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Fin-X Weekly 2nd September 2024

Brett Careedy
Source: Bloomberg, S&P Dow Jones, MSCI, FTSE Russell, 1st September 2024

Australian shares outpaced global peers last week despite earnings recording an annual decline. Global stock indices were held back by a fall in the Nvidia share price even as the company’s quarterly results beat analyst estimates.


Australian yields were relatively stable as the month CPI series softened and retail sales undershot expectations. Overseas yields rose on firmer Japanese inflation and mixed US data.


The US market will be closed tonight. However, as usual, the first week of the month brings a full diary of US surveys and employment data. Australian Q2 GDP data will be released on Wednesday and the Bank of Canada is expected to cut rates for a third time this year.


Australian equities and property outpaced global peers last week, with the share market adding +1.0% despite annual earnings growth slipping as more companies reported. With 252/ 282 of the S&P/ASX300 now having reported, profits are down -6.7% compared to a year ago.


Miners BHP and Fortescue were among those that surprised analysts on the upside, with the share prices rising by +0.25% and +1.7% respectively. Wesfarmers shares traded -4.7% lower, after analyst downgrades followed a +3.7% increase in net profit, while the Qantas share price advanced by +6.9% after announcing that a share buy-back would follow a -16% drop in annual earnings. Woolworths ended the week down -0.6% after reporting a -93.3% drop in annual net profits due to significant write-downs related to the New Zealand business and the disposal of its remaining stake in Endeavour. The write-downs were not a surprise having been signalled to the market several months ago, and the -0.6% annual fall in underlying net profit and the announcement of a 40c special dividend related to the Endeavour sale were relatively well-received.


Overseas, investors were focused on Wednesday’s results from market darling, Nvidia. The company beat sell-side estimates and reported revenue growth of +122% compared to the same quarter last year. However, the stock fell by -7.7% in US dollar terms over the week as momentum appeared to be slowing, and the outlook fell short of the market’s lofty expectations. The share price is up +141% so far in 2024.


The Australian market was also helped by relatively stable bond yields. Wednesday’s monthly CPI estimate for July showed that inflation declined as electricity subsidies began to take effect. According to the ABS, headline CPI eased from +3.8% yoy in June to +3.5% yoy in July. However, economists had been expecting a larger drop to +3.4% yoy. Underlying inflation, excluding volatile food, fuel and holiday travel prices, dropped by just -0.3% to +3.7% yoy.


In addition, July retail sales were weaker than anticipated, recording no change with only food retailing seeing a monthly increase of +0.2%. The softer spending data followed three months of better-than-expected spending as consumers sought to make the most financial year-end sales.


Investors judged that the data wasn’t enough to persuade the RBA to cut rates any sooner, although the market is still pushing back against the official view that rates won’t fall before 2025. The market is pricing a roughly 80% chance of a cut by the end of the year.


Australian second-quarter GDP figures are due out on Wednesday, with economists anticipating a modest +0.2% increase, or +0.9% yoy.


International bond yields were slightly higher on the back of a greater-than-expected increase in Tokyo CPI inflation from +2.2% yoy to +2.6% yoy in August, steady eurozone inflation at +2.2% yoy, and mixed US data.


PCE inflation was broadly in line with expectations when released on Friday night. The Federal Reserve’s preferred Core PCE measure held at +2.6% yoy. But the series appears to be stabilising above the Fed’s 2% target, supported by surprisingly strong S&P CoreLogic home price increases (+6.5% yoy).


Based on the inflation data released last week, the futures market has now priced in four rate cuts to the end of 2024.

There was also a slightly stronger reading in the Conference Board’s consumer confidence series (+3.0 to 103.3) and the BEA’s personal income estimate, which accelerated to +0.3% in July.


The Q2 GDP estimate was revised upwards from an annualised +2.8% yoy to +3.0% yoy. However, the accompanying real GDI estimate of +1.3% yoy was substantially weaker, suggesting that GDP may be overstating the strength of the economy.


The US market will be closed for Labour Day today. But with the start of the new month, there will be plenty of activity data to digest later this week. The market expects the July unemployment rate to fall back to 4.2% after June’s surprisingly high 4.3% reading. Both ISM surveys are also due to be released, with manufacturing expected to remain in contraction.


The broader set of global PMIs is also due out this week, including the Chinese Caixin surveys. The official Chinese surveys, released over the weekend, showed a slight drop in manufacturing (49.1), while non-manufacturing continued to indicate very low growth (50.3).


Also this week, the Bank of Canada is expected to cut interest rates for a third time to 4.25%, down from the cycle peak of 5.0%.


Source: Bloomberg, ABS, BEA, 1st September 2024
Source: Bloomberg, S&P Dow Jones, MSCI, FTSE Russell, 1st September 2024

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