Strong Jobs Report Spooks Rate Cut Dreams

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Welcome to Equity Espresso’s Market Recap.

The Australian share market declined to a three-week low, with the S&P/ASX 200 index falling 0.28% to 8,330.3 points, as the main index heads towards a >1% weekly loss. The drop came after a stronger-than-expected employment report dampened expectations of an early interest rate cut by the Reserve Bank. More on that below

Nine sectors closed the day lower, led by Real Estate (-1.09%) and Telco. (-0.99%), while Technology (+0.40%) was the shining light. Notable gainers included Block (+4.42%), while WiseTech Global and Xero rose 0.9% and 1.2% respectively.

Over in the Industrials (-0.76%) sector - the ACCC has launched Federal Court proceedings against Spotless Facility Services, a subsidiary of Downer EDI (-5.95%) and Ventia Australia (-22.56%), and four senior executives for alleged cartel conduct. The companies are accused of price-fixing maintenance services for Australian Defence Force properties between 2019 and 2022. Both companies hold separate billion-dollar contracts servicing over 200 Defence bases and facilities across Australia.

Now, onto the day’s biggest economic news. Australia's unemployment rate unexpectedly fell to 3.9% in November 2024, its lowest level since March, defying market forecasts of 4.2%. The number of unemployed people decreased by 27,000 to 595,300, with reductions in full-time and part-time job seekers. Employment surged by 35,600 to reach a new record of 14.54 million, significantly exceeding the predicted increase of 25,000.

The job gains were primarily driven by full-time employment, which rose by 52,600 to 10.07 million, while part-time employment declined by 17,000 to 4.47 million. The participation rate remained strong at 67.0%, slightly below October's level, while the underemployment rate improved marginally to 6.1%. Monthly hours worked held steady at 1,965 million.

ASX Company News

• IPH (+4.24%) shares rose after the company announced it will commence its on-market share buy-back program today, expanding from $40 million to $75 million.

• Orora (-1.65%) has sold its North American packaging business to Veritiv for $1.7 billion. The proceeds will repay debt and expand its Rocklea, Queensland facility. The company will also initiate a share buy-back program worth approximately $320 million, representing 10% of shares, starting after December 24.

• oOh!media (-2.98%) fell on a trading update today. The company projects underlying earnings between $125-128 million for 2024, with group revenues expected to reach $633-638 million. Responding to challenging market conditions, the company plans to cut costs by at least $15 million through restructuring in early 2025.

• Spark New Zealand (+2.35%) has sold its remaining 17% stake in mobile towers business Connexa to CDPQ for NZ$314 million, expecting to gain NZ$70 million in after-tax earnings.

• Syrah Resources (-28.30%) has declared force majeure at its Balama Graphite operation in Mozambique due to nationwide protests following disputed election results. The unrest has prevented production for the December 2024 quarter, with a resolution expected to take time.

Wall Street

It was a mixed performance on Wall Street Wednesday, with Technology (+1.50%) stocks leading a significant rally that pushed the Nasdaq above 20,000 points for the first time in history. The S&P 500 gained 0.82%, and the Nasdaq surged 1.77%, while the Dow Jones declined 0.22%, weighed down by Healthcare (-1.30%) stocks after the introduction of new legislation that could impact insurance companies' profits.

The market rally was primarily driven by November's CPI inflation report meeting expectations, strengthening investors' confidence in potential Federal Reserve rate cuts.

The technology sector's strength was particularly evident in the performance of the "Magnificent 7" stocks, which recorded their strongest daily gains in over a month, with notable contributions from Tesla (+5.93%) and Alphabet (+5.46%).

The market is now pricing in a 96% probability of a 25-basis-point rate cut by the Federal Reserve next week, an increase from 86% before the latest economic data.

Macy's (-0.84%) stock fell after the retailer lowered its annual earnings forecast to $2.25-$2.50 per share despite slightly raising its sales outlook. Macy’s reported third-quarter net income of $28 million, down from $41 million year-over-year, with revenue of $4.74 billion. Broadcom (+6.63%) shares spiked on reports that it is partnering with Apple to develop its first AI-focused server chip, according to a report from the Information citing insider sources.

S&P500 Sector Performance

Economic Data

• Australia’s Unemployment rate dropped to 3.9% in November 2024 from 4.1% in the prior three months, defying market estimates of 4.2%.

• The Bank of Canada reduced its key interest rate by 50 basis points to 3.25% at its December meeting, matching market expectations. This marks the second consecutive half-percentage-point cut by the central bank.

• U.S. Core Consumer Prices (excluding food and energy ) rose by 0.3% in November, the same pace as October and in line with market expectations.

• The U.S. Annual Inflation rate rose for a 2nd consecutive month to 2.7% in November 2024 from 2.6% in October, in line with expectations.

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🌎️ Around The Globe

• Amazon launched its vehicle sales platform, Amazon Autos, initially partnering with Hyundai in 48 U.S. cities. The service lets customers buy, finance, and arrange delivery of Hyundai vehicles through Amazon's platform, and it plans to expand to other manufacturers in 2024.

• Apollo Global Management is preparing to launch its largest private equity fund in early 2025, targeting $25 billion in capital. This would surpass their previous fundraising efforts, including last year's attempt, which fell short of the same target.

• Boeing has resumed production of its 737 MAX aircraft following a seven-week worker strike that ended last month.

• The Commerce Department announced a final $6.2 billion subsidy agreement with Micron Corp. under the 2022 CHIPS Act, which will support semiconductor manufacturing in Idaho and New York.

• General Motors is halting investment in its Cruise robotaxi unit to focus on driver assistance systems and autonomous personal vehicles, merging Cruise's team with its own. After spending over $10 billion since 2016, GM expects $1 billion in annual savings from this restructuring.

• Nippon Steel's $15 billion bid for U.S. Steel is still under national security review, with President Biden awaiting results before making a final decision. U.S. Steel shares fell 10% following reports suggesting the deal might be blocked.

• Walgreens shares surged 20% following reports of potential acquisition talks with private equity firm Sycamore Partners, with a deal possible in early 2024.

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