At last week’s BRICS summit in Johannesburg, BRICS members agreed to invite Saudi Arabia, Iran, and UAE to join the bloc. Were they to join, the expanded BRICS would control 50% of the global oil export market amongst them.
Australian Share Market (ASX 200) – down 0.46% for the 2nd week in a row. The Consumer Discretionary sector (+1.78%) led the gains followed by REITs (+0.34%) and Financials (+0.05%) and the only sectors higher. Health Care (-2.73%) led the declines followed by Consumer Staples (-2.53%) and Utilities (-2.25%). Offshore leads were largely positive with the S&P 500 and Nasdaq snapping 3 week losing streaks but concerns over the Chinese economy weighed on our region and it was the biggest week of full year reporting with earnings results overall best described as mixed. There were no major economic data releases with company reporting (bottom-up fundamentals) driving returns and sentiment last week. With around 80% of ASX 200 companies having reported results to date some key themes have emerged. Resource company profits are down significantly on last year due to lower commodity prices. Combined with renewed China concerns the Materials sector is the worst performer this reporting season although operating metrics were strong. The Banks reported that the economy, businesses, and households remain in good shape overall and are holding up better than expected. This is being backed up by the Consumer Discretionary sector that is reporting better than expected results and is the best performing sector this reporting season. Structural growth tailwinds for Info Tech continue but there were significant divergences in share price performances with some large rises and falls amongst single names. And there has been a reckoning for REITs with some large property value write downs for the sector on the higher interest and capitalization rates but that was largely what the share price declines over the past 12 months had been anticipating with REIT share prices holding up relatively well during reporting season all things considered. Overall, 56% of companies have reported results in line with expectations, while 21% have beaten estimates and 23% have missed with the share prices of those that missed falling by a greater extent than the rises experienced for those that beat.
U.S. Share Market (S&P 500) – up 0.82% with the Dow (-0.45%) and Nasdaq (+2.26%) mixed with the S&P 500 and Nasdaq snapping 3 week losing streaks. The rise in US treasury yields continued last week with the 2yr hitting 5% and the 10yr a new 16 year high of 4.34% but US equities found some support last week after 3 weeks of declines. The Richmond Fed Manufacturing index improved (-7, up from last month’s -9) but at a much slower pace of improvement than last week’s Philly Fed manufacturing index. From there the data weakened somewhat with bond yields easing back, taking some pressure off equities. Existing home sales fell 2% for the month with some softness creeping back into housing indicators after several months of better-than-expected results, likely on the higher new mortgage rates that have been rising along with bond yields. Durable goods orders also missed estimates with headline orders falling 5.2% for the month, the sharpest decrease since April 2020 and giving back some of the strong gains over recent months. The S&P Global August flash manufacturing PMI fell 2 points to 47, missing estimates for 49. The US flash services PMI fell 1.3 points to 51, also missing consensus and the lowest since February. Although US new home sales rose more than expected, up 4.4% for the month and the highest since February 2022 and the weekly initial unemployment claims fell more than expected. Friday night’s speech from Fed Chair Powell at the Jakson Hole Symposium was the highlight of the week with the Fed chair providing a balanced view, highlighting both upside and downside risks to the outlook for monetary policy. He reaffirmed the Fed’s commitment to the 2% inflation target and firmly believes the current Fed Funds Rate at 5.5% is restrictive but acknowledged the current neutral rate is uncertain. The “neutral rate” is the rate at which monetary policy is neither restrictive nor stimulatory. He mentioned the recent economic data is stronger than expected and would be prepared to raise rates further if appropriate but there wasn’t a lot of new insights in the speech.
Charter Hall (CHC) reports better than expected full year results. Recently added property company Charter Hall had a better-than-expected full year result last week with operating earnings of $441.2M vs estimates for $432.8M. Although NPAT of $196.1M was down sharply on the year-ago $911.1M as the property sector woes from the higher interest rates played out. CEO David Harrison said: “Despite challenging conditions, FY23 maintained Group FUM despite downward valuations driven by rising interest rates. Property FUM grew $6.2 billion to $71.9 billion, and our operating earnings ex-transaction and performance fees grew strongly, reflecting growth in FUM, the benefits of scale and our diligent focus on costs.”. The company said they expect distributions to Increase 6% in FY 2024, which was higher than expected.
Qube Holdings (QUB) reports strong Full Year results – lifts dividend. Qube Holdings, Australia’s largest integrated provider of import and export logistics services, posted strong FY results last week with FY profit attributable to owners of $167.9 million, or 9.5 cents per share, up from AU$127.5 million last FY, or 6.7 cents per share. Full Year revenue rose to $2.86 billion from AU$2.48 billion, ahead of the $2.72 billion expected. Qube raised the final dividend to 4.35 cents per share from 3.3 cents last year. For a full year ordinary dividend of 8.1 cents fully franked, a 28.6% increase. The outlook for FY 2024 was largely positive with guidance for solid growth currently expected in underlying revenue and earnings (EBITA) for the operating division. Patrick’s volumes are expected to increase compared to FY23, although the growth is forecast to be limited reflecting expected flat market volumes.
Wesfarmers (WES) reports strong FY results with several other retailers reporting better than expected results this reporting season. Statutory Full Year NPAT of $2.465 million increased 4.8% on last year, slightly ahead of expectations for a 4.1% rise. Full Year revenue was up 18.2% to $43.55 billion, ahead of market expectations, with strong earnings from Bunnings and Kmart Group, but the Chemicals and Energy unit WesCEF also outperformed. A fully franked final div of $1.03 per share was declared with total dividends for the year of $1.91 per share up 6.1% on the prior year. CEO Rob Scott said the results for the year demonstrate the strength of the group’s operating model and the quality of the portfolio, which provides a unique mix of resilience and growth.
The Week Ahead
Domestic economic data highlights this week include Retail Sales today with a speech by the incoming RBA Governor tomorrow. Building Approvals, the monthly CPI indicator, and Q2 Construction Work Done are Wednesday. Q2 Capital Expenditure and Private Sector Credit are Thursday with Housing Finance on Friday.
International highlights include Japan Unemployment tomorrow with US Consumer Confidence and JOLTS Job Openings tomorrow night with employment data in focus this week. US ADP Employment Survey, the 2nd estimate for Q2 GDP, Wholesale Inventories and Pending Home Sales are Wednesday night. China Manufacturing data is Thursday with Eurozone CPI and Unemployment on Thursday night along with US Personal Consumption Expenditure and Chicago PMI. The highlight of the week is the US Nonfarm Payrolls data on Friday night where another 172K jobs gain is expected with the unemployment rate expected to hold steady at 3.5%.
Corporate reporting winds down this week with no reporting for our companies but a raft of portfolio stocks going ex-dividend.
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.