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Episode details

Roland Houghton
Good Morning, its Monday the 5th of December and I’m Roland from Milford.

The key economic news.

Domestically was the Australian inflation print for October which saw annual inflation slow to 6.9% from 7.3% in September. This was also significantly softer than the 7.4% expected.
Now this metric is new and has many nuances. For example, only about half of the basket of goods and services is actually collected for this monthly data point. The 48% which isn’t collected is assigned a 0% price change, hence true inflation could be higher or lower than implied by this incomplete print.
Nonetheless, it does support the argument that inflation could be peaking.
Breaking it down, fruit and vegetables were cheaper however this will reverse given the floods; new dwellings were softer than anticipated but doesn’t include apartments; holiday travel was also quite soft but this is due to the cessation of holiday pricing so you’d expect this to increase in coming months.
Turning to the US, the Personal Consumption Expenditure index was released for the month of October which is the Feds preferred measure of inflation.
This too exhibited signs of slowing inflation with core monthly PCE inflation of 0.2% vs 0.3% expected and 0.5% in the prior month.
Powell in a speech did however highlight that the US was far from price stability and that it will take substantially more evidence to provide comfort that inflation is actually declining.
The US ISM manufacturing PMI was released and came in at 49 vs 49.6 expected. A reading below 50 implies manufacturing activity is contracting and above 50 implies expansion. This is the first contraction since May-2020.
Breaking this down, new orders went deeper into contractionary territory, production expanded but at a slower pace, employment fell into contractionary territory and delivery times improved m/m.
Non farm payrolls were also released in the US and came in very strong at 263k vs 200k expected and 284k in the month earlier.
The unemployment rate came in at 3.7% and avg. hourly earnings increased a significant 0.6% m/m vs 0.3% expected. This implies wage inflation is running at 7.2% which is uncomfortably high.
Turning to equity news,

Domino’s pizza raised $150m at a tight 2% discount to fund the acquisition of their remaining interest in Dominos Germany plus pay down some debt.
The acquisition of the remaining stake in dominos Germany was forced on the group given the previous owner had a put option.
Collins Food, the operator of KFCs in certain Australian states and some European countries reported their 1H result with strong same store sales being more than offset by margin compression from higher operating costs.
The company fell 20% on the day of its result.
Smartpay, a dual listed NZ and Australian company reported a very strong set of results with Revenue +68%, GP +67% and EBITDA +119% over the prior year.
Fisher and Paykel Healthcare reported their first half result beating analyst expectations by a few percent.
The stock rallied strongly on the back of the result +10% on the day and +16% for the week.
This was not only due to the better than expected result, but also due to comments that their end customers are working through the big build up in inventory accumulated during covid, which bodes well for sales in their consumables division.
Gentrack, another New Zealand business reported a very strong result with the company upgrading their medium term revenue targets. They now expect to generate $150m in sales in FY24, up from $130m.

Looking to the week ahead

Domestically the RBA is expected to release their interest rate decision with the market expecting them to raise interest rates by 25bps to 3.1%.
Australian 3rd quarter GDP data will be released with annual GDP growth of 6.3% expected. It’s important to note the prior period was impacted by lockdowns so the 0.7% q/q growth rate expected is more relevant.
In the US, the ISM services PMI is to be released which will give us a sense of how the services sector in the US is performing.
Also in the US is the producer price index data which measures the change in price producers receive for their output and is generally a leader indicator for CPI – it is expected to come in at 0.2% m/m.

Thanks for listening, we’ll see you next week.

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