China has pulled more stimulus levers over the last few days, and although they are targeted, as was previously flagged by Beijing, it does feel like Xi Jinping has drawn a line in the sand after recent economic data signalled the need for urgent action. The property sector, once an integral driver of economic growth, is still struggling with prices for new homes across 70 cities having declined for the last ten consecutive months after falling 0.6% in April, with property investment down a whopping -9.8% in the 1st four months of 2024 compared to last year. April's fall represents the fastest month-on-month rate of decline in more than nine years, although interestingly, real estate stocks are starting to bounce.
Recent years have witnessed some huge moves in cyclical commodities such as coal, lithium, and copper. Uranium is another one that can be added to the list, although it’s a touch less tangible in Australia. We obviously cannot touch the stuff, and there is no nuclear power on our shores. US President Joe Biden has just signed the bill to ban the import of Russian-sourced enriched uranium into the US. We remain very bullish on the outlook for uranium in the next few years, seeing no hurdles to the upside, although Donald Trump may reverse this particular bill if he wins in November's US election. We could easily see uranium another 50% higher in the coming years.
US short-term bond yields tested multi-week lows overnight following the cooling US CPI, but they are still nowhere near as dovish as they were back in January/February. Last night's numbers were undoubtedly encouraging, but more proof will be required for credit markets and, most importantly, the Fed to conclude that inflation’s contained. Bond markets are often thought to be smarter than equities, as they are significantly larger, and at the moment, they are saying stocks are getting a touch overly optimistic. We believe stocks will ultimately be proved correct, but we must remain cognisant that any deterioration in the interest rate picture could easily see stocks pull back to their April lows.
Overnight, Jim Chalmers delivered his pre-election budget, and not surprisingly, he “splashed the cash.” The government has committed to increasing net spending by over $24bn over the next four years; the Treasurer believes his budget will cut inflation by 0.5% next FY, but financial markets were not convinced. The deficit was forecast to be around $18bn in December; already, 6-months later, the figures jumped by a whopping +55%, while the forecasted 2025 deficit is more than double economists' previous estimates - why bother!
Overnight, we heard that the BHP v Anglo-American story had entered and finished Chapter II, and the saga could potentially have taken its final twist:
BHP increased its bid for Anglo-American (AAL LN), which would have given AAL shareholders 16.6% of the new group, up from 14.8%.
According to BHP, the revised bid of 0.8132 BHP shares, up from 0.7097, for each AAL share values the London-based miner at £27.53 – a 14.6% increase to bid 1.
The second more attractive bid by BHP was rejected by the AAL board overnight.
The UK miner now needs to deliver a compelling vision of how it can survive and flourish independently without merging with the “Big Australian.” The synergies were undoubtedly there, although it wasn’t the cleanest deal in town, but AAL don't appear keen to tango. The deal was offered to the AAL board last week and formally rejected overnight.
April witnessed a bearish move by bonds and equities, driven by escalating interest rate fears as “sticky inflation” became a regularly used catchphrase across financial markets. Conversely, so far in May, we’ve witnessed a complete reversion in the market's thinking/pricing for the future path of interest rates after both the Fed and RBA left rates on hold and delivered less hawkish rhetoric than many feared. Also, for good measure, markets embraced the recent “goldilocks” US employment data, which was a miss on job creation, while monthly wage growth slipped 0.2% from March; the latter was the number that caught most people's attention.
The Utilities Sector is not large, making up only 2% of the ASX200 by market cap. However, the sector is up +9.5% in 2024, compared to the ASX200, which has only advanced +1.7%, making it the second best-performing sector behind tech on the main board. With a market concerned about valuations and interest rates poised to fall through 2024/5, defensive plays with solid, reliable yields are likely to maintain their recent solid performance.
For more than a decade, Australian fund managers have leapt from one calamity to the next, creating an absolute minefield for Australian investors. A quick look at the charts of Janus Henderson (JHG), Platinum (PTM), and AMP (AMP) tells a clear, painful tale of wealth destruction. Now Perpetual (PPT) has joined the fray, with its share price basically halving over the last few years against a backdrop of a broader market making new all-time highs.
Earnings undoubtedly drive share prices over the medium/long term, but when it comes to sharp short-term swings in overall market valuations/sentiment, there's nothing like monetary policy to dictate terms for stocks, with the RBA front and centre yesterday. The correlation between the local index and 3-year bonds has been extremely close over the last year, which is the major reason MM keeps a close eye on credit markets. The RBA left interest rates unchanged on Wednesday at 4.35%, while they indicated rates would need to “stay higher for longer” to rein in sticky inflation; importantly, there was little suggestion that rates would again start to rise as many had feared. The main pressure on inflation is coming from the strong jobs market, as well as higher petrol prices, which has a knock-on effect throughout the economy – the latter is frustrating when we consider crude oil has fallen 5% in 2024.
A surging copper price and the market belief that the industrial metal will be in short supply in the years ahead as we move towards a carbon-neutral world were the catalysts for BHP’s purchase of OZ Minerals (OZL) last year and bid for Anglo-American (AAL LN) last month. In our opinion, there's plenty more corporate activity likely in the copper space over the coming years, with the industrial metal remaining a core bullish view for MM. As we’ve said from the start, we would find it highly unlikely that BHP would approach this transaction with a one and done mentality and a second or even third bid would be likely. The AFR is running with a story this morning that both Argo Investments and Wilson Asset Management have said they are satisfied that value would be created by combining BHP and Anglo American’s copper and coal assets, this sort of PR can often be used as a way of preparing or softening the market for when the higher bid does come, which we think is inevitable.
Recent years have witnessed some huge moves in cyclical commodities such as coal, lithium, and copper. Uranium is another one that can be added to the list, although it’s a touch less tangible in Australia. We obviously cannot touch the stuff, and there is no nuclear power on our shores. US President Joe Biden has just signed the bill to ban the import of Russian-sourced enriched uranium into the US. We remain very bullish on the outlook for uranium in the next few years, seeing no hurdles to the upside, although Donald Trump may reverse this particular bill if he wins in November's US election. We could easily see uranium another 50% higher in the coming years.
US short-term bond yields tested multi-week lows overnight following the cooling US CPI, but they are still nowhere near as dovish as they were back in January/February. Last night's numbers were undoubtedly encouraging, but more proof will be required for credit markets and, most importantly, the Fed to conclude that inflation’s contained. Bond markets are often thought to be smarter than equities, as they are significantly larger, and at the moment, they are saying stocks are getting a touch overly optimistic. We believe stocks will ultimately be proved correct, but we must remain cognisant that any deterioration in the interest rate picture could easily see stocks pull back to their April lows.
Overnight, Jim Chalmers delivered his pre-election budget, and not surprisingly, he “splashed the cash.” The government has committed to increasing net spending by over $24bn over the next four years; the Treasurer believes his budget will cut inflation by 0.5% next FY, but financial markets were not convinced. The deficit was forecast to be around $18bn in December; already, 6-months later, the figures jumped by a whopping +55%, while the forecasted 2025 deficit is more than double economists' previous estimates - why bother!
Overnight, we heard that the BHP v Anglo-American story had entered and finished Chapter II, and the saga could potentially have taken its final twist:
BHP increased its bid for Anglo-American (AAL LN), which would have given AAL shareholders 16.6% of the new group, up from 14.8%.
According to BHP, the revised bid of 0.8132 BHP shares, up from 0.7097, for each AAL share values the London-based miner at £27.53 – a 14.6% increase to bid 1.
The second more attractive bid by BHP was rejected by the AAL board overnight.
The UK miner now needs to deliver a compelling vision of how it can survive and flourish independently without merging with the “Big Australian.” The synergies were undoubtedly there, although it wasn’t the cleanest deal in town, but AAL don't appear keen to tango. The deal was offered to the AAL board last week and formally rejected overnight.
April witnessed a bearish move by bonds and equities, driven by escalating interest rate fears as “sticky inflation” became a regularly used catchphrase across financial markets. Conversely, so far in May, we’ve witnessed a complete reversion in the market's thinking/pricing for the future path of interest rates after both the Fed and RBA left rates on hold and delivered less hawkish rhetoric than many feared. Also, for good measure, markets embraced the recent “goldilocks” US employment data, which was a miss on job creation, while monthly wage growth slipped 0.2% from March; the latter was the number that caught most people's attention.
The Utilities Sector is not large, making up only 2% of the ASX200 by market cap. However, the sector is up +9.5% in 2024, compared to the ASX200, which has only advanced +1.7%, making it the second best-performing sector behind tech on the main board. With a market concerned about valuations and interest rates poised to fall through 2024/5, defensive plays with solid, reliable yields are likely to maintain their recent solid performance.
For more than a decade, Australian fund managers have leapt from one calamity to the next, creating an absolute minefield for Australian investors. A quick look at the charts of Janus Henderson (JHG), Platinum (PTM), and AMP (AMP) tells a clear, painful tale of wealth destruction. Now Perpetual (PPT) has joined the fray, with its share price basically halving over the last few years against a backdrop of a broader market making new all-time highs.
Earnings undoubtedly drive share prices over the medium/long term, but when it comes to sharp short-term swings in overall market valuations/sentiment, there's nothing like monetary policy to dictate terms for stocks, with the RBA front and centre yesterday. The correlation between the local index and 3-year bonds has been extremely close over the last year, which is the major reason MM keeps a close eye on credit markets. The RBA left interest rates unchanged on Wednesday at 4.35%, while they indicated rates would need to “stay higher for longer” to rein in sticky inflation; importantly, there was little suggestion that rates would again start to rise as many had feared. The main pressure on inflation is coming from the strong jobs market, as well as higher petrol prices, which has a knock-on effect throughout the economy – the latter is frustrating when we consider crude oil has fallen 5% in 2024.
A surging copper price and the market belief that the industrial metal will be in short supply in the years ahead as we move towards a carbon-neutral world were the catalysts for BHP’s purchase of OZ Minerals (OZL) last year and bid for Anglo-American (AAL LN) last month. In our opinion, there's plenty more corporate activity likely in the copper space over the coming years, with the industrial metal remaining a core bullish view for MM. As we’ve said from the start, we would find it highly unlikely that BHP would approach this transaction with a one and done mentality and a second or even third bid would be likely. The AFR is running with a story this morning that both Argo Investments and Wilson Asset Management have said they are satisfied that value would be created by combining BHP and Anglo American’s copper and coal assets, this sort of PR can often be used as a way of preparing or softening the market for when the higher bid does come, which we think is inevitable.
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