News Analysis: Inflation eases; Hancock, MinRes in $1.1bn gas deal; Alphabet's earnings beat

Welcome to the essential investor brief, featuring handpicked news for the week ending 1st November 2024.

This week's highlights include:

-Mixed signals in inflation data: The good news is headline inflation now within the RBA’s target range. But persistent price hikes in essentials like rent and insurance add a layer of complexity. Combined with a strong job market, it’s clear that inflation pressures aren’t fully under control just yet. If anything, the data puts to rest any lingering fears of further rate hikes—but that’s about it.

ECONOMY

Headline inflation falls, but core inflation remains sticky, reducing rate cut expectations in the near term.

News highlights

Annual inflation fell to 2.8% in the September quarter, the lowest since March 2021, due to lower energy prices and high interest rates. The trimmed mean inflation declined to 3.5% from 4% in June.

• Takeaway: Persistent core inflation and rising costs in essential services suggest it's premature to expect interest rate cuts from the RBA anytime soon.
  
  

The US Federal Reserve's core inflation gauge increased by 0.3% in September, marking its biggest monthly rise since April, indicating ongoing price pressures. Overall inflation fell to 2.1%, just above the Fed's target range.

• Takeaway: The uptick in core prices supports a cautious approach to further Fed interest rate cuts after September's outsized cut. Additional increases may challenge the rationale for further easing of monetary policy.
  
  

CORPORATE NEWS

Alphabet's costly investment in artificial intelligence is starting to pay off.

News highlights

Alphabet's third-quarter earnings exceeded expectations, with a 35% surge in cloud revenue and increased YouTube ad sales due to election spending. Capital expenditure rose 62% to $US13 billion as the company continued to invest heavily in AI.

• Takeaway: Alphabet's stronger-than-expected earnings highlight robust digital ad revenue and cloud demand, fuelled by AI initiatives. It's essential to monitor how the company navigates competition and legal challenges while leveraging AI to strengthen its core search business.
  
  

Gina Rinehart's Hancock Prospecting has become a major gas player in Western Australia, acquiring two onshore gas projects for $1.1 billion from Mineral Resources. It reported a $5.6 billion profit, largely from iron ore shipments.

• Takeaway: Hancock Prospecting's acquisition of gas projects strengthens its position in Western Australia's gas market, diversifying its portfolio beyond iron ore. The move could unlock new revenue streams.

Mineral Resources will cut 570 jobs and slow construction at its Mount Marion lithium project to address its debt-laden balance sheet. This follows the $1.1 billion sale of gas assets to Gina Rinehart.

• Takeaway: Mineral Resources' job cuts reflect the company's struggle with a heavy debt load. While the asset sale to Hancock Prospecting enhances liquidity, it underscores broader concerns about the company's financial stability and governance challenges.

Macquarie Group reported a first half profit of $1.61 billion, falling short of expectations of $1.7 billion due to weaker commodities income. It declared a $2.60 interim dividend and extended its $2 billion on-market share buyback program.

• Takeaway: Macquarie Group’s latest profit report was mixed with strong results in asset management but weaker-than-expected commodities income. Potential declines in its full-year profit estimates due to higher taxes add to the uncertainty.

Coles reported a 3.5% increase in sales for the three months ending in September, primarily due to strong demand for its home brands. Revenues from its liquor division, including Liquorland and First Choice Liquor, remained flat at $851 million.

• Takeaway: Coles' shift towards fewer but deeper discounts on essential items and an emphasis on its home brands indicates a strategic response to changing consumer behaviour amid economic pressures. The approach aims to grow sales and market share against competitors.

Apple reported record quarterly revenues of $US94.9 billion, up 6% year-on-year, driven by strong iPhone sales of $US46.2 billion. It also launched its AI platform, Apple Intelligence, which is currently available only for English speakers in the US.

• Takeaway: Despite Apple reporting record revenues, investor confidence remains shaky due to concerns about the company lagging behind AI competitors like Google and Microsoft. The limited rollout of its new AI platform, Apple Intelligence, may hinder immediate growth potential.

Woolworths anticipates earnings between $1.48 billion and $1.53 billion for the six months ending December 31, down from $1.59 billion last year. Average prices fell 0.3%, with rising home brand sales highlighting increased demand for discounts in the face of financial pressures.

• Takeaway: Woolworths’ lowered earnings forecast and increased discounting indicate potential margin pressures ahead. The shift towards cheaper products may impact profitability while rising competition from other retailers could affect its market share.
  
  

Until next time...