8 July 2024 | Weekly Snapshot

Did you know?

About 35% of all billionaires didn’t get a college degree. This shows that other personal characteristics and the ability to seize opportunities plays an important role in success.

Market Movements

The Australian markets was higher by 1.0% last week, led by the energy sector (up 3.7%) and resources (up 2.8%). Santos (up 4.7%) and Newmont (up 4%) were the standouts. Rumours continue to circulate around Santos with potential corporate activity, including asset sell downs, which have the potential to release some shareholder value. Newmont rallied on broader market strength in gold prices.

Australian building permits showed a 5.5% increase and retail sales rose 0.6% for May. RBA minutes showed a more hawkish tone towards increasing interest rates and combatting the inflation uptick towards 4.0% last month.

The US market was up 1.7% led by communication services (up 3.6%), Info tech (up 2.6%) and Consumer Discretionary stocks (up 2.6%). Tesla was a standout performer (up 19.9%) on no news. Tesla has been among the weakest large-cap tech plays in the US this year. Investors are, possibly, turning more bullish on their prospects in relation to driver-less cars.

The US unemployment rate rose from 4.0% to 4.1% in June, which was welcome news from markets, because of the increased probability for interest rates cuts. US manufacturing data underwhelmed, showing a modest contraction for June (48.5 vs 49 consensus) and against expectations for a rise. This was the second month in a row showing a decline in US manufacturing activity. Job openings, often seen as a leading indicator for the job market, rose to 8.14m jobs, which was up on the previous month of 7.9m. The trend is in decline, however, towards more normal levels.

Portfolio Movements

Santos rumours

• According to the Australian Financial Review last week, Santos is closer to realising the value of their LNG assets after renewed takeover speculation linked to Middle Eastern money.
• Having failed to strike a merger with Woodside earlier this year, the pressure is on the Santos board to release some shareholder value, in large part due to broader underperformance against other energy companies, including Woodside.
• Operationally, Santos has invested heavily in CAPEX over the past 3 years but CAPEX this will fall dramatically in 2025/26, putting shareholders in a better position to received dividends going forward.

Bank of America to increase dividend

• Bank of America’s stress capital buffer (SCB) will be 3.2% and the CET1 (Common Equity Tier 1 ratio) will be 10.7% when finalised. This new SCB will be effective from October 2024 to September 2025.
• Their CET1 ratio exceeds the regulatory minimum requirement of 10.0%.
• As such, Bank of America said they will increase their quarterly dividend by 8% to $0.26 per share beginning in Q3.
• The ability to increase dividends has been market wide and is in large part due to a period of record low delinquencies.

Freeport provides Q2 update

• Freeport said they currently expect consolidated sales for Q2 2024 to be ~5% below the April 2024 guidance of “975M pounds of copper” and ~30% below previous guidance of 500K ounces of gold. Consolidated unit net cash costs for Q2 2024 have been revised higher as a result, which were previously estimated at $1.57 per pound of copper but are currently estimated at $1.77 per pound.
• Freeport said they have reviewed sales guidance and does not currently expect a material change to its annual 2024 copper volumes.

The Week Ahead

• Tuesday: Jerome Powell (Fed Chair) will testify to markets. Markets are currently expecting 1 rate cut this calendar year. Inflation has continued to move in the right direction so there could be room for a positive surprise.
• Thursday: CPI data from the USA, where markets are expecting continued stability in inflation at the 3.1% level.
• Friday: Q2 earnings from several of the major US banks, where investors are broadly expecting to see growth compared to the same quarter last year, including Citi ($1.33 to $1.39) and Wells Fargo ($1.25 to $1.29). JPMorgan is the exception where investors are expecting earnings to decline ($4.75 to $4.17).