Investment Ideas From the Edge of the Bell Curve
The ASX 200 closed up +0.28% at 6,997.4, just below the 7k mark. The XJO had little movement today as investors cautiously await tomorrows call be the RBA on interest rates.
Bond traders are currently putting the chances of an interest rate hike at 69%.
The best-performing sectors on the benchmark today were Health Care (+1.47%) and Discretionary (+0.62%).
CSL (+4.22%) did the heavy lifting for health care today, While Harvey Norman (+1.36%) and Domino’s (+1.44%) helped lift the discretionary sector.
Energy Stocks were the worst performers today, down around 1% after a 6% decline in the price of oil last week as supply concerns around the Middle East continued to ease.
Gold miners helped rally the price of spot gold over the US$2k mark briefly before retreating again but strong gains were seen in the sector.
Northern Resources was up 3.2%, while Evolution Mining gained 5.1%. De Grey Mining jumped 7.4% to be the best performer on the ASX 200.
In other company news, Westpac was up 2% after reporting a 26% increase in FY23 net profits to $7.2 billion and announced a 72-cent final dividend.
The bank also announced plans for a $1.5 billion share buyback.
Block Inc. was the worst performer on the ASX 200, falling 6.26% after a strong 20% jump on Friday after upping its earning guidance for the year.
Australian biopharmaceutical company Imugene [ASX:IMU] has seen its shares jump by 7.3% today.
The move comes after the company released an update to its Phase 1 trial of its MAST (Metastatic Advanced Solid Tumours), evaluating the use of novel cancer-killing virus CF33-hNIS (VAXINIA).
Early results from six patients in the trial with gastrointestinal cancers who received the drug have shown positive treatment effects, with a disease control rate of 75%.
The trial has been expanded with 10 extra patients with bile duct cancers being added.
Imugene CEO Leslie Chong said today:
‘Phase 1 trials are generally designed to look for safety, tolerability and early response signals to determine the optimal dose for further development. The early positive response data we are seeing at the mid-dose level in hard-to-treat bile duct cancer suggests that VAXINIA may be a potent anti-cancer drug as we interrogate higher dose levels’
With a raise to 4.35% widely expected tomorrow, it’s worth having a look at Westpac’s most recent data about mortgage holders.
In its FY23 report today, Westpac said that it had only seen a modest increase in stressed lenders, with customers ‘mostly adapting‘ to the interest rate rises.
This totalled 13,253 customers facing hardship as a result of rate hikes.
CEO Peter King said those levels were around half what were seen at the height of the pandemic.
‘We are supporting customers who are doing it tough and ended the year with just over 13,000 customers in hardship arrangements,’ he told reporters.
‘This is still lower than the peak we supported during COVID, which is a positive indicator that customers are mostly adapting to the environment.’
Source: Westpac 6-11-23
Here’s further context as to why the RBA may not need to raise rates tomorrow.
The latest Australian Melbourne Institute Inflation Gauge for October shows inflation tending down.
For October, it showed a -0.1%MoM and a 5.1% YoY (down from 5.7% YoY)
But will this be enough to push them to hold, with so much public and rhetorical pressure behind a rate rise?
As I covered over the weekend, it wouldn’t be the first time predictions have been wrong.
Inflation gauge for October prints weak, will the #RBA thrust this information into the spotlight tomorrow? Would be a bold move… pic.twitter.com/ysWCMRb9DH
— Alex Joiner 🇦🇺 (@IFM_Economist) November 6, 2023
Melbourne Cup day is slated for 3pm (AEST) tomorrow with a strong lineup:
The latest odds have Vauban to win, paying 4.50.
Similar bets are being placed in the bond market, with traders currently picking the chances of an interest rate rise at 69% as of this afternoon.
In contrast, traders in the US have put the chance of a hike by the Fed at 16% in January.
For the RBA, the pressure is on, with the main chorus of economists and the IMF arguing that the central bank needs to step in and raise rates by 25 basis points to control inflation and maintain its credibility.
The credibility in question comes after Michele Bullock announced that she wouldn’t hesitate to raise rates if there were ‘a material increase‘ in CPI figures. While the CPI figures rose 1.2% for the quarter, many argued if this accounted for a material increase. Economists thought so.
Treasurer Jim Chalmers, who originally came out of the gates saying that it wasn’t, has since backflipped, conceding that the government needed top cut back on infrastructure to reduce the heat in the economy.
This came after a Federal Labour review of more than 700 infrastructure projects around Australia showed a $33 billion cost blowout.
‘I do think we’re going to need to make some difficult decisions about the infrastructure pipeline,’ Mr Chalmers said on Sunday. ‘Which factors in those $33 billion of blowouts from projects announced by our predecessors, and which factors in our inflation challenge. We need to be upfront about that.’
The struggle will come to Aussie households, who will again feel the pain in their mortgages and an economy that is waiting for the full effect of previous hikes.
The ANZ-Indeed job listing index was released today, showing that Job ads fell -3% month over months in October, following a downward revision of September’s listings to -0.5% m/m from -0.1%.
The listings have now fallen 11.2% from their September 2022 peak but remain 44.9% higher than pre-COVID levels.
Source: ANZ-Indeed
It seems slack is slowly creeping into the labour market, with total hours worked also falling. While these moves are still modest, it suggests the unemployment rate will continue to rise as we move towards the end of the year.
Indeed Senior Economist, Callam Pickering commented on the results today, saying:
‘The imbalance between labour demand and supply is gradually easing. Job Ads are down 11.4% over the past year, while Australia’s population aged 15+ increased 2.8% over the year to September. Recent weakness in Job Ads has been concentrated in NSW and Victoria, with a more modest subtraction from Queensland. Driving this year’s decline in Job Ads is fewer opportunities in food preparation & service, software development and personal care, which offset more opportunities in healthcare and education.’
Shares in battery minerals developer Talga Group [ASX:TLG] are down -7.30% this afternoon as the company announced plans to raise approximately $15 million with a share offer.
Under the new offer, Talga shares will be offered at $1.00 per share, around a 9c discount from the opening price today.
With the current share drop, the price now sits at $1.015, just above the offer.
The company has seen renewed interest after the October ban on graphite exports by China.
Talga hopes to fill the supply gaps of spherical graphite, which is used in EV batteries as the negative anode.
The ASX 200 continues to hover around its opening at +0.31% 6.999.9. The biggest gainers around noon are Health Care (+1.14%) and Financials (+0.86%), while Energy (-0.82%) and Materials (-0.31%) lag behind the other sectors today.
The top gainers in this morning trading are Wildcat Resources (+15.57%) after releasing further promising results from its Tabba Tabba hard-rock lithium site in WA.
While the biggest fallers were Deep Yellow (-8.49%) as its earlier optimism cools after strong gains in Uranium prices sent its stock up 62.42% in the past 12 months.
In other news AustralianSuper has increased its take in takeover target Origin Energy [ASX:ORG] as the energy giants shares took a dip after AusSuper signalled that it wasn’t satisfied with the price increase by the Brookfield consortium looking to buy Origin for approximately $19.9 billion.
Origin has fallen nearly -8.5% in the past week as the hopes of a deal fade with AusSupers majority stake in the company looking more and more like the blocker.
Weebit Nano shares are up by 4% today after recieving its first revenue from its chip deal with a major South Korean chip foundry.
Westpac [ASX:WBC] shares are on the rise (+1.70% this morning) as the bank showed some signs of improvement in its final FY23 results.
Net profit for FY23: $7.195 billion, up 26% on FY22 but down 20% from the first half of FY23.
The improved profits came from a 77% uptick in business banking and a 54% increase in its earnings from its institutional bank. At the same time, profits from consumers fell 7% on reduced margins.
Revenue was also down 2% from 1H23 at $10.6 billion.
The bank announced a dividend of 72 cents per share, bringing the total dividend to 142 cents, up 14% on FY22.
The results were not stellar but showed signs of improvement from its FY22 results, giving some investors hope that it may be smoother sailing from here.
However, the bank’s Chief Executive, Peter King, warned that there are still some choppy waters to go:
‘While more customers are calling us, hardship levels remain at around half the numbers we saw during COVID and we are not yet seeing significant increases in customers falling behind on repayments,’ he observed.
‘The jobs market has proved robust but will be tested through 2024. Consumer sentiment remains weak but there are glimmers of hope with some cost pressures starting to ease for businesses, which in time should flow through to prices paid by customers.’
Overall, Mr King said he was ‘broadly positive about the economic outlook over the next year’ . The bank also announced a $1.5 billion share buyback.
Good morning all, Charlie here.
The ASX 200 opened up +0.30% to 6,999.2, with a day that is likely to remain muted. Optimism on Wall Street came after the U.S. Fed kept interest rates steady last week at 5.25-5.5%, where It’s been since July. For the Australian benchmarks, many investors are playing ‘wait-and-see’ with the RBA call tomorrow.
The S&P 500 finished last week with its best performance since November 2022 as bond yields fell heavily after the market felt that the Fed could be finished with raising rates this year after keeping rates on hold again last week.
US data showed Job gains slowed and unemployment rose more than expected, also giving fuel to the idea that the Fed had done enough.
For the Australian Central Bank, the RBA rate tracker places the chance of a rate hike at 50/50, but many economists think it’s a foregone conclusion in order to reign in inflation.
U.S. 10-year bond yields fell -9bps to 4.57%. Australian 10-year bond yields fell -10bps to 4.68%.
Wall Street: Dow +0.66%, Nasdaq +1.38%, S&P 500 +0.94%.
Overseas: FTSE -0.39%, STOXX +0.12%, Nikkei +1.10%, SSE +0.71%
Gold prices are flat at US$1,993.35, sitting just below the 2k mark. Silver jumped +2.18% to US$23.22.
The Aussie dollar is down slightly at -0.1% after climbing to US65.05 cents as it fell out of its slump with expectations of a rate rise tomorrow in the market.
Bitcoin is down -0.64% to US$34,957.55 but is about to retest the 35k mark with some strength.
Oil prices continue their volatility but have fallen sharply. Brent fell -1.87% to US$85.23, while WTI Crude fell -1.89% to US$80.90.
Both finished the week down around -5% at prices seen in August before the September peak.
Iron ore is up +0.46% to US$126.15, and Singapore iron ore futures are tracking up +0.21%.
The Chinese government announced that it would widen its budget deficit this year to issue an additional CNY 1 trillion in sovereign bonds.
The additional funds were reported to be targeted to spur manufacturing and infrastructure activity in the world’s top ferrous metal consumer, increasing ore purchasing from steel producers.
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Investment ideas from the edge of the bell curve.
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