3 June 2024 | Weekly Snapshot

Did you know?

Some not-so-positive trends are emerging in Australia as per below chart, which shows the productivity of labour (orange) vs labour costs (blue). At the onset of COVID (Mar-2020), we can see that productivity holds up nicely, which demonstrates our ability and willingness to get on with the job, remotely. Since 2022 however, productivity has started to decline. This poses the question: Is working from home not working for the country anymore? Or, are other factors at play impacting productivity? Either way, without rising productivity, our living standards can’t increase.

Market Movements

The Australian markets fell 2.3% this week. Leading this decline was consumer discretionary sector, with Treasury Wine down 4.3%. Resources were mixed with iron ore producer Fortescue down 7.4%, whilst aluminium-heavy South32 was up 2.3%.

Australia’s monthly inflation indicator unexpectedly rose to 3.6% in April, up from 3.5% in March and moving in the opposite direction from expectations. Markets pushed out the timing of the first RBA rate cut to mid-2025. There a slim but growing odds for a rate hike in late 2024, those probabilities rising to 26%. Australian retail sales rose 0.1% in April. The soft read was largely in line with expectations and a slight rebound from the 0.4% fall in March 2024.

The US market was down 0.6% this week. Declines were across all sectors, however, we saw some more dramatic moves in the software-services sector. Salesforce, for example, was down 20% after their quarterly result, which was well below expectations. Investors have seen that whilst the boom in datacentre and AI investment is occurring, there is little left for investment across the software sector. The result was a broader market selloff of these software-services stocks, many of whom were ‘market darlings’ of 2021.

The Fed’s preferred inflation measure, personal-consumption-expenditures, rose 0.2% (month-on-month), which was below the 0.3% expected. Yields on US government bonds were largely flat over the week.

The US market is trading on a price-earnings-ratio of 20x, which is about 10% higher than its 5-year average. The below chart shows the price-earnings-ratio of the US equal weight index. The blue line in the bottom half of the chart measures this (price-earnings ratio) at 16, which is normal. The equal weight index is useful because it removes the skewness from the large tech companies, which are both large and attract larger earnings multiples.

Portfolio Movements

BHP’s takeover for Anglo America seems dead.

After a 3rd and final offer, BHP CEO Mike Henry has scrapped the $70 billion takeover offer for Anglo. Anglo seem more willing to execute the strategy without BHP i.e. sell-off their non-core assets and refocus the business around their high quality copper and iron ore assets. BHP finished the week down 2% to $44.51.

US Steel, Nippon Steel receive all non-US approvals for merger

  • U.S Steel and Nippon Steel said yesterday they have received all approvals outside of the United States for their proposed $14.9 billion merger.
  • U.S. Steel shareholders voted in favour of the deal last month
  • The deal still needs approval in the U.S where it is facing political opposition including from both Presidents Biden and Trump who want U.S. Steel to remain domestically owned although the companies also said yesterday that they expect the deal to be completed in the second half of this year.

Qube to acquire Melbourne International RoRo & Automotive Terminal

  • Qube, Australia’s largest integrated provider of import and export logistics services, announced they are to acquire Melbourne International RoRo & Automotive Terminal (MIRRAT) from Norwegian shipping company Wallenius Wilhelmsen.
  • MIRRAT is the only dedicated roll-on, roll-off terminal servicing the Victorian market. Automotive volumes, which represent the majority of the cargo serviced at MIRRAT, are serviced by 14,500 open-air car slots on site and the business is expected to continue to benefit from growing imported car volumes. QUB owns and operates other Automotive import terminals in NSW and QLD.
  • Acquisition costs are around $332.5 million and will be funded from Qube’s debt facilities and is expected to be EPS accretive in FY25.

The Week Ahead

  • Monday: United states PMI index for manufacturing. The previous reading showed a contraction at 49.3 (50 is no change)
  • Wednesday: In the USA we have services PMI, where markets expect a reading of 50.5 (50 means neither growth or decline)
  • Friday we have non-farm payrolls in the USA, a key figure for interest rates and economic health. The market is expecting 180k new jobs, which would be a strong result, and up from 170k in March. A key input to inflation is the higher wage costs so if we see a strong payroll result, markets may continue to push out their expectations for a rate cut and vice versa.

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.