Last week saw a total of $11.5 billion paid out to shareholders in the form of dividends. The months of September and October will see a total of $43 billion paid from Australian shares.
Australian Share Market (ASX200) – down 1.53% for the third week in a row and retesting the June lows on weak offshore leads and further rises in market interest rates. Health Care (+1.72%) was the only sector higher with Utilities (-3.84%) leading the declines followed by Financials (-3.11%) and Industrials (-2.92%). Domestic economic data continued to come in stronger than expected. Retail sales for August increased by 0.60%, down from July’s super strong 1.3% increase but well ahead of the 0.20% gain expected. Department stores and dining out were again key contributors after suffering during lockdowns but even household goods were back in strong demand after softening in recent months with the annualized rate of growth in retail sales from the past 3 months currently over 8%. Private Sector Credit growth was also stronger than expected, increasing 0.80% in August ahead of the 0.60% expected which saw the annual rate accelerate to 9.3% from 9.1% in July versus expectations for a decline to 9.0%. Housing and personal credit increased further but business credit jumped 1.2% to be up a strong 14.1% over the past 12 months. The stronger than expected retail sales and credit data provided little evidence that the Reserve Bank of Australia’s aggressive rate hikes to date are having much of an impact slowing the economy with domestic market interest rates rising further on the prospects of further rate hikes although this was also a global theme last week as international bond prices fell. In the UK, bond markets became a bit disorderly with the Bank of England stepping in to buy UK gilts to halt the sharp decline in bond prices. Our 90-day bank bill swap rate increased to a new 9 year high of 3.075% and our longer term 3- and 10-year government bond yields also rose last week but not as much as short term rates and are still just below the 10-year highs reached back in June.
US Share Market (S&P 500) – down 2.91%, with the Dow (-2.92%) and Nasdaq (-2.69%) also lower for 6 of the past 7 weeks. The week rounded out a poor month with September living up to its name as a seasonally weak month for equities. The S&P500 was down 9.34% for the month, the worst monthly performance since March 2020 during the height of the pandemic panic with the major US indices all making new 22-month lows during the week. Energy (+1.83%) was the only sector higher with Utilities (-8.81%) leading the declines followed by Info Tech (-4.19%) and Consumer Staples (-3.96%). Following another outsized 75 basis point rate hike the week prior, there were several Federal Reserve speakers emphasising the raise and hold / higher for longer narrative on interest rates last week. US treasury yields surged on the outlook for more persistent inflation with the 10 yr. yield hitting 4%, the highest since 2009 and weighing further on equity valuations. Economic data was generally better than expected. Durable goods for August fell less than expected, Consumer Confidence for September was better than expected, August new homes sales was a big beat, weekly initial unemployment claims fell to a new 5 month low, although the Chicago PMI fell into contraction territory. The August Personal Consumption Expenditure price index on Friday night was above expectations and added to the persistent inflation theme. The price index was up 0.3% for the month, higher than the 0.1% increase expected. Core PCE (ex food and energy) was up 4.9% for the year, reversing the fall to 4.7% in July. Last week also rounded out the end of the September quarter with the US Q3 earnings season to get underway shortly. According to the latest Earnings Insight report from FactSet, consensus estimates are for S&P500 Earnings Per Share to increase by 3.2% from Q3 last year. This is down from 9.8% EPS growth expected at the start of the quarter. Revenue is expected to increase a still high 8.7% as the demand backdrop remains strong but has also been revised down from 9.2%. With Q3 EPS estimates being downgraded at a higher rate than revenue, analysts are suggesting there was margin compression during the quarter, most likely from higher wages and the rising input costs.
BHP Group (BHP) has contributed $79B to the Australian economy last financial year including $18.5B in taxes, royalties, and other direct payments to Australian and state governments. The massive contribution also included $16.5B spent on suppliers, $39.6B in dividends, $4.6B on wages (to its 50,000 employees) and $106M on social projects. BHP said its effective global tax rate was 32% or 38.9% including royalties and its Australian tax rate was 42.7% including royalties. This represents 10% of all company tax paid in Australia in the 2021/22 financial year.
National Australia Bank’s (NAB) venture capital arm is backing Thriday, to take on accounting software giants Xero and MYOB and save small businesses time and money. The service doesn’t rely on bank data feeds making for more reliable, faster and accurate reconciliation of expenses. The software automates expense management, invoicing, tax forecasting and soon, BAS lodgement. Customers will have to take out a debit card and open a banking account. The product is priced under Xero’s offering and claims to have no complex setup issues. It aims to enable small businesses to operate without a bookkeeper or accountant and looks to be a more progressive and cheaper approach than that seen by ANZ’s recent accounting software foray.
Thermo Fisher Scientific (TMO) has announced an agreement to purchase over half of their US electricity needs from wind power with an 8-year deal with local renewable suppliers. More than 60 sites worldwide are fully powered by renewable energy with another 15 MW of solar power planned. TMO announced a $20M investment in green infrastructure earlier this year. These announcements not only enable TMO to achieve carbon neutral targets but importantly helps clients achieve their scope 3 greenhouse reduction targets. This in turn gives TMO a major edge over competitors.
The Week Ahead
The domestic highlight this week is tomorrow’s Reserve Bank meeting where another 50-basis point interest rate hike has firmed up as the expected outcome with 21 out of 29 economists surveyed expecting the cash rate to increase from 2.35% to 2.85%. If correct, that would be the 5th consecutive 50 basis point hike. The AIG manufacturing index is also tomorrow with the AIG construction index on Thursday.
Internationally, the focus will be back on employment data with the US JOLTS job openings report tomorrow night and the September nonfarm payrolls report on Friday night. Consensus is currently looking for a monthly gain of 250K jobs and the unemployment rate to hold steady at 3.7%. Other key data includes Manufacturing PMI’s out of the Eurozone, UK, and US tonight and tomorrow night, with services PMI’s later in the week. Eurozone Producer Price Index tomorrow night is expected to be a shocker with a 43% year on year increase. Eurozone retail sales is Thursday night with Germany also in focus this week with manufacturing orders and industrial production later in the week.
Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice
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