26 February 2024 | Weekly Snapshot

Did you know?

The combined market cap of the Magnificent 7 (Apple, Amazon, Google, Nvidia, Meta, Microsoft and Tesla) is now larger than the market cap of every stock market in the world, bar the US

Market Movements

Australian Share Market (ASX 200) – down 0.19% despite strong offshore leads as our first half reporting season peaked. Although the relatively small move at the index level masks some large post reporting moves at the stock level. The InfoTech sector (+3.29%) led the gains again on some better-than-expected results and positive offshore leads. The small Utilities sector also gained (+1.86%) and the resilience of consumer spending continues to surprise with the Consumer Discretionary sector (+1.17%) also higher on some better then expected results and is the 2nd best performing sector over the past 12 months behind IT. Consumer Staples (-3.41%) led the declines largely due to a surprise first half loss at grocery giant Woolworths. Real Estate (-2.44%) was also lower giving back some large gains of recent months, and Materials (-1.7%) continued to struggle despite China markets reopening on a firmer footing after the weeklong New Year celebrations with China equities higher last week after a poor start to the year. With the bulk of our first half reporting season now complete, results have been mixed. Good enough to justify the sharp November – January rally, but not yet providing the catalyst for new highs. The February RBA meeting minutes last week showed members debating whether to raise interest rates again, saying that additional hikes would reduce the risk of inflation not returning to target in an acceptable timeframe, and that further tightening now would not prevent easing policy if growth weakened more sharply than expected. In the end, the RBA decided to hold as labour market and consumption data had come in softer than expected recently. Members agreed to not rule out additional hikes and maintain a data-dependent approach to policymaking. Our Q4 Wage Price Index (WPI) last week showed Aussie wages rising at the quickest pace since early 2009. The WPI rose +0.9% for the quarter in line with estimates and down from +1.3% in Q3. The +4.2% annual increase was ahead of the 4.1% expected and up on the +4.0% in Q3. With a slightly more hawkish than expected RBA minutes, and wage inflation also slightly higher than expected, rate cut expectations remain for around the end of Q3 for the first rate cut.

U.S. Share Market (S&P 500) – up 1.66%, with the Dow (+1.30%), and Nasdaq (+1.40%) also higher, and rising 15 out of the past 17 weeks. The S&P 500 and Dow made all time highs while the Nasdaq is right back at its all time high in late 2021 with investors shaking off the previous week’s higher than expected inflation reports. US equities surged late in the week led by another better-than-expected result from Nvidia as AI chip demand continues to surge. Nvidia shares added more than US$230 Billion of market cap, a new record for a single stock in a single session. Consumer Staples (+2.11%), Info Tech (+1.97%), and Materials (+1.90%) led the gains. Gains were noticeably broader based with no sectors lower. Japan’s Nikkei 225 also made a new all-time for the first time since 1989. India’s NIFTY 50 and Europe’s STOXX 600 also hit all-time highs last week. The 10yr treasury yield rose to the highest since late November following the release of the Federal Reserve January meeting minutes. Participants judged that the policy rate was likely at its peak for this tightening cycle, but also showed most participants fearing risks of cutting too early, adding to recent data that suggests rate cuts might not come as soon as thought in December and January. The Flash US February PMIs were mixed. The composite at 51.4 was near expectations for 51.5 and down from January’s 52 with the weakness attributed to the Services PMI falling more than expected to 51.3 from 52.5 (consensus 52.0). The Manufacturing PMI at 51.5 was much better than the 50.2 expected, up from last month’s 50.7 and the sharpest monthly increase since September 2022. The weekly initial unemployment claims also fell more than expected to 201K and remain historically low.

Portfolio Movements

Insurance Australia Group (IAG) reports solid first half result. Net profit fell by 17% to $407 million which was a slight miss on $428 million, as the benefit of a business interruption claim provision release a year ago wasn’t repeated, and some other higher costs came through. Still, revenue rose by 16% to $8.69 billion, with Gross Written Premium (GWP) growth of 12.5%, sharply higher than the 7.5% GWP growth a year earlier and its strongest first-half GWP growth in nine years. An interim dividend of 10 cents per share was declared, up 66% on the first half last year and the company said they would buy back shares worth up to $200 million. IAG also reaffirmed annual guidance for low double-digit GWP growth and a reported insurance margin in the 13.5-15.5% range.

Sonic Healthcare (SHL) misses estimates – shares fall. Sonic Healthcare reported first half results last week that missed estimates. Revenue of $4.31 billion, up from $4.08 billion in the same period last year was ahead of the $4.24 billion estimate. But NPAT of $202.3M was a decent miss on the $239.5M expected. Net interest expense also increased 36% on the prior year due to debt incurred for acquisitions and higher base interest rates and was higher than expected. An interim dividend of 43c was declared, up from 42ca year ago keeping their impressive track record of either growing or maintaining the dividend over a long period intact. And full year 2024 guidance for EBITDA in the $1.7-1.8B range was maintained, although is now likely towards the lower end, and will need to see margin improvement from the recent acquisitions.

Treasury Wine Estates (TWE) reports in line first half results. TWE reported a slightly better than expected first half result last week with first half NPAT of $182.3M just ahead of the $181.0M expected. Net sales revenue of $1.28 billion was flat on the same period last year. The Penfolds segment was strong with sales growth of +8% for the year and a positive outlook for the full year. Treasury Americas is still facing some challenges though the company also anticipates improvement here in the 2nd half, helped by lower cost inflation and portfolio growth. The removal of China’s tariffs was highlighted with TWE well-prepared to re-establish its Australian wine sales in China if the ongoing review of tariffs results in their removal with a decision expected later next month.

The Week Ahead

Domestic economic data releases this week include the monthly Inflation Indicator and Q4 Construction Work Done on Wednesday. Q4 Capex, Private Sector Credit, and Retail Sales are Thursday.

International economic data releases include China Foreign Direct Investment today, and US New Homes Sales tonight. Tomorrow is Japan CPI with US Durable Goods Orders, FHFA Home Price Index and Consumer Confidence tomorrow night. Eurozone Business and Consumer Confidence is Wednesday night, along with US Q4 GDP (second estimate), and Wholesale Inventories. US Personal Consumption Expenditure Thursday night is a highlight along with Pending Home Sales. Japan Unemployment and China manufacturing PMI is Friday, while Eurozone Unemployment and CPI, and US Construction Spending and ISM Manufacturing is Friday night.

Portfolio company reporting this week slows down with Woodside full year results tomorrow, and Ramsay Healthcare first half on Thursday.