22 MAY 2023 – Monday Market Highlights – Transcript

Roland Houghton
Good morning, its Monday the 22nd of May, and I’m Roland from Milford.

In Australia, the quarterly wage price index was released, with wages coming in softer at 0.8% q/q vs 0.9% expected.
Public wages grew at a faster rate than private wages, increasing 0.9% q/q or 1.1% if you include bonuses. It is quite unusual for bonuses to have such an influence on public wage growth.
Real wages remain very weak at -0.5% q/q and -3.1% y/y.
The slightly weaker print could be explained by EBAs accounting for half of wages set in the March quarter, vs 33% in the March quarter of last year. Generally EBAs have lower annual increases.
Interestingly, those private individuals who did in fact get a pay rise saw a 4.3% increase.
So some strengths and weaknesses in this release and its important to note this is from March and we are halfway through mat but generally speaking it was slightly soter than expected.
Also in Australia employment data was released. This too was weaker than anticipated.
Total employed persons fell 4k m/m compared to +25k expected.
Given the participation rate was flat, the unemployment rate increased to 3.7% from 3.5% expected.
Despite lower total employment and a plethora of holidays in April, hours worked actually increased m/m. In addition, the underemployment rate fell.
Therefore this was a strange data release with conflicting signals but nonetheless was weaker than expected.
One thing we are closely following is the total working age population – this should capture the significant increase foreign workers entering Australia. This has continued to grow strongly, increasing 2.7% y/y.
This data did feed into the RBA pause narrative however
One data read is not a trend so we caution against extrapolating this weakening economic data…
In the US, the focus remains on the debt ceiling and a potential resolution given the concerns around a potential US default should it not be raised.
On Thursday evening, a deal was apparently getting closer which saw equity markets rally.
However on the Friday, negotiations had apparently stalled which saw equity markets sell off.
Often the debt ceiling negotiations come down to the wire but everytime a deal has been struck.
US retail sales data was also released, coming in well below expectations at +0.4% m/m vs 0.8% expected. However, retail sales ex Auto was inline at 0.4%.
Rounding out the US was JOLTS data.

Aristocrat had a big week acquiring neoGames on Tuesday and announcing their half year results on Thursday.
On the acquisition, this was acquired for $1.8b which represented a 15x EBITDA multiple and actually was over a 100% premium to neogames share price.
It gives ALL much needed iGaming capabilities but also brings the leading iLottery platform in the US.
It is expected to be accretive in the first full year of wonerhsip.
On the result, it was ahead of market expectations but was of a lower quality than hoped.
The beat was driven by a strong Americas land based result, but lower interest and a better currency drove a chunk of it which the market didn’t like.
The digital business also continues to adjust post covid with digital ioperating profit down 15% y/y as margins also compressed.
There were a number of other positives however inlcuyding an expectation of improving 2H margins, a reiteration of guidance and new gearing target which implies more buybacks in the future.
XRO released their full year results and although revenue came inline with expectations, FCF and EBITDA were well ahead as they focus on balancing profitability with growth.
The annualised monthly recurring revenue metric also implied some good revenue upgrades for the up and coming financial year.
XRO rallied 9% on the day of the result and 5% the day after.
Life360 reported their first quarter results which were very strong with the business tracking ahead of full year guidance only 1Q into the financial year.
They put prices up significantly for Apple devices but despite this, subscriber growth returned implying their consumers have adjusted to the new prices.
They’re looking to put similar price rises through for all Android user this quarter which may see a bit more churn.
Operating cash flow and EBITDA continues to improve but is admittedly being helped by heightened share based payments.
360 rallied 12% on the day ending up 21% for the week.
Finally James Hardie released their full year results which was inline with guidance and better than feared.
They released 1Q guidance which was also ahead of expectations if you were to annualise it. They didn’t provide full year guidance however which is unusual but understandable given how volatile market conditions are.
They did expect most of their end markets to be down mid to high teen percentages though.

Looking to the week ahead.

The market will continue to monitor any and all rumours around the debt ceiling as investors hope for a resolution asap. We continue to approach the first period of stress which is the first week of June where some tax inflows are expected – if they disappoint it would bring forward the default date.
The RBNZ will release their interest rate decision this week with the market expecting another 25bp hike. This would take the official NZ cash rate to 5.5% vs aussies at 3.85%.
In the US, April PCE data is to be released with the market expecting it to grow 0.3% m/m. Remember this is the feds preferred inflation measure.
We also get a swath of PMI data this week, across the US, Japan and Australia. This gives a good sense of forward domestic consumption and is a good barometer for how an economy is expanding or contracting.

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