Banking Blues Hit ASX as Markets Bet Big on Rate Cut

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Welcome to Equity Espresso’s Market Recap.

Banks pushed the stock market lower today, with the S&P/ASX 200 index retreating from its record highs on Friday, falling 0.22% or 18.7 pts. to 8,537.10, with the Energy (-1.50%) and the Financials (-1.07%) sectors dragging the market lower. The Australian dollar strengthened to US63.72c, reaching a two-month high against a weakening U.S. dollar.

Bendigo & Adelaide Bank (-15.28%) stock plunged after reporting a 1.1% drop in cash earnings, while Westpac (-4.06%) shares fell following a 9% decline in net profit. The other major banks also saw their share price fall, with NAB (-1.15%) and ANZ (-0.42%) closing lower.

The Energy (-1.50%) sector weakened as Woodside Energy (-2.89%) shares fell after the oil and gas producer's 2024 guidance on costs and tax expenses indicated potential final dividend payments could drop up to 20% below market expectations.

The Reserve Bank of Australia (RBA) is poised to make its first interest rate cut in over four years at tomorrow’s board meeting, with markets pricing in a 90% probability of a 25-basis-point reduction to 4.10%. The expected move would follow other major central banks that began easing cycles last year, though the U.S. Federal Reserve remains cautious due to inflation concerns.

The anticipated rate cut has been supported by Australia's moderating inflation, which fell to 2.4% in Q4 2024, its lowest level since early 2021, driven by significant drops in electricity prices thanks to the ongoing impact of the Energy Bill rebates. Fuel prices and Housing costs have also seen slower growth. Core or Trimmed Mean inflation has eased to 3.2%, below market expectations of 3.3%.

Company News

• A2 Milk (+19.66%) raised its FY25 revenue growth forecast to low-to-mid double digits after reporting half-year revenue up 10% to $893.8 million and earnings growth of 5% to $118.9 million. The company also announced its first-ever dividend of 8.5¢ per share.

• Audinate (+26.52%) reported first-half revenue of US$18.9 million, down 38% from last year, though software revenue grew 13% to US$8.3 million. Despite lower chip and hardware sales due to customer inventory adjustments, the company maintained a positive EBITDA of A$1 million and expects moderate growth in the second half.

• Bendigo and Adelaide Bank (-15.28%) reported half-year cash earnings of $265.2 million, down 1.1% from the prior period, while statutory profit fell 9.7% to $216.8 million. Despite strong customer demand driving residential lending up 5.3% to $65.2 billion and deposits growing to $72.0 billion, earnings were pressured by higher funding costs and increased operating expenses. The bank maintained a strong capital position with a Common Equity Tier 1 ratio of 11.17% and declared a dividend of 30 cents per share.

• BlueScope (+12.98%) shares surged despite a 59% profit drop to $179.1 million, as U.S. steel prices rose 20% following Trump's tariffs. Despite the mixed regional performance, the company increased its dividend to 30¢ and forecasts improved earnings of $360-430 million for H2.

• Chalice Mining (+22.92%) provided an update on its Gonneville PGE-Ni-Cu-Co Project's Pre-Feasibility Study, which is targeted for completion by mid-2025. The company reported a significant metallurgical breakthrough in producing saleable nickel concentrate from low-grade samples, simplifying the process flowsheet while reducing costs and execution risks.

• Freightway (-) reported Q1 revenue growth of 6.7% to $662.1 million and earnings of $86 million, driven by strong performance in express packaging and temperature control divisions. The company maintained a 13% earnings margin and increased its interim dividend to 19¢ from 18¢.

• Lendlease (+0.45%) shares edged up after reporting a return to profitability with a $39 million profit, reversing last year's $173 million loss despite a 7.8% revenue decline. The company's operating EBITDA rose 39% to $375 million, driven by strong development and investment performance.

• Star Entertainment (+12.50%) shares rose after receiving a $650 million debt refinancing proposal from Oaktree Capital Management. The five-year facility offer came as the company's former casino officer agreed to pay $180,000 to settle misconduct charges related to dealings with a Macau junket operator.

• Westpac (-4.06%) reported a 9% decrease in Q1 net profit to $1.7 billion, though underlying profit rose 3%, excluding hedge accounting impacts. The bank's net interest margin fell to 1.81% amid mortgage competition, while deposits grew by $14.4 billion and loans increased by $13.4 billion across housing, business, and institutional segments.

Wall Street

U.S. markets closed mixed on Friday, with the S&P 500 (-0.01%) and Dow Jones (-0.37%) both falling. The Nasdaq (+0.41%) reached a new record higher, as Nvidia (+2.63%) advanced while Microsoft (-0.51%) retreated. Seven of the 11 S&P sectors declined, led by Consumer Staples (-1.16%) and Healthcare (-1.11%).

Market sentiment was influenced by Trump's tariff announcements and weaker-than-expected January retail sales, which fell 0.9%. Treasury yields declined for a second day, with the 10-year yield dropping to 4.44%, as traders priced in at least one 25-basis-point rate cut this year with a 50% chance of an additional reduction.

Roku (+14.14%) shares jumped to a yearly high after reporting 22% revenue growth to $1.2 billion and adding four million new streaming households. The company projects reaching 100 million households next year. Airbnb (+14.45%) shares surged after reporting Q4 earnings of 73 cents per share and revenue of $2.48 billion, both exceeding analyst expectations. The company swung to a net income of $461 million from a year-ago loss, though Q1 guidance fell slightly below forecasts at $2.23-2.27 billion.

S&P500 Sector Performance

Economic Data

• U.S. Retail sales contracted 0.9% month-over-month in January 2025, much worse than forecasts of a 0.1% drop, following a 0.7% gain in December.

• The Bank of Russia held its key interest rate unchanged at the record high of 21% in its February 2025 decision, which was in line with expectations.

• Japan’s GDP grew by 0.7% QoQ in Q4 of 2024, accelerating from a 0.4% expansion in Q3 and surpassing market expectations of 0.3%, according to preliminary data.

• The Eurozone's annual GDP growth rate was 0.9% in the fourth quarter of 2024, unchanged from the previous period and in line with the preliminary estimate.

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🌎️ Around The Globe

• Americans' total household debt reached a record $18.04 trillion in Q4 2024, with credit card balances hitting $1.21 trillion after accounting for nearly half of the quarter's $93 billion debt increase.

• Apple CEO Tim Cook announced a new product launch for February 19, widely expected to be an updated iPhone SE featuring a larger screen, Face ID, and Apple's first in-house cellular modem chip, replacing previous Qualcomm components.

• The Boring Company has announced plans to build a 10.5-mile underground tunnel system for autonomous vehicles in Dubai. The Dubai Loop project, revealed at the World Government Summit alongside UAE officials, aims to transport 20,000 passengers hourly through more than 100 stations connecting major city landmarks.

• GameStop is reportedly exploring cryptocurrency investments, including Bitcoin. The news followed CEO Ryan Cohen's social media post with Strategy's Michael Saylor, whose company holds over 447,000 bitcoins.

• JPMorgan CEO Jamie Dimon strongly rejected employee requests for flexible work arrangements during a recent town hall, stating there was "zero chance" of leaving office attendance decisions to managers. Dimon criticised work-from-home culture for reducing productivity and creativity, emphasising that JPMorgan has always been clear about its in-office expectations.

• Honda and Nissan have abandoned their $60 billion merger talks, which would have created the world's third-largest automaker, due to disagreements over management structure. Nissan subsequently announced a $2.59 billion cost-cutting plan through 2026.

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*1-year, 3-year and 5-year returns are calculated as of January 31, 2025.

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