Investment Ideas From the Edge of the Bell Curve
The ASX 200 closed up +1.07% to a record 7,847.0 close as investors bought heavily into tech and banking sectors today on renewed bets of interest rate cuts coming in the early second half of this year.
That meant the ASX 200 finished the week up +1.93%, regaining its earlier losses in the week.
All sectors closed in the green, with Financials up +2.03% followed by Health Care, gaining +1.25%.
In top individual performers Virgin Money gained nearly 33% today as the company received a $5.7 billion takeover bid from Nationwide Building Society.
Meanwhile, falling behind were yesterday’s major underperformers, Genesis Minerals (-3.0%) and Cettire (-2.74%), who continued to face selling pressure after an AFR article questioned the company’s payment of duty taxes.
Luci Ellis, the chief economist of Westpac Group and former of the RBA deputy put out a note worth reading today.
It gives her view of the state of Australia’s economy after this week’s December quarter GDP numbers.
Here are some snippets, but you can read the full note here.
‘Much of 2023’s weakness stemmed from the household sector. Consumption has been weak and this remained the case in the December quarter. Discretionary spending continues to decline, with overseas holidays especially weak. Part of this might be the result of shifting seasonal patterns in spending and holidaying. Even so, households are objectively limiting their spending in the face of income pressures.’
‘Consumption per person has been falling in Australia, unlike in most peer economies. It is no wonder that consumer sentiment has been so depressed.’
‘The triple squeeze of a rising cost of living, increasing tax take and higher interest rates has required households to respond.’
‘There is light at the end of the tunnel for households. As inflation has declined, the squeeze on real household incomes from this source has diminished. The drag from taxation and net interest payments has also eased a little. Some of the former might reflect timing effects for tax return lodgements. Meanwhile the November increase in the cash rate would have taken effect in people’s debt repayments too late to have boosted the quarterly total for net payments by much.’
As a result, real household disposable income increased in the quarter. It was only barely above the level a year previously, though. Once the growth in population over the same period is accounted for, real household disposable income is still going backwards.
Inflation’s grip on households’ spending power will continue to ease over the course of 2024. That is the desired outcome. With tax cuts – and, we believe, some reductions in the cash rate – coming in the second half of the year, that triple squeeze will truly begin to unwind.
ANZ, NAB and Westpac all set new multi-year highs today as the banking sector carries the ASX 200 today which is up by +1.05% at 7,845.5.
Overnight, Federal Reserve chairman Jerome Powell hinted that policymakers are closer to seeing inflation pressures as subdued.
‘When we do get that confidence — and we’re not far from it — it’ll be appropriate to begin to dial back the level of restriction,’ Powell said on his second day of testimony to Congress.
That was enough to spur the markets to break fresh highs overnight and push up our own tech market which is up by +1.22%.
All eleven sectors are in the green in trading today with Financials leading, up +1.98%.
Andrew Forrest’s Fortescue Metals has taken a 19.9% stake in mining micro-cap Magmatic Resources [ASX:MAG] for $3.7 million.
The investment will fund the exploration of the copper and gold Myall Project in central NSW.
Fortescue will then spend up to $14M over six years to earn up to 75% joint venture interest in the project.
Recent exploration at Myall has concentrated on the Corvette and Kingswood Prospects (CKP), with an initial Mineral Resource Estimate of 110Mt at 0.33% CuEq containing 293kt Cu, 237koz Au & 2.8Moz Ag.
MAG considers Myall to have ‘Tier 1 potential‘ and said, ‘partnering with Fortescue enables significant advancement of both the CKP and other high-potential targets within the project area.’
Shares of Magmatic have jumped by 50% in trading today, trading at 6.6 cents per share.
Fed Chairman Jerome Powell has been on Capitol Hill in the past two days for his semi-annual meeting with the Senate Banking Committee.
The timing couldn’t be better for a market that had run dry of catalysts or narratives for movement and hovered or fell for much of the week.
Here are the top takeaways from the testimony:
1)Powell indicated the Fed may lower interest rates this year, pending confidence that inflation will stabilize at 2%.
‘We’re waiting to become more confident that inflation is moving sustainably at 2%…When we do get that confidence — and we’re not far from it — it’ll be appropriate to begin to dial back the level of restriction,’ he told the committee.
2)He addressed inquiries on enhancing bank capital requirements, stating readiness to revise or drop proposals to reach a consensus this year.
This is relevant as regional banks through the US continue to drop sharply.
US Regional Bank Stocks YTD:
1. NY Community Bank, $NYCB: -66%
2. Valley National Bank, $VLY: -26%
3. Metropolitan Bank, $MCB: -26%
4. HarborOne, $HONE: -18%
5. Zions Bank, $ZION: -15%
3) On this Powell discussed exploring new liquidity strategies following March 2023’s banking disturbances and assured dialogue with banks on managing commercial real estate risks.
4) He mentioned a digital dollar is far from realisation, assuring lawmakers that there’s no way the Fed would abide by a structure that would give the Central Bank visibility into what an individual does with their money.
‘That’s the system in China,’ he said to make a point.
Dual-listed Virgin Money [ASX:VUK] has seen its share price jump by nearly 33% in trading this morning after the company announced a $5.7 billion takeover bid from the UK’s Nationwide Building Society.
The bid would take Virgin Money private if it went ahead.
Virgin Money’s CEO David Duffy said the offer was ‘an exciting opportunity,’ which would be put to a shareholder vote.
The preliminary agreement was on an offer of £2.20 per share plus a 2 pence dividend, which would be a 38% premium on its last closing price.
The combination of Virgin Money and Nationwide would create the second-largest mortgage provider in the UK with assets of around £366 billion.
Kevin Parry, chairman of Nationwide, said today:
‘A combination with Virgin Money would accelerate Nationwide’s strategy and create a stronger, and more diverse, modern mutual.’
Good morning. Charlie here,
The ASX 200 opened up +0.46% to 7,799.6 as markets digested the Fed chair’s latest dovish signals of cuts coming.
Jerome Powell’s second day of testimony at the Senate Banking Committee meeting gave traders more confidence in the Fed’s stance. When asked about timing, he commented:
‘When we do get that confidence— and we’re not far from it— it’ll be appropriate to begin to dial back the level of restriction,’ Powell said.
Overnight, Gold and the S&P 500 reached new all-time highs. Today, the ASX 200 looks like it could do the same.
Meanwhile, the Aussie dollar continued to rise overnight as the Chinese plans for increased infrastructure spending buoyed the AUD.
The next crucial move for the AUD/USD will likely come tonight as Jobs data is due. If there is a weak US non-farm payroll report tonight, I would expect this trend to continue higher.
Wall Street: S&P 500 +1.03%, Dow +0.34%, Nasdaq +1.51%.
Overseas: FTSE +0.17%, STOXX +1.19%, Nikkei -1.23%, SSE -0.41%.
The Aussie dollar gained +0.83% to US 66.19 cents.
US 10-year bond yields -2bps to 4.08%.
Australian 10-year bond yields flat at 4.01%.
Gold is up +0.56% to US$2,159.85, while Silver is up 0.63% to US$24.33.
Bitcoin rose +1.78% to US$67,230, while Ethereum rose 0.87% to US$3,862.
Oil Brent rose +0.34% to US$83.24, while WTI Crude fell -0.10% to US$79.05.
Iron ore rose +1.4% to US$116.95 a tonne.
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Investment ideas from the edge of the bell curve.
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