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Good morning, it’s Monday 28th August and I’m Brendan from Milford Asset Management.

Last week gave us plenty to think about, with the key events of the week being the Jackson Hole Economic Symposium, a raft of global PMI data, and ongoing reporting season in both Australia and New Zealand.

Late in the week the Markets focus was on Fed Chair Powell’s speech at the Jackson Hole Economic Symposium to try and get a sense of the path of future policy. Ultimately what was delivered was a balanced assessment of the economy, highlighting that while economic data has been stronger than expected and this may require further tightening, the Committee are also very cognizant of the long and variable lags of monetary policy. The overarching theme of the speech was patience, and that the committee would be very focused on incoming data to assess the appropriate policy response.
Given the Feds data dependence, the PMI release last week was looked at closely. The composite level fell to 50.4 from 52, suggestive of a stagnating but not yet contractionary economy. Manufacturing and services both declined, with the services decline being more concerning given this part of the economy had been most resilient in recent months. In terms of forward looking indicators, the key details around new orders, output and employment have all weakened of late.
PMI data was also released for other regions last week, with notable weakness in Europe and the UK. The euro area composite fell 1.6pts to 47, consistent with zero GDP growth in August. The 2.6pt decline in services PMI to 48.3 is material and could suggest increasing domestic weakness. The ECB has alluded to concerns around slowing growth, hence this poor print may mean they delay hiking until October to assess further data.
PMI weakness also extended to the United Kingdom, with the composite reading falling to contractionary territory at 47.9 from 50.8 in July. The composite has now fallen 7 points in the past four months, so the momentum at which growth signals are deteriorating is concerning. This leaves the Bank of England in a difficult situation, as wage growth and services inflation remains very high, but high rates are beginning to have an influence on economic performance.
As alluded to, last week was another busy week of company earnings in Australia and New Zealand.

Iress reported their first half results, outlining significant input cost pressures which ultimately resulted in a 19% downgrade to prior guidance for full year earnings. The business is undergoing a transition with new management, but after already downgrading at their strategy day in April by 8%, the magnitude of this further downgrade outlines the limited visibility management have on earnings. The stock fell over 30% on the day of the result.
IDP education reported a solid FY23 result and outlined revenue growth continues to exceed cost growth. They also flagged strong growth in student placement volumes through International English language testing system volume growth, and price rises of 3-5% which should continue to underpin revenue growth. The stock rallied 9.5% on the day of the result, and finished the week as the 3rd best performer on the ASX 200 up 15%.
Coles disappointed the market with their FY23 result, reporting net profit after tax 6% below the market despite sales beating by 1%. The poor result was driven by the Supermarket division, with second half EBIT down 6% despite a strong top line performance. The weak bottom line was the result of a 10% increase in the cost of doing business, as well as an increase in theft.
EBOS reported another strong result, with EPS up 15% for the full year. Healthcare EBITDA was up 33% with strong contributions across segments, and animal care EBITDA was up 24%. Within the result there were some signs of slowing, with Animal care revenue growing 1% in the second half of 2023 versus the second half of 2022, and community pharmacy revenue declined 4% sequentially. Inflationary pressures also continue to persists, however management believe they can continue to offset this by volume gains and acquisitions.
Auckland airport reported a reasonable FY23 result, with underlying NPAT of $151m versus guidance of $125-$145m. They key information within the result was the outlook for capex, with $6.6b earmarked for aeronautical upgrades between FY23 and FY32. Given the lift in investment, Auckland airport are also looking at increasing its aeronautical charges, but given the material difference between Auckland airports target return and the commerce commissions, its likely Auckland airport revisit this.
Precinct properties delivered a solid FY23 result, with demand for super-prime office continuing to result in strong rental growth, outlined by 15% releasing spreads. Higher rates are weighing on property companies, with Precinct’s capitalization rate expanding by 69 basis points, resulting in a 7% decline in property value. Despite work-from-home themes resulting in lower office demand offshore, this does not seem to be the case in new Zealand, particularly in the high grade space where occupier demand remains strong and vacancy in prime grade remains very low.
In the week ahead

We will continue with the last major week of reporting in Australia and New Zealand, where we continue to look for themes from companies to inform our investing decisions.
In economic data, we will be looking at retail sales in Australia to assess whether recent weakness continues. Non-farm payrolls are the major data release out of the US this week, and this will be closely watched by the market for any signs of softening in the labour market. We will also be watching US GDP given the recent strength in economic data, as well as PCE data for a read on the recent trends in inflation.
Thanks for listening, we will see you again next week.

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