News Analysis: RBA holds rates, warns of Trump tariff risks; NAB profit dips

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

This week's highlights include:

-Inflation risks keep rate cuts on hold: RBA governor Michele Bullock’s warning on excessive government spending sends a clear message: rate cuts will be on hold if inflation risks persist. This coupled with Donald Trump's inflationary tariffs and a cautious Fed easing cycle, means the RBA must remain vigilant and prioritise inflation control to maintain its credibility.

ECONOMY

Interest rates are set to remain higher for longer, driven by inflation pressures and a tight labour market.

News highlights

The RBA kept rates unchanged at 4.35%. Governor Michele Bullock highlighted strong employment and government spending as key reasons for delaying cutting rates.

• Takeaway: The RBA's stance on interest rates remains hawkish, with rate cuts likely to be delayed until at least May.
  
  

Australia’s economy may face weaker growth and prolonged high interest rates due to Donald Trump’s inflationary policies, including plans to tax imports and increase tariffs on China. Treasury officials warn that these changes could harm trade and reduce Australia’s export demand.

• Takeaway: Prepare for prolonged inflation and continued high interest rates, as Trump’s policies may impact Australian exports. Trade tensions, especially with China, could disrupt global trade.

The Federal Reserve cut interest rates by 0.25% to 4.50%-4.75%, citing easing job market conditions and progress toward its 2% inflation target. US economic activity continues to expand at a solid pace, with the downside risks to the economy diminishing.

• Takeaway: The Federal Reserve's 25 basis point rate cut reflects their cautious approach. While inflation has improved, it remains elevated, and the Fed is closely monitoring labour market conditions, signalling a gradual, data-dependent rate cut strategy.
  
  

CORPORATE NEWS

Trump 2.0 could be good news for the miners with support expected for the nuclear and critical minerals sectors.

News highlights

Shares in Trilogy Metals surged over 108% following Donald Trump’s election win as investors expect his presidency will lead to the easing of regulatory hurdles for their Alaskan critical minerals project with South32.

ANZ's profit fell to $6.7 billion, impacted by competitive lending and rising loan arrears. Growth from ANZ Plus and synergies from the Suncorp acquisition helped offset margin declines, while mortgage and deposit volumes rose by 7%.

• Takeaway: ANZ’s strategy of expanding through Suncorp and its digital platform, ANZ Plus, positions it for future growth. Despite margin pressures, cost efficiencies and strong deposit growth could support long-term profitability.

NAB reported an 8% decline in annual cash profit to $7.1 billion driven by a fall in consumer banking profits. Despite rising arrears and margin compression, the bank saw strong business credit growth. It raised its final dividend by 1¢ to 85¢ per share.

• Takeaway: Rising arrears and slower growth could lead to earnings downgrades. But the bank remains well-capitalised, which could help mitigate risk in the long term.

Hesta has added Mineral Resources to a watchlist over governance issues, CEO exit concerns, and large bonuses. ASIC is investigating the company’s financial practices, while proxy advisers are calling for board changes and closer scrutiny from shareholders.

• Takeaway: Mineral Resources faces heightened risks due to governance issues. The company’s board is under pressure, and investors should monitor potential leadership changes and shareholder resolutions, as these could impact the company’s performance and stock value.

Sigma Healthcare shares surged 35% after the Australian Competition & Consumer Commission approved its $25bn merger with Chemist Warehouse. The deal includes concessions for pharmacy franchisees who may want to exit the brand, aiming to enhance competition and innovation.

• Takeaway: The merger between Sigma Healthcare and Chemist Warehouse offers significant growth potential, combining retail and wholesale strengths. With regulatory approval and franchisee safeguards in place, the deal promises enhanced stability.

News Corp’s first-quarter revenue rose 3% to $US2.58bn, driven by growth in digital real estate, book publishing, and Dow Jones. Profit margins improved as reliance on advertising decreased. REA Group achieved record revenues of $US318m, a 22% increase.

• Takeaway: News Corp's strong earnings and improved margins highlight resilience, but concerns over AI misuse and advertising challenges remain. The company's strategic focus on protecting intellectual property and reducing reliance on advertising positions it for long-term stability and growth.
  
  

Until next time...