Good Evening,

Welcome to Equity Espresso's Daily Recap. All eyes were on the U.S. and the CPI data, which dropped overnight. Markets liked what they saw, with the ASX following global markets higher. That and lots of company news to get through, so let’s jump in.

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The Recap

A bumper day on markets, with the ASX200 index adding 99.2 points to rise 1.42%, closing at 7,105.9. Today was all about the U.S. CPI for October, which came in slightly lower than expected at 3.2%, sending global markets higher. Markets appear to have priced in that the Federal Reserve’s hiking cycle is all but done.

Ten of the 11 sectors on the ASX rose, with interest rate-sensitive sectors Real Estate (+4.6%) and Tech (+3.4%) seeing the biggest gains. Energy (-0.7%) stocks fell after yesterday’s bumper session.

It was another busy day of company news: Nufarm (+8.1%) was one of the big movers, reporting better-than-expected full-year profit and revenue. Allkem (+5.3%) rose after the Australian Foreign Investment Review Board gave its merger with Livent the go-ahead. Aristocrat Leisure (-1.4%) fell slightly after it reported FY23 earnings.

Check out the ASX Company Announcement section later in the newsletter for the complete recap.

Commodity prices continue to rise, with Iron Ore futures hitting US$130.00/t, the first time since March on the back of improving demand for steel in China. Crude Oil futures remain steady at US$78/bbl.

Economic Data

• Australia’s Wage Price Index grew by 1.3% QoQ, the largest rise on record and in line with expectations. The index grew 4% YoY, slightly ahead of estimates of 3.6%. An increase in the wages paid to 250,000 aged care workers pushed the figure higher this quarter, with the index being an important driver of inflation.

• U.S. CPI slowed to 3.2%, following a 3.7% read in September and August and slightly below October forecasts of 3.3%. Energy costs dropped 4.5%, while prices increased at a softer rate for food (3.3% vs. 3.7%), shelter (6.7% vs. 7.2%) and new vehicles (1.9% vs. 2.5%).

• U.S. Core CPI fell to a two-year low in October of 4%, slightly below estimates of 4.1%.

• Japan’s GDP contracted by an annualised 2.1% in Q3, more than the 0.6% drop expected by economists.

• The U.K. Unemployment Rate remained unchanged during September, at 4.2%, which was in line with market expectations. The number of unemployed individuals rose by approximately 9,000 to 1.448 million.

China released a host of economic data today, which were mostly positive; here are the highlights:

• Industrial production expanded 4.6% YoY in October, hitting six-month highs following the 4.5% gain in September and ahead of forecasts of 4.4%.

• Retail sales rose 7.6% YoY in October, a big jump from the 5.5% in September and comfortably surpassing estimates of 7.0%. The read marks the tenth straight month of increases and the highest since May.

• Unemployment remained steady at 5.0% in October. Average weekly working hours were 48.7 hours.

• Fixed Asset Investment increased by 2.9% to CNY 41.94 trillion in the first ten months of 2023, below forecasts of 3.1%.

Wall Street

It was a big night on Wall Street, as the slightly better-than-expected lower CPI read raised hopes that the Federal Reserve is done with raising rates. The S&P 500 rallied 1.9%, while the NASDAQ jumped 2.4%. November is proving to be a strong month for equity markets, with the S&P 500 now up 7.2%, while the NASDAQ has increased by 9.7%.

The yield on the U.S. 10-year Treasury note fell by more than 15 basis points to 4.5% on Tuesday, the lowest in seven weeks, after softer-than-expected CPI data.

Home Depot shares rose by 5% after reporting better-than-expected Q3 earnings, with a 3% decline in sales during the quarter. Home Depot expects full-year sales to fall between 3% and 4% for the entire year.

Outlook

Tonight, we get another CPI reading, this time from the U.K., whose inflation is forecasted to be +4.8% for October. Monthly PPI data is also expected to be reported, while in the Eurozone, Trade Balance and Industrial Production data are set to drop.

In the U.S., it will be another busy night of economic data, with PPI and Retail Sales data being reported. Early signs point to another positive night for equity markets, with the S&P 500 (+0.23%) and NASDAQ (+0.28%) futures higher.

Companies reporting earnings overnight include Target, Palo Alto Networks, Cisco, and JD.com.

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Quick Singles

🪃 Local News

• ASIC has said that the superannuation sector will be a major focus for the regulator in 2024, as it looks to take strong, targeted enforcement action as part of its focus on member outcomes in the sector.

• The ‘Big 4’ accounting firms may be struggling, but mid-tier firms are thriving, with revenue rising by 17% to $2.8 billion, outpacing the 12% growth from Australia’s largest accounting firms.

• The cost to visit a doctor continues to increase, as the proportion of GPs bulk billing all of their patients has halved in the last year, with the cost to provide care to patients growing, according to a RACGP report.

🌏 Around The Globe

• ESPN has launched the ESPN Bet app across 17 states in the U.S. where mobile sports betting is legal. ESPN will partner with PENN Entertainment as part of the launch.

• Exxon has announced plans to produce lithium from subsurface wells by 2027 to secure the supply of the pivotal metal. The company intends to extract briny waters from an area in Arkansas known to contain significant lithium deposits.

• Stellantis is offering its white-collar workforce voluntary buyouts, offering separation packages to 6,400 of its 12,700 non-union workforce.

• Nepal’s government has banned the social media app TikTok, saying it disrupts social harmony in the country.

• Hyundai Motors has broken ground on a new $1.5 billion Electric Vehicle (EV) plant in South Korea, which is planned to open in 2026 and will produce 200,000 vehicles annually.

• Bloomberg reported that Joe Biden and Chinese President Xi Jinping are set to announce an agreement that would see Beijing crackdown on the manufacturing and export of fentanyl. 

• An Oxford study, funded by the British Heart Foundation, revealed that artificial intelligence can predict the risk of heart attacks up to ten years in advance. The study involved testing an A.I. tool on over 40,000 patients, and the results suggest that it may lead to changes in treatment plans for almost half of the evaluated patients.

Markets

ASX200 Company Movers

Index & Commodity Prices

Bond Prices

Sector

ETF Watch

ASX News

🗞️ Company Announcements

• Allkem (AKE) has been given the green light by the Foreign Investment Review Board (FIRB) in its proposed $16 billion merger with Livent, with the deal expected to close on January 4. Livent is a U.S.-listed company that manufactures lithium compounds used in batteries.

• Aristocrat Leisure (ALL) reported a 13% increase in revenue during FY23, underpinned by growth in its North American Gaming Outright sales and benefiting from a strong US dollar. This offset challenging Australian and New Zealand market conditions and volatility in its mobile gaming division. Normalised NPAT increased by 24% to $1.24 billion. Aristocrat said it expects to deliver growth in FY24.

• Computershare (CPU) shares fell despite the company reaffirming its FY24 guidance of a 7.5% EPS increase to around $1.16.

• Flight Centre (FLT) provided a trading update at its AGM today, stating that Q1 Total Transaction Value (TTV) had increased by about 20% to $6 billion. Revenue outpaced TTV growth, with a 38% increase, leading to a 160-basis point margin improvement to 11.2%, while Profit Before Tax was $54 million.

• Graincorp (GNC) is set to acquire feed supplement provider XF Australia (XFA) in a deal worth $35 million.

• Karoon Energy (KAR) sunk by 10% this morning before entering a trading halt pending an announcement. The rumour mill says it will be a capital raising.

• Life360 (360) grew its revenue by 38% to $87.6 million during the third quarter, with Annualised Recurring Revenue jumping by 41% to $259.1 million. The tracking device platform added 118,000 net new subscribers during the quarter, just shy of a record 119,000 added in Q4FY21.

• McPherson’s (MCP) will lay off around 40 positions as part of the company’s strategic review, where it will cease private label offerings and exit non-strategic agency brand relationships. McPherson’s has also appointed KPMG to undertake a strategic review of its Multix brand.

• Nufarm (NUF) reported an 8% fall in underlying NPAT to $122 million, which the company said was due to more challenging global conditions in the crop protection market. Nufarm expects trading to remain challenging in the first half as the industry adjusts to lower input costs and prices.

• Seek Ltd (SEK) reaffirmed its FY24 outlook at its AGM today, forecasting revenue to be between $1.18 billion and $1.26 billion with Net Profit After Tax of between $220 million and $260 million.

• Serko (SKO) reported an 87% lift in half-year income to $36.3 million, as online bookings rose 26%. Serko still reported a net loss after tax of $7.2 million but did increase its FY24 total income guidance to $67 million to $74 million.

• Robert Luciano, founder and CIO of VGI Partners (VG1), will leave the hedge fund after 15 years. He had been on sabbatical since June 2020, one year after VGI merged with Regal Funds Management.

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Broker Research

AMCIL Ltd.

Code: AMH | Market Cap: $304.9m  | Current Price: $0.945
Price Target: N/A | Sector: Financials | Broker: Independent Investment Research

Overview

Amcil Limited is a Listed Investment Company (LIC) with a concentrated portfolio of Australian and New Zealand companies that it believes will likely grow earnings and dividends over the medium-to-long term. The company seeks to deliver shareholder returns in excess of the market over the medium-to-long term, with a portfolio of 30 - 40 stocks.

Broker Highlights

• A focus on quality and earnings tends to result in the portfolio having

  an underweight exposure to the Materials sector. If Materials outperforms, then AMCIL’s portfolio will likely lag the market.

• AMCIL amended its dividend policy in FY21, which is expected to increase from an annual to a semi-annual dividend payment, providing a smoother dividend profile for investors.

• The company's structure provides relatively low-cost exposure to the portfolio with a Management Expense Ratio (MER) of 0.66% for the FY23 period and no performance fees.

The chart below shows the total cumulative return of the pre-tax NTA and the share price compared to the S&P/ASX 200 Accumulation Index.

Recommendation

Independent Investment Research has maintained a Recommended Plus rating for AMCIL Limited as it continues to deliver returns over the market over the medium-to-long term. The broker views the dividend policy amendment as positive for shareholders and expects the changes will result in reduced volatility in the annual dividend.

You can access the full version of the report here.

Daily Quiz

❓️ Test Your Knowledge

Yesterdays Question. What's the definition of a recession?

Answer: A fall in GDP for two successive quarters. A recession will occur during periods of economic decline during which trade and industrial activity are reduced. High unemployment, declining consumer spending, and business investment can occur during a recession but isn’t a pre-requisite. This was the most popular answer, with 31% getting the question correct.

A Little Extra

📉 Going Down?

Top-10 shorted stocks on the ASX - as of November 9

📊 Broker Ratings

What do the brokers have to say?

1. Pantoro (PNR) - Upgraded to Hold from Sell (Bell Potter)

Updated broker commentary for Xero and Lovisa.

👨‍💼 Director Transactions

What are the insiders doing? (On-market trade only)

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DISCLAIMER: None of the information provided in this newsletter should be constituted as financial advice. This newsletter is strictly for educational purposes only. It should not be taken as investment advice or a solicitation to buy or sell assets or make financial decisions. Please do your research.