Inflation Cools While Supermarkets Sink

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The S&P/ASX 200 index declined by 0.8% to 8,184 points, with the Consumer Staples (3.56%) sector leading the downturn. Woolworths (-5.84%) shares plunged to $30.86 after warning of lower first-half profits due to increased promotional activity to attract cost-conscious shoppers, while this news also dragged down rival Coles by 2.9% to $17.61.

The Financials (-0.90%) sector contributed to the market's weakness, as all major banks - Commonwealth Bank, National Australia Bank, ANZ, and Westpac - declined by more than 0.5%. The only bright spot in the market was the Real Estate (+0.48%) sector, which finished in the green thanks to Goodman Group's (+1.30%).

Australia's annual inflation rate dropped to 2.8% in the September quarter, its lowest level since March 2021, driven mainly by temporary factors, including government electricity rebates and lower fuel prices. However, the Reserve Bank of Australia's preferred measure of core inflation, the trimmed mean, remained elevated at 3.5%, exceeding the central bank's target band of 2-3%.

Investors pushed back their expectations for the first interest rate cut well into 2024. Market pricing now indicates a 42% probability of a rate cut by February and full pricing for a reduction by May, compared to earlier expectations of an April move.

Oil prices continued to decline, with WTI settling near $US67.00 and Brent at $US71.00 per barrel, as Netanyahu's diplomatic efforts in Lebanon outweighed China's potential $2.1 trillion stimulus plans. WTI had earlier gained 1.7% on the Chinese news. Bitcoin rose again to a near five-month high amid growing bets on a Republican victory in the upcoming U.S. elections.

Company News

• Appen (+2.03%) rose despite Q3 revenue dropping 13% to $US54.1 million, though earnings improved from a $US7.5 million loss to $US1 million profit.

• Lynas Rare Earths (-1.55%) reported declining Q1 FY25 performance, with sales revenue falling to $120.5 million from $128.1 million last year. Production was adjusted to match market demand amid low rare earth prices, though NdPr prices showed slight improvement late in the quarter.

• Pilbara Minerals (+0.70%) shares rose 4.9% to $2.99 despite reducing its FY25 production guidance from 800,000-840,000 tonnes to 700,000-740,000 tonnes. Due to declining lithium prices, the company will temporarily close its Ngungaju plant in December 2024. Quarterly revenue fell 31% to $210 million, with realised lithium prices dropping 19%.

• Star Entertainment Group (-5.66%) reported a challenging Q1 FY25 result, with revenue dropping 18% to $351 million and an EBITDA loss of $18 million. Performance deteriorated due to mandatory carded play, cash limits, and a difficult operating environment.

• Woolworths (-5.84%) reported Q1 group sales growth of 4.5% to $18 billion but warned of challenging conditions ahead due to cost-of-living pressures. The company expects lower H1 earnings in its Australian food segment, forecasting $1.48-1.53 billion compared to last year's $1.595 billion. This comes amid ACCC accusations that Woolworths and Coles misled shoppers on grocery promotions.

Wall Street

The Nasdaq (+0.78%) reached a new milestone on Tuesday, closing at a record high of 18,712.75, while the S&P 500 edged up 0.16%. The Dow Jones, however, declined by 0.36% to 42,233.05. This mixed market performance came during a crucial earnings week, focusing on Alphabet's post-market results, which exceeded revenue expectations.

The market showed notable sector divergence, with Communication Services (+1.56%) leading the gains, while Utilities experienced a significant decline of 2.1%. The session's breadth was generally positive, with the S&P 500 recording 19 new 52-week highs and no new lows, while the Nasdaq saw 93 new highs and 70 new lows.

The day's trading activity was heavily influenced by earnings reports, particularly from the "Magnificent Seven" technology companies, five of which are scheduled to report this week.

VF Corporation's stock surged 27% after the parent company of The North Face and JanSport exceeded Wall Street expectations in Q2, reporting adjusted earnings of 60 cents per share on $2.76 billion in revenue. Despite year-over-year declines, the company showed sequential improvement and remains confident in its cost-saving Reinvent program targets.

Alphabet (+5.89%) stock rose in after-hours trading after it exceeded expectations in Q3, with earnings of $2.12 per share and revenue of $88.27 billion. The standout performer was Google Cloud, which surged 35% to $11.35 billion, boosted by AI offerings. The company plans to continue cost-cutting efforts through AI implementation while streamlining operations and managing headcount.

S&P500 Sector Performance

Economic Data

• Australia’s Consumer Price Index inflation eased to 2.1% in September 2024, its lowest since July 2021 and below market expectations of 2.4%. Influenced by Energy Bill Relief Fund rebates, the reading remains within the central bank's 2-3% target range for the second straight month.

• Australia's Annual Inflation rate dropped to 2.8% in Q3 2024 from 3.8% in Q2, steeper than market expectations of 2.9%. It was the lowest reading since Q1 2021, with goods inflation sharply slowing (1.4% vs 3.2% in Q2), mainly due to declines in electricity and fuel prices amid the continued impact of Energy Bill Relief Fund rebates.

• U.S. Job Openings fell by 418,000 to 7.443 million in September 2024 from a downwardly revised 7.861 million in August and below market expectations of 7.99 million.

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🌎️ Around The Globe

• Apple has launched its A.I. system, Apple Intelligence, with iOS 18.1 and macOS Sequoia 15.1, featuring writing tools, enhanced Siri, and improved photo search. Limited to newer devices with M1/A17 Pro chips, this initial release precedes a more substantial December update promising ChatGPT integration and additional features.

• Estee Lauder has reportedly selected Stéphane de La Faverie, current executive group president, as its new CEO to replace retiring Fabrizio Freda. La Faverie, who joined in 2013 from L'Oreal, currently oversees brands including Estée Lauder, Jo Malone London, and Le Labo.

• The European Union has imposed increased tariffs of up to 45.3% on Chinese electric vehicles, with rates varying from 7.8% for Tesla to 35.3% for SAIC. China rejected the ruling as protectionist, though both sides remain open to negotiations to avoid escalating trade tensions.

• JPMorgan Chase is taking legal action in Texas, Florida, and California against individuals who exploited a TikTok-viral ATM "glitch" involving fake check deposits. One Houston case involves $290,000 in stolen funds, with other cases ranging from $80,000 to $141,000.

• Meta is developing its own A.I. search engine and web crawling technology to reduce reliance on Google and Bing for its AI systems, which now serve 185m weekly users. The initiative, quietly underway since early 2024, includes a Reuters partnership, signalling Meta's push for AI information independence.

• Starbucks is reportedly enforcing a strict three-day office attendance policy starting January, threatening termination for non-compliant corporate employees. The move comes amid controversy over allowing their new CEO to work remotely from California.

• Volkswagen plans to close at least three German plants and implement cuts across other locations, according to works council chief Daniela Cavallo. The automaker dropped its long-standing job protection pledge due to increased competition, manufacturing challenges in Germany, and industry pressures.

• The Washington Post reportedly lost over 200,000 subscribers (8% of its total base) following controversy over owner Jeff Bezos blocking a Kamala Harris presidential endorsement.

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*1-year, 3-year and 5-year returns are calculated as of September 30 2024.

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