Weekly Australia Market Wrap for the Week-Ended 3 November 2023

US and Australian equity markets hit a ‘technical correction’ last week – where markets fall 10% from their peak – before rebounding very strongly on the back of several key factors. Firstly, there was speculation that the Fed and indeed a number of key central banks have finished raising interest rates. The Fed and the Bank of England kept rates on hold last week whilst the RBA will meet on the Melbourne Cup day, Tuesday 5

November, for a line ball decision on whether to raise rates.

Secondly, the fighting in Israel and Gaza seems broadly contained and has not as yet spread widely to the region. This in particular saw oil prices drop sharply by 5.88% to $80.51 a barrel, below where they were when Hamas attacked Israel on October 7.

Thirdly, reporting season in the US showed some strong earnings data along with softer US payroll numbers. November is traditionally the strongest month for US equities, presumably because the ‘sell in May and go away’ crowd are back from holidays!

The Dow climbed 5.07% for the week, the S&P 500 lifted 5.85% and the Nasdaq rose 4.41%. In Australia the S&P/ASX200 rose 2.22% and the All Ordinaries Index rose 2.29%. Eurozone shares lifted 4.30%, Japan’s Nikkei gained 4.41%, Hong Kong rose 1.53% and China gained 0.43%.

The RBA faces a key moment on Cup day with many commentators believing the RBA should lift rates on the back of a higher than expected underlying inflation number for the September quarter. CBA analysts suggested a rate rise was “80% certain” but regardless the pressure will be on new Governor Michele Bullock who has stated the RBA has a “low tolerance” for a slower fall in inflation and “will not hesitate to raise the cash rate further if there a material upward revision to the outlook”. The Treasurer, Jim Chalmers, has not so subtly suggested the ‘material’ bar has not been reached so any equivocating from the RBA might see the market suggesting the RBA has ‘lost its independence’. With rising immigration levels and large increases in energy prices, groceries, petrol and house costs the RBA has very little room to manoeuvre.

The best performing sector last week was the interest rate sensitive Real Estate sector. It rose 6.77% with Stockland (+4.78%), Scentre (+6.61%), GPT (+8.06%) and Dexus (+6.66%) the stand outs.

The battered Health Care sector was the next best performer rising 4.03%. Heavyweight CSL rose 4.23%, Ramsay gained 3.38%, Resmed jumped 6.09% and Cochlear rose 2.09%.

The IT sector gained 3.68% with Block Inc rising 21.11% after the company boosted projections for adjusted profit in 2024 and reported a strong US 3rd quarter. Xero gained 7.43%, Nextdc rose 5.24% and Megaport continued its volatile run rising 6.62%. Bravura Solutions rose 24.64% after giving a positive market update.

Consumer stocks has a very positive week with markets believing we are near the end of rate rises and consumers will begin again to open their pockets. Retail sales numbers for the September quarter were 0.2% higher but the nominal rise for the month of September alone was 0.9%. Homewares retailer Adairs gained 21.67%, Temple & Webster jumped 20.15% and Kogan lifted 12.09%. High end online retailer Cettire surged over 14%.

The battle to takeover Origin Energy intensified last week with suitors Brookfield and EIG raising their bid for the company to $9.53 per share after shareholder pressure. The offer was said to be their final offer but Origin’s largest shareholder, Australian Super, has rejected the number suggesting it wouldn’t entertain any price below $10.

Treasury Wine Estate shares were hammered during the week as the company announced the $1.6 billion purchase of a high-end US wine business, Daou Vineyards. The market is not convinced that a US strategy is the right one and the stock fell 8.72% as investors mulled over a large capital raising and additional debt.

Coal stocks took a pounding last week as the price of coal fell 13.04%. New Hope dropped 10.10%, Yancoal fell 5.80% and Whitehaven shed 7.38% as one of its key shareholders sold a large block of stock. The seller was not happy that Whitehaven was buying two metallurgical coal mines from BHP and Mitsubishi.

Embattled Qantas shares rose unexpectedly as the company AGM saw angry investors lodge an 80% strike over its remuneration policy. Qantas shares were up 8.82% on the week.

This coming week we will be watching the RBA rate decision (Tues), Chinese Trade Data (Tues) and Chinese Inflation (Thurs).