Good Evening,

Welcome to Equity Espresso’s Daily Recap. Markets took a breather today on the back of yesterday’s spike, with employment data the big talking point of the day. Let’s jump in.

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The Recap

Markets gave back some ground after yesterday’s bumper session, with the ASX200 index shedding 47.5 points or 0.67% to 7,058.4. Energy (-1.19%) stocks dragged the index lower for the second day running following a drop in oil prices. A better-than-expected labour force report may also have reignited fears of another rate hike by the RBA.

Tech (-1.02%), Materials (-0.83%) and Health Care (-1.00%) fell, while defensive sectors Utilities (+0.59%) and Staples (+0.38%) finished the day higher.

AMP Capital (AMP) shares were among the worst performers, losing 14.8% after it said that its Net Interest Margin will be ~125 basis points lower in FY23, which is expected to continue into FY24. Graincorp (GNC) traded higher after reporting better-than-expected revenue and earnings in its FY23 report released today. GNC shares ended the day up +1.8%

WTI Crude futures fell to US$76/bbl on Thursday, extending its downtrend as EIA data showed that U.S. crude inventories jumped by about 3.6 million barrels last week. Iron Ore futures prices continue to climb, rising to US$133.00/t on Thursday.

Economic Data

• Australian unemployment inched up to 3.7% in October - a 0.1% increase from September. The number of unemployed individuals increased by 27,900 to 547,800. The figure fell in line with estimates.

• The Australian economy created 55,000 jobs in October, outpacing the 20,000 expected after a 7,800 rise in September. Most of the new jobs came from part-time employment (37,900). ANZ said today that it expected the recent Voice referendum in Australia to contribute 27,000 jobs to the increase in employment.

• U.S. Retail Sales fell by 0.1% during October from the previous month, ending a six-month run of increases, but it was better than the 0.3% decline expected.

• U.S. PPI fell 0.5% in October from September, the most since April 2020, much lower than the 0.1% increase expected by analysts. Goods prices were down 1.4%, primarily due to a 15.3% fall in gasoline prices.

• U.K. Inflation is falling, coming in at an annualised growth of 4.6% for October, much lower than the 6.7% in September and August and lower than the 4.6% estimated by economists.

• Average new home prices in China’s major cities fell by 0.1% in October from the prior year, which was at the same pace for the fourth month running.

Wall Street

The rally on Wall Street continued on Wednesday, as the S&P 500 rose 0.16%, while the NASDAQ inched higher by 0.07%. This came despite the 10-year U.S. Treasury bond yield rising by nine basis points to 4.537%, a day after it slipped below the 4.5% mark. Negative economic data helped add to the case that the Federal Reserve won’t be raising rates after Tuesday’s cooling CPI read.

In company earnings, Target shares rose 18% in after-hours trading, reporting an EPS of $2.10, well above estimates of $1.48. Despite the positive result, the company still sees weaker discretionary spending and expects the upcoming quarter to look the same. Cisco shares fell by 13% in after-hours trading after providing a weak outlook for the coming quarter and the rest of FY24 due to a slowdown in new product orders. Palo Alto shares fell by over 8% in after-hours trade despite reporting Q1 earnings that topped analysts’ estimates. Billing guidance for the coming quarter fell short of estimates, which may have been the catalyst for the share price fall.

Outlook

There is plenty of data to keep markets occupied tomorrow. In the U.S., we’ll get Export and Import data, Jobless claims and Manufacturing data. The U.K. reports retail sales for October, while the Eurozone is the latest region to report CPI data, which is forecasted to grow by 2.9% YoY in October, down from the 4.3% rise in September.

Signs point to a negative night in the U.S., at least for now, with the S&P 500 (-0.11%) and NASDAQ (-0.20%) futures flashing red as of this afternoon.

A few more heavyweights are reporting tonight: Walmart, Macy’s, Alibaba, Applied Materials, and Copart are some of the companies that drop earnings updates.

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Quick Singles

🪃 Local News

• Transport Minister Catherine King has cancelled 50 road and rail projects after reviewing the 10-year, $80 billion Infrastructure Investment Program (IIP). The review discovered that there were cost overruns amounting to $32.8 billion in the program, out of which $14.2 billion was on projects that had not yet started.

• APRA will tighten liquidity rules for mutual banks and credit unions, aligning them with requirements for larger lenders. This will prevent smaller bank failures from causing contagion. The move comes eight months after the collapse of Silicon Valley Bank. The new rules are expected to increase funding costs for smaller banks.

• Cybercrime has increased by 23% in Australia, according to a recent cybersecurity report released by the Australian Signals Directorate. Small businesses are the hardest hit, with an average cost of $46,000 per year.

🌏 Around The Globe

• Airbnb has acquired a secretive new AI startup, GamePlanner AI, for an estimated US$200 million - secretive as it’s unclear what the company does.

• Luxury watch prices fell again in October, with Rolex and Patek Philippe watch prices falling to two-year lows on secondary markets amid rising supply.

• SpaceX has received approval for the second launch of its groundbreaking Starship rocket after a seven-month hiatus.

• YouTube has announced a new policy that mandates creators to label videos containing AI-generated content that looks realistic enough to mislead viewers.

• Phone manufacturer Nothing has released its new Nothing Chats app for Android users. The app allows users to send iMessage-like blue bubbles to iPhone contacts. An early version of the app will begin rolling out on Friday.

• The European Union has finalised a new law that limits methane emissions from oil and gas imports starting in 2030. These import regulations are expected to affect major gas suppliers such as the United States, Algeria, and Russia.

• South Korea may extend its total ban on short selling of stocks beyond June next year if reform measures are deemed insufficient, the country’s financial regulator said.

Markets

ASX200 Company Movers

Index & Commodity Prices

Bond Prices

Sector

ETF Watch

ASX News

🗞️ Company Announcements

• A2 Milk (A2M) warned that China’s infant formula market is steeply declining and will pose a more challenging market in the coming year.

• AMP Limited (AMP) will invest over $60 million over the next two years to launch a new digital bank aimed at sole traders and small businesses. AMP expects the new digital bank division to be NPAT and ROC accretive from FY27 onwards.

• Incitec Pivot (IPL) will complete the sale transaction of its U.S.-based ammonia manufacturing facility to CF Industries Holdings on December 1, following the conclusion of a U.S. anti-trust review.

• McGrath Ltd (MEA) expects underlying EBITDA for the first half of FY24 to be in the range of $4.5 million and $5.30 million - a lift of approximately 40% from the pcp.

• Karoon Energy (KAR) will acquire a 30% stake in the Who Dat and Dome Patrol oil and gas fields in Louisiana, USA. The acquisition totals US$720 million, comprised of cash, debt and an equity raise. Karoon will raise $US300 million in equity by issuing 234 million new shares at a share price of $2.05.

• Graincorp (GNC) reported an NPAT of $250 million for FY23, down from $380 million in FY22, which was ahead of expectations, helped by a bumper crop season.

• Rio Tinto (RIO) has sacked their former Head of Aluminum, Ivan Vella, over an information breach.

• Sonic Healthcare (SHL) will acquire medical technology company Pathology Watch for US$130 million. The Salt Lake City-based company has developed and commercialised an integrated, end-to-end digital pathology platform for skin pathology.

• Seven Group Holdings (SVW) gave a trading update today at its AGM, upgrading guidance to “high single to low teen EBIT growth in FY24.”

• Steadfast Group (SDF) will acquire a 70% stake in the Combined Agency Group for an upfront cash payment of $148.8 million plus two potential earn-outs depending on performance. The insurance broker is also set to raise $280 million in equity at $5.06 per share.

Social Media

 📱 Post of The Day

Broker Research

Australian Foundation Investment Company

Code: AFI | Market Cap: $8.6bn  | Current Price: $6.87
Price Target: N/A | Sector: Financials | Broker: Independent Investment Research (IIR)

Overview

The Australian Foundation Investment Company (AFI) is a Listed Investment Company (LIC) that invests predominately in a portfolio of Australian and New Zealand listed companies.

AFI aims to deliver shareholder capital and income growth over the long term. It targets high-quality companies backed by strong management teams with sustainable competitive advantages underpinned by long-term secular growth trends.

AFI’s portfolio consists mainly of ASX50 stocks, with a select group of mid-to-small cap companies that meet the company’s investment criteria.

Broker Highlights

• AFI is the largest LIC on the ASX, with a market cap of over $8 billion and 1.2 billion shares on issue, providing sufficient liquidity for investors.

• A low Management Expense Ratio (MER) of 0.14% for FY23 and no performance fees.

• AFI has a history of growing dividends over time as its EPS has grown.

Recommendation

Independent Investment Research (IIR) maintains a Highly Recommended rating for Australian Foundation Investment Company Limited. The broker points to the company’s long history of delivering on its investment objectives, dividend growth and long-term capital growth.

You can access the full version of the report here.

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Daily Quiz

❓️ Test Your Knowledge

Yesterdays Question. With reference to the economy, what does a Hard Landing mean?

Answer: An economic downturn following a period of rapid growth. The term comes from aviation, which refers to the kind of high-speed landing that—while not an actual crash—is a source of stress and potential damage and injury. The metaphor is used for high-flying economies that run into a sudden, sharp check on their growth. 47% of you got that question correct.

A Little Extra

📉 Going Down?

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

📊 Broker Ratings

What do the brokers have to say?

1. Aristocrat Leisure (ALL) - Upgrade to Accumulate from Hold (Ord Minnett)

2. ALS Ltd (ALQ) - Upgrade to Lighten from Sell (Ord Minnett)

3. nib Holdings (NHF) - Upgrade to Hold from Lighten (Ord Minnett)

4. Nufarm (NUF) - Upgrade to Buy from Neutral (Citi)

5. Seek (SEK) - Upgrade to Buy from Neutral (UBS)

6. Solvar (SVR) - Upgrade to Buy from Hold (Bell Potter)

7. TPG Telecom (TPG) - Downgrade to Underweight from Equal-weight (Morgan Stanley)

Updated broker commentary for Flight Centre, Tyro Payments and Life 360. 

👨‍💼 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.