points of easing next year from 100 basis points at the last update in June as the economic data has been surprisingly resilient since then. It was a quiet week domestically with the release of the September RBA board meeting minutes the highlight, although there wasn’t a lot of new news in the release. Board members again debated whether to hike the cash rate by another 25 basis points but decided to hold at 4.10% for the 3rd month in a row. The main argument for additional tightening is the risk of inflation remaining above target for longer than projected, fuelling a rise in inflation expectations. The case for holding was unchanged, centring on the significant rise in interest rates to date and their lagged effects, and risks of a sharper slowdown in growth and consumption. Increased China economic risks were also discussed. Members noted their indicators suggest domestic economic growth remains weak and the labour market is at a turning point. Rising fuel prices are expected to lift September inflation although the RBA continues to see inflation moderating into year’s end. They noted that recent data is consistent with inflation returning to target over the forecast horizon at the current cash rate although reiterated some further tightening may be required if inflation proves more persistent than expected with upcoming decisions to be guided by the incoming data.

U.S. Share Market (S&P 500) – down 2.93% with the Dow (-1.89%) and Nasdaq (-3.62%) also lower. US Treasuries were weaker across the curve last week putting renewed pressure on equity valuations, particularly the higher P/E or “growth” cohort. The 2yr yield hit 5.15% last week (highest since 2006), and the 10yr hit 4.50% (highest since 2007). Economic data was on the softer side last week. The NAHB housing market index fell in September, missing estimates for the 2nd month in a row and the lowest since April with the housing data starting to come in a bit weaker than expected after a strong rebound in the first half of this year. The report attributed weakness mainly to new mortgage rates around 7% that have eroded buyer purchasing power balanced by ongoing shortages and tight inventory. The Philadelphia manufacturing index missed estimates, existing homes sales unexpectedly fell, and the Conference Board’s leading economic indicators logged another monthly decline. The weekly initial jobless claims on the other hand came in well below expectations and the lowest since January and the Markit Manufacturing PMI was better then expected, continuing its recent improvement. Increasing industrial action (strike activity) weighed on sentiment as did talks of another potential government shutdown over still high government deficit spending. The highlight of the week was the Federal Reserve FOMC meeting where they held rates steady at 5.25 – 5.50% as expected but takeaways leaned hawkish as the economic data has largely been surprising to the upside for much of this year and since their last meeting in July. The Fed guided for one more rate hike by year’s end and 2024 rate cut expectations were dialled back consistent with the higher for longer narrative of recent Fed commentary. At the post meeting press conference Chair Powell also acknowledged the neutral rate (the rate at which policy settings are neither restrictive nor stimulatory) may be higher than had been expected previously.

Portfolio Movements

Amazon (AMZN) to boost Prime membership growth and revenue. According to a report last week, Amazon is considering several potential proposals for its Prime membership program in order to help jumpstart growth, including possible standalone subscription programs for its healthcare and grocery services, and/or potentially integrating primary care service offered by its One Medical unit into Prime. They also announced that starting in early 2024, Prime Video shows and movies will include limited advertisements for the first time, although they aim to have meaningfully fewer ads than linear (free to air) TV and other streaming TV providers. Amazon won’t be making changes to the current price of Prime membership but will offer a new ad-free option at an additional cost. Amazon Prime launched in 2005 as an Amazon membership service offering free two-day shipping. It has evolved over time and turned into one of the most valuable ecosystems globally with over 200 million Amazon Prime subscribers worldwide and now includes streaming, shopping, reading, and other benefits.

Apple (AAPL) sees solid pre-order demand for the new iPhone 15. Apple reported last week that lead-times for the new iPhone 15 Pro Max (the high-end model) has blown out to 5-6 weeks which is the longest period seen in 7 years with sales up by 10-12% on last year. Pre-order demand in China saw the official Chinese Apple website crash within 10 minutes of opening due to demand with initial stockpiles in China and the US sold out in minutes. The higher demand for the iPhone 15 Pro Max is good news for Apple as they make an extra $100 margin per iPhone but also shows their ability to get buyers to trade up for more expensive iPhones.

Transurban (TCL) gets blocked from ACCC for the first time. Transurban’s bid for acquiring Melbourne’s 39km EastLink toll road in Melbourne has been blocked by the competition regulator on the basis it would “substantially lessen competition” for future toll road concessions in Victoria. Transurban currently operates all of Australia’s 21 toll roads except NSW’s state-owned Sydney Harbour Bridge and Tunnel and EastLink. EastLink is currently owned by a consortium with the rights to operate the toll road until 2043 with some of the owners recently looking to exit. Outgoing Transurban CEO said the company would consider their options despite the knockback.

The Week Ahead

Domestic economic data highlights this week include the monthly inflation indicator on Wednesday, Retail Sales on Thursday, and Private Sector Credit on Friday.

International highlights include German IFO Business Survey tonight with US FHFA Home Pirce Index, Consumer Confidence and New Home Sales tomorrow night. US Durable Goods are Wednesday night. Eurozone Business Climate and Consumer Confidence, German CPI, and US Pending Home Sales are Thursday night along with the final estimate for US Q2 GDP growth. Japan Tokyo CPI an Unemployment is Friday with Eurozone CPI, US Personal Consumption Expenditure, Wholesale Inventories and Chicago PMI on Friday night. China Manufacturing and Services PMI’s are Saturday.

There is just a Diageo AGM on Thursday for our portfolio companies this week.