News analysis: RBA holds rates; Australia proposes 'News' tax; DigiCo REIT debuts

Welcome to the essential investor brief, featuring handpicked news for the week ending 13th December 2024.

This week's highlights include:

-RBA's rate cut dilemma: The resilient labour market, particularly driven by public sector job growth and migration, remains a key concern for the RBA. Despite the softening economy, the low unemployment rate and rising wages, particularly in non-market sectors, suggest that inflationary pressures are likely to persist, limiting the scope for significant rate reductions.

ECONOMY & FINANCE

The RBA may delay rate cuts until mid-2025, balancing economic slowdown with inflation control.

News highlights

The Reserve Bank of Australia kept the cash rate at 4.35%, with Governor Michele Bullock more confident that inflation will reach the 2-3% target. The RBA noted how weak economic growth has been, and said that future rate decisions would depend on upcoming data.

• Takeaway: Despite economic softness, inflation is moderating, which could lead to possible shifts in policy direction. However, high core inflation remains a concern which creates uncertainty around future RBA decisions as they continue to monitor data for clearer trends.

Australia’s unemployment rate dropped to 3.9% in November, the lowest since March. Full-time employment rose by 52,600, while part-time jobs decreased by 17,000, reflecting continued labour market strength despite slowing private sector hiring.

• Takeaway: The labour market remains robust reducing the likelihood of an early rate cut.
  
  

US consumer prices rose 0.3% in November, bringing the annual rate to 2.7%. Core CPI also increased 0.3%, holding steady at 3.3% for the year, driven by higher costs in services like medical care, recreation, and personal care.

• Takeaway: Slower rate cuts are expected because inflation, though moderating, remains above the Federal Reserve's 2% target, especially in core services.

AMP has invested $27 million in bitcoin as part of a diversification strategy, becoming the first major super fund to do so. Other large funds, like AustralianSuper and MLC, have no plans to follow, citing concerns over crypto's volatility and lack of yield.

• Takeaway: AMP's bitcoin investment reflects a shift towards considering crypto in portfolios, but investors should ensure it aligns with their risk tolerance and long-term investment strategy.
  
  

CORPORATE NEWS

Big tech companies like Meta and Google are under growing regulatory pressure as governments seek to address their influence on the media and society.

News highlights

Tech giants like Meta and Google could face penalties if they fail to strike content deals with Australian news publishers under a new Labor plan. The policy aims to force social media platforms to negotiate with media outlets or face financial consequences, especially after Meta’s refusal to renegotiate deals.

• Takeaway: Not just in Australia, Big Tech is facing a wave of new regulations and lawsuits worldwide. The potential penalties for tech giants like Meta and Google could influence their stock performance and market strategies.

DigiCo Infrastructure REIT debuted on the ASX with a $2 billion IPO, priced at $5 per share. The data centre landlord holds a $4 billion portfolio across Australia and the US.

• Takeaway: DigiCo Infrastructure REIT offers exposure to the booming data centre sector, fuelled by AI and cloud computing growth. While the IPO generated strong demand, Morningstar's lower valuation suggests potential overpricing.
  
  

Rio Tinto has approved a $US2.5 billion investment to expand the Rincon lithium project in Argentina, its first commercial-scale lithium operation. The expansion aims to boost production to 60,000 tonnes of battery-grade lithium annually, with construction starting in mid-2025.

• Takeaway: Despite the current lithium slump, Rio Tinto’s $2.5bn investment in the Rincon project highlights confidence in long-term lithium demand. The move aligns with Argentina's favourable policies and Rio's broader strategy to diversify beyond iron ore, positioning it for a key role in global lithium production.

Shaw and Partners has forecasted a strong rebound for small-cap stocks in 2025, driven by falling interest rates. The firm highlighted small caps' better diversification and growth potential, with a 16.2x P/E ratio, lower than large caps' 17.9. Their top picks include Amaero International, Australian Vanadium, and Metro Mining.

• Takeaway: With falling borrowing costs and improving market conditions, small caps could offer investors diversification, growth potential, and attractive valuations, creating opportunities to outperform large caps.

Coffee prices hit record highs as Brazil's adverse weather pushed arabica futures to $3.48 per pound. Production forecasts were cut by 25%, causing a global supply deficit. Robusta prices also nearly doubled this year.

• Takeaway: Soaring coffee prices could benefit coffee machine Breville. The stock is up almost 20 per cent over the past month.

This concludes the final weekly news report for 2024, covering key developments in the economy, corporate news, and market trends. Stay tuned for more updates in 2025. Thank you for reading.

Until next time...