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Fin-X Weekly 28th Oct 2024

Brett Careedy

Global stock indices paused their gains last week, but the Nasdaq briefly made a new all-time high on Friday after relatively strong technology results.


Bond yields slowed their rise as the Bank of Canada cut rates by -0.5%, and the Bank of Japan indicated that rates would not be raised this week.


Goldman Sachs warned of more modest equity returns ahead, while the IMF updated its “underwhelming” global growth projections. The flash PMI surveys revealed a better outlook for services than manufacturing, which continues to contract.


This week brings a full calendar of earnings reports and economic data, including Australian Q3 CPI, several GDP reports, and the monthly American employment update.


Stock indices retraced from the recent highs last week. Sentiment was more cautious after a period of solid gains and before the US election in just over a week.

Bond yields slowed their climb as the Bank of Canada cut interest rates by a half-point to 3.75% on Wednesday. It was the fourth cut since June, when the policy rate was 5%. The Bank of Japan also suggested that it is unlikely to raise rates at this week’s meeting.

With nearly half of the S&P500 having reported, earnings are up just +3.6% compared to the same time last year. Another 170 S&P500 companies are scheduled to report this week, including Alphabet, Microsoft, Meta, Apple and Amazon.

Consumer discretionary businesses such as Coca-Cola and Starbucks continued to report challenging conditions, while McDonald's fell -7.6% after the CDC linked a restaurant to an E. coli outbreak that resulted in one death and several others being hospitalised.

The technology sector was a relatively bright spot, with the Nasdaq Composite briefly reaching a new all-time high in Friday’s trading.

Tesla soared by nearly +22% on Thursday after reporting better-than-expected profits on strong car sales and revealing that the energy generation storage business grew by +50% over the last year. Elon Musk told investors that the unit is “growing like wildfire”.

Qualcomm, which dominates the mobile chip market, also unveiled a more powerful processor designed to bring laptop-level capabilities to smartphones. The new chips will help users take advantage of new artificial intelligence tools.

Most of the +40% return of the S&P500 over the last twelve months has been driven by a +28% expansion in PE multiples as excess liquidity created in response to the pandemic has continued to support equities.

Last week, a report by Goldman Sachs strategists warned that a combination of high valuations and market concentration will likely lead to lower returns. They estimated that the S&P500 index could deliver an annualised return of just +3% over the next decade, well below the +13% returns in the last 10 years and the long-term average of +11%.


The IMF updated its World Economic Outlook, saying, “Global growth is expected to remain stable yet underwhelming. However, notable revisions have taken place beneath the surface since April 2024, with upgrades to the forecast for the United States offsetting downgrades to those for other advanced economies, in particular, the largest European countries. Likewise, in emerging market and developing economies, disruptions to production and shipping of commodities—especially oil—conflicts, civil unrest, and extreme weather events have led to downward revisions to the outlook for the Middle East and Central Asia and that for sub-Saharan Africa. These have been compensated for by upgrades to the forecast for emerging Asia, where surging demand for semiconductors and electronics, driven by significant investments in artificial intelligence, has bolstered growth, a trend supported by substantial public investment in China and India. Five years from now, global growth should reach 3.1 percent—a mediocre performance compared with the prepandemic average.”

Shorter-term, the Federal Reserve’s Beige Book and global flash PMI readings confirmed that global manufacturing continues to contract. The US services sector remained in relatively healthy expansion, supported by the highest increase in new orders for eighteen months.


Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said, “Sales are being stimulated in part by more competitive pricing, which has in turn helped drive selling price inflation for goods and services down to the lowest since the initial pandemic slump in early 2020. These weaker price pressures are consistent with inflation running below the Fed’s 2% target. Businesses nevertheless remain cautious about hiring, leading to a third month of modest payroll reductions. Firms are worried in particular about uncertainty caused by the Presidential Election”.

Last week’s Australian data was relatively light. The Judo Bank flash PMI revealed that Australia’s relatively small manufacturing sector is “on the verge of recession”.  Matthew De Pasquale, Economist at Judo Bank, also said, “The services sector, which makes up more than 80% of Australia’s economic output, is performing much better. Growth in business activity remains soft, just above the neutral level of 50, although up slightly in the month. In an encouraging sign for the short-term outlook, new business activity increased in October to be firmly in expansionary territory and is now at the highest level since May. The employment index also increased in the October Flash result, reaching its highest level since May. This is consistent with the strong employment growth we are seeing in the official statistics, including the big jump in the September full-time employment numbers from the ABS”.


The report also highlighted the boost to services activity from improved CPI readings. Due out this Wednesday, Australian Q3 CPI is expected to drop from +3.8% in Q2 to +2.9% yoy after the impact of electricity subsidies. This will be within the RBA’s 2%-3% target range. However, the market is still not expecting the RBA to cut before February.


The WiseTech and Mineral Resources scandals dominated last week’s Australian market headlines. Richard White, the founder of WiseTech, stepped down as a director and CEO after allegations of inappropriate behaviour. He was replaced by CFO Andrew Cartledge in the interim. MinRes founder Chris Ellison so far remains in place after the AFR reported that he, former MinRes chairman Peter Wade, and three founding executives operated an alleged tax evasion scheme for a decade. The newspaper alleges they used an offshore company to sell mining machinery to MinRes at a multiple of its purchase price, pocketing about $7 million. The WiseTech share price is down -22.2% in October, while MinRes is trading -37.5% lower.


Over the weekend, Israel conducted retaliatory strikes on Iranian military targets but avoided energy infrastructure. It’s not yet clear how Iran intends to respond, with officials simply saying that the country is “entitled and obliged to defend itself against foreign acts of aggression".

Yesterday, it was also reported that Chinese Industrial Profits fell to -27.1% yoy in September. The official and Caixin PMIs are due towards the end of this week. Investors will continue to watch for further fiscal announcements from policymakers, which are expected to be announced after a meeting between the 4th and 8th of November.


There will be plenty more data to digest in the meantime. American unemployment is expected to have remained at 4.1% in October, while third-quarter GDP growth is expected to hit an annualised +3.0%, the same as the June quarter. The JOLTS report, PCE inflation, personal income and spending, consumer confidence and the ISM Manufacturing survey are also due this week.

In Europe, several countries will publish Q3 GDP figures. Eurozone growth is expected to accelerate to +0.8% yoy, while the German economy is expected to have contracted for a fifth quarter out of the last eight.


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