☕️ ACCC Hammers Supermarket Giants - ASX Cools Off After 7-Day Win Streak

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Welcome to Equity Espresso’s Market Recap.

The Australian share market experienced its first decline in eight sessions on Monday, ending a streak of record highs. The S&P/ASX 200 index fell 0.7% (56.6 points) to 8,152.90, retreating from Friday's record close. This downturn came as investors shifted their focus to tomorrow's upcoming Reserve Bank meeting.

The Reserve Bank of Australia is widely anticipated to maintain the cash rate at 4.35% for the seventh consecutive meeting, likely adopting a firm stance on inflation concerns. Despite this, money markets are fully pricing in the first rate cut for early next year. This shift in market sentiment follows last week's euphoria triggered by the Federal Reserve's bold half-percentage point rate cut, which had previously buoyed global equities.

Eight of the 11 major sectors finished lower today, with Consumer Staples (-2.80%) seeing the most significant drop after the ACCC launched a suit alleging that Coles
(-3.28%) and Woolworths (-3.40%) “significantly” breached the law by misleading consumers with discount claims on everyday products.

Here is a summary of the accusations:

• The ACCC alleges that both supermarkets misled customers about price drops on hundreds of products.

• Specifically, the supermarkets are accused of:

  • Increasing prices by at least 15% in a short time

  • Then lowering them as promotions ("Prices Dropped" for Woolworths, "Down Down" for Coles)

  • These promotional prices were higher or the same as previous prices

• Woolworths allegedly misled consumers about 266 products over 20 months from late 2021

• Coles allegedly misled consumers about 245 products over 15 months from early 2022

An example given is Coles, which sold Strepsils for $5.50 for over 600 days, raised the price to $7.00 and then advertised a "Down Down" price of $6.00 a month later.

The ACCC is seeking penalties of up to $50 million per breach, three times the benefit obtained, or 30% of turnover during the breach period.

The Energy (+0.94%) sector was the best performer thanks to a sharp rise from Uranium companies Deep Yellow (+5.13%), Boss Energy (+8.21%) and Paladin Energy (+4.67%). The move came on the news that Microsoft has inked a landmark agreement to revitalise the Three Mile Island nuclear plant in the U.S. The technology giant has committed to purchasing all of its power output from the plant for the next two decades, bolstering prospects for nuclear fuel demand.

Company News

• Austal (+2.36%) announced it had secured a US$152 million contract from the U.S. Navy to invest in infrastructure supporting increased submarine production. The company will invest in the United Submarine Alliance Qualified Opportunity Fund to expand production capacity near Austal's facilities.

• Healius (+7.45%) shares lifted after announcing the sale of its Lumus Imaging business to Affinity Equity Partners for $965 million in cash, debt and equipment-lease-free

• REA Group (-2.51%) has lifted its offer to buy U.K.-based company Rightmove to £7.70 per share, up from the initial offer of £7.49

• Telix Pharmaceuticals (+1.87%) announced the acquisition of RLS (USA) Inc., America's largest radiopharmacy network. This move expands Telix's North American manufacturing footprint and establishes a next-generation radiometal production network.

Wall Street

U.S. stocks finished relatively flat on Friday, with the Dow Jones inching up 0.09% to a new record, while the S&P 500 and Nasdaq experienced slight declines of 0.19% and 0.36%, respectively. This pause in buying followed Thursday's significant rally, which was driven by the Federal Reserve's larger-than-expected interest rate cut. Despite the subdued session, all major indexes secured weekly gains of at least 1%.

Market expectations now fully price in a minimum 25 basis point rate cut in November, with a 48.9% chance of a 50 basis point reduction, according to CME's FedWatch Tool. This shift in sentiment reflects the ongoing impact of the Fed's recent policy decision and has contributed to the overall positive market performance for the week.

Novo Nordisk’s (-5.37%) shares fell after its experimental obesity pill, monlunabant, showed underwhelming trial results. FedEx shares plummeted over 15% following a significant quarterly earnings decline and reduced full-year revenue forecast. CEO Raj Subramaniam cited weaker industrial demand and customers' ongoing shift to cheaper delivery options as key factors squeezing profits.

S&P500 Sector Performance

Economic Data

• Canada's Retail Sales are estimated to have increased 0.5% month-over-month in August 2024, following a revised 0.9% surge in July. This continues the sector's recovery after a 0.2% decline in June.

• U.K Retail sales jumped 1% month-over-month in August 2024, following an upwardly revised 0.7% rise in July and well above forecasts of 0.4%.

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🌎️ Around The Globe

• Cardinal Health has agreed to acquire Integrated Oncology Network for $1.12 billion in cash, expanding its presence in cancer care. This acquisition gives Cardinal's Navista unit access to over 100 healthcare providers across 10 U.S. states.

• General Motors plans to lay off 1,695 workers at its Fairfax Assembly plant in Kansas. The layoffs will occur in two phases: starting November 18, the first will temporarily affect 686 full-time workers and terminate 250 temporary employees. The second phase, beginning January 12, will temporarily lay off 759 full-time workers.

• Johnson & Johnson's subsidiary filed for bankruptcy for the third time, aiming to facilitate a $10 billion settlement to resolve over 62,000 lawsuits. These legal actions allege that J&J's talc-based products, including baby powder, contained asbestos and caused various cancers, particularly ovarian cancer.

• Qualcomm has approached Intel to explore a potential acquisition, with CEO Cristiano Amon personally involved in negotiations. The mobile chipmaker is considering various deal options, including acquiring portions of Intel's design business, with particular interest in the PC design unit.

• The U.S. Securities and Exchange Commission has approved the listing and trading of options for BlackRock's spot bitcoin ETF, the iShares Bitcoin Trust (IBIT), on the Nasdaq. This decision allows investors to buy or sell rights to the ETF at predetermined prices and dates.

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*1-year, 3-year and 5-year returns are calculated as of August 31 2024.

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