30 September 2024 | Weekly Snapshot

Did you know?

The semiconductor supply chain (below) shows lots of players and lots of roles. Nvidia, shown in the top left-hand side of the diagram, has gained a disproportionate amount of sector profits however, due to their ability to innovate. In today’s terms, Nvidia’s computer chips have become the key point of difference between leading the AI race or getting left behind. The technological race doesn’t stand still for long however…

Market Movements

The ASX finished the week up 1.1% marking its third consecutive gain and extending the prior week’s 1.35% gain. Mineral Resources rose 33.9% over the week, likely because of the positive sentiment following the People’s Bank of China (PBOC) surprise stimulus announcement to revive growth (more on that below) and the subsequent surge in the iron ore price, seeing the steelmaking ingredient rise above $100.

Star Entertainment Group, the operator of the Darling Harbour Casino in Sydney, fell -44.44% due to a combination of financial and regulatory issues. The company was suspended from trading on the ASX after it failed to submit its annual financial report by the August 31 deadline. This coincided with the release of a damning inquiry report into Star’s operations, which found the company still had serious governance and compliance issues despite efforts to address earlier criticisms.

The miners had a strong week, with the ASX Materials Index rallying 9.37%, on the back of the stimulus package announced by the PBOC. The Banks fell over the week, with the Financials Index falling -4.42%, again possibly driven by the PBOC announcement. While the banks may have strong balance sheets which can support dividends and provide some buy-back support, earnings progression looks sombre. With the conversation increasingly shifting to one centered around Beijing’s potential to deploy more aggressive stimulus, this could reignite demand for key commodities, driving the rotation into mining stocks.

Our monthly inflation indicator showed inflation growth fell to 2.7% for the year in August, in line with expectations and a big step down from 3.5% in July. It was the first time inflation had fallen back inside RBA’s 2-3% target band in 3 years. Figures were distorted by large government energy subsidies that began on July 1, with electricity prices falling 17.9%, the most on record. Excluding rebates electricity would have risen 16.6% for the year. The RBA has said they will look through the temporary subsidies.

The S&P500 also rose for the third consecutive week, up 0.62%, after rising 1.36% the week before. Micron Technology Inc was one of the strongest performers, rising 18.26%, driven by a strong earnings report and positive market sentiment surrounding its AI-related products. The company posted impressive Q4 2024 results, beating Wall Street’s revenue and earnings expectations. Marathon Oil fell 5.19% and Conoco Phillips fell 4.7% due to a mix of broader market volatility and oil prices that fluctuated during the week given concerns over global demand for oil, combined with ongoing macroeconomic factors such as inflationary pressures, weighing on the stocks.

Portfolio Movements

China announces raft of stimulus measures

• China announced a raft of additional stimulus measures on Tuesday, including a 20 bp cut in the 7-day reverse repo rate, a 50 bp Reserve Requirement Ratio (RRR) cut, a 50 bp rate cut on existing mortgages, and a reduction in the down-payment ratio for second-home purchases to 15% from 25% nationwide – the same level for first mortgages.
• The RRR is the percentage of deposits that commercial banks in China are required to hold in reserve, either in their vaults or at the central bank, the PBOC. The RRR is a key monetary policy tool used by the PBOC to control liquidity in the financial system and regulate the money supply.
• New equity market support measures were announced including a PBOC-backed borrowing facility for non-bank financials and a relending program to support share buybacks.
• Markets had been anticipating some sort of response to the weakening economic data, but the announcements still drove a big bounce in Greater China stocks with the Shanghai composite up 4.15% on the day of the announcement, its biggest gain in 4 years, and the Heng Seng Index had its best week in 26 years on the stimulus news.

Microsoft to make $1.3 billion cloud and AI investment in Mexico

• At an event in Mexico City, Microsoft announced it will invest US$1.3 billion over the next three years to build up its infrastructure in Mexico for cloud computing and artificial intelligence. “We’re doubling down on bringing more capacity to Mexico,” Chairman and CEO Satya Nadella said.
• The investment will go toward improving connectivity and boosting the adoption of AI technology by small and medium-sized businesses (SMBs), with the initiative aiming to reach 5 million Mexicans and 30,000 SMBs in three years.

REA group makes 4th takeover offer for UK’s Rightmove

• Realestate.com (REA) has made a fourth takeover offer for UK listed Rightmove on Friday night after the previous 3 cash and share offers have been rejected. With REA noting its disappointment and surprise at the repeated rejections of its prior proposals by Rightmove.
• The latest implied offer price of 815 pence per share based on REA undisturbed share price, plus an additional special dividend of 6 pence per share, together representing a 52% premium to Rightmove’s 12-month VWAP.
• REA CEO Owen Wilson said “While the Rightmove Board has refused to meet with us, we have enjoyed the opportunity to connect with Rightmove shareholders and to share our vision for the combination of the no. 1 digital property businesses in the UK and Australia. We continue to see the potential for us to strengthen Rightmove and accelerate its growth.”

The Week Ahead

• Monday: Australian Private Sector Credit growth is expected to show 0.5% growth Month on Month (MoM), compared to the prior reading of 0.5%.
• Tuesday: Australian Building Approvals are expected to show a -4.3% MoM decline in August, following the prior reading of +10.4% and Retail Sales MoM are expected to show an increase of 0.4% compared to the prior of 0.0%.
• Wednesday: Australia’s Trade Balance is expected to be $5,500m, compared to the prior reading of $6,009m. In the US we will get ISM Manufacturing, which is expected to be 47.6, a slight improvement on the prior reading of 47.2
• Thursday: The US will release September Initial Jobless Claims, expected to be 221k, compared to August of 218k, while Continuing Claims are expected to be 1,830k, a slight improvement over the prior reading of 1,834k . S&P Global US Services PMI is expected to be 55.4, indicating no change from August
• Friday: The US Unemployment Rate is expected to remain at 4.2% in September, and the Change in Nonfarm Payrolls is expected to rise slightly to 146k from 142k recorded in August.