☕️ ASX Soars to Record on U.S. Rate Cut Buzz

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Welcome to Equity Espresso’s Market Recap.

The Australian share market reached a record high on Monday, with the S&P/ASX 200 index gaining 0.3% to close at 8,121.6 points. This rally was driven by solid performances in the Banking (+0.95%) and Communications Services (+1.08%) sectors, mirroring the positive sentiment on Wall Street on Friday. The uptick comes as traders anticipate a potential 50bps interest rate cut by the Federal Reserve later in the week, with markets pricing in a 60% chance of such a move.

Gold miners were among the day's top performers, benefiting from bullion prices hitting a new record high of $US25,88.81. Evolution Mining led the gains with a 4.2% increase, while St Barbara (+7.84%) and Northern Star (+1.47%) also saw significant rises.

Health Care (-1.06%) was the day's worst-performing sector, led by CSL's 1.19% decline. High-growth companies also suffered significant losses, with ProMedicus, Telix Pharma, and Polynovo falling 3.25%, 6.46%, and 5.04%, respectively.

Company News

• Austal (+20.54%) secured a $US450 million contract from General Dynamics Electric Boat to expand its Mobile, Alabama shipyard for US Navy submarine production. The project, set for completion in 2026, will enable Austal to produce one Columbia-class and two Virginia-class submarines annually.

• Alcoa (+5.87%) announced the sale of its 25.1% stake in the Ma'aden Joint Venture to Saudi Arabian Mining Company for approximately $1.1 billion. The transaction includes 86 million Ma'aden shares valued at $950 million and $150 million in cash.

• Auckland Airport went into a trading halt after announcing a NZ$1.4 billion (A$1.3 billion) equity raise to finance its capital investment program and reduce debt. The initiative comprises an underwritten NZ$1.2 billion placement at a 7% discounted price of NZ$6.95 per share, complemented by a non-underwritten retail offer of up to NZ$200 million at a smaller 2.5% discount.

• Emerald Resources (-5.88%) reported a minor wall slip at its Okvau Gold Mine in Cambodia. The incident occurred southwest of the open-cut pit, affecting the access ramp. The company maintains its quarterly production guidance of 25-30koz gold at approximately 2.0g/t grade. However, the All-In Sustaining Cost (AISC) for the quarter may exceed the projected US$810-880/oz range due to increased waste mining, offset by reduced earthmoving in the future.

• Lendlease (+2.14%) finalised the sale of its U.S. East Coast construction operations to Consigli Building Group, Inc. The transaction is expected to be financially neutral over a two-year period, with initial losses and cash outflows in FY25 and FY26 offset by profits and inflows in FY27.

Wall Street

Wall Street's main indexes closed higher on Friday, driven by renewed expectations of a larger interest rate cut by the Federal Reserve next week. The Russell 2000 small-cap index outperformed, rising 2.5% for the day and 4.4% for the week, reflecting heightened optimism among rate-sensitive stocks.

All three major U.S. benchmark indexes ended near two-week highs and posted significant weekly gains. The S&P 500 rose 0.54% and 4.02% for the week, while the Nasdaq gained 0.65% for the day and 5.95% for the week, marking their largest weekly percentage increases since early November.

Bets on a 50 basis point cut increased to 49% from 28% the previous day, according to CME's FedWatch Tool, despite recent economic data suggesting a smaller cut might be more likely.

Adobe's (-8.47%) shares dropped despite beating third-quarter expectations, with revenue of $5.41 billion and earnings of $4.65 per share. The decline was due to weaker-than-anticipated fourth-quarter guidance. Digital Media, Adobe's largest division featuring AI-powered Creative Cloud subscriptions, grew 11% annually to $4 billion in sales. Uber's (+6.45%) shares rose after announcing an expanded partnership with Alphabet's Waymo. The collaboration will introduce robotaxi services in Austin and Atlanta in early 2025, accessible through Uber's app. This move addresses investor pressure for Uber to enhance its autonomous vehicle strategy, particularly in light of Tesla's upcoming robotaxi event.

S&P500 Sector Performance

Economic Data

• China’s Industrial production rose by 4.5% YoY in August 2024, falling short of market forecasts of 4.8% and slowing from a 5.1% increase in July.

• China’s Retail Sales grew by 2.1% year-on-year in August 2024, moderating from a 2.7% growth in the prior month and missing market consensus of 2.5%.

• U.S. Consumer Sentiment increased for a second consecutive month to 69 in September 2024, the highest since May, compared to 67.9 in August and beating forecasts of 68.

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🌎️ Around The Globe

• American Airlines and its 28,000 flight attendants reached a five-year labour agreement, ending a contentious negotiation period. The deal, approved by 87% of voting members, includes immediate wage increases of up to 20.5% starting October 1st, along with retroactive pay. This agreement averts a potential labour crisis and marks a significant improvement in compensation for the cabin crew.

• Boeing continues to encounter disruption as 33,000 factory workers began a strike, rejecting a previously negotiated contract. The workers found the 25% pay increase offered over four years inadequate to keep pace with escalating living expenses despite agreement from union leaders.

• Chinese economic growth forecasts for 2024 have been revised downward by Goldman Sachs and Citigroup to 4.7%, falling below the government's 5% target. This adjustment comes after August data revealed industrial output at a five-month low, underscoring China's sluggish economic recovery and increasing pressure for additional stimulus measures to boost demand.

• OpenAI launched its new AI model, OpenAI o1, featuring enhanced reasoning capabilities through step-by-step query analysis. Currently in preview for paying users, the model outperforms GPT-4o in math and coding. It uses reinforcement learning and operates without web access, with a limited version also available.

• UniCredit CEO Andrea Orcel suggested a merger with Commerzbank could benefit all stakeholders and create a stronger institution. This statement follows UniCredit's recent 9% stake acquisition in Commerzbank, which surprised German authorities and faced resistance from Commerzbank's management.

• Volkswagen may allocate up to 4 billion euros ($4.4 billion) in provisions for planned capacity reductions, potentially as soon as the fourth quarter, according to Jefferies analysts. This follows the automaker's recent announcement that it's considering unprecedented plant closures in Germany as part of a cost-cutting strategy to improve competitiveness against Asian rivals.

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

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