News Analysis: Underlying inflation rises; CBA’s big AI bet; ETFs hit record high

Welcome to the essential investor brief, featuring handpicked news for the week ending 29th November 2024.

This week's highlights include:

-Rising inflation keeps rate pressure high: High interest rates are here to stay, as the RBA prioritises sustained inflation control over quick relief. With underlying inflation stubbornly high and mounting cost pressures, particularly in housing and services, the RBA will require clear, ongoing progress before considering any rate cuts. This slow recovery highlights a challenging local economic landscape that could persist well into 2025.

ECONOMY & FINANCE

Hopes for an early rate cut fade as core inflation is likely to remain sticky.

News highlights

Trimmed mean inflation rose to 3.5% in October, indicating persistent price pressures. Headline inflation remained steady at 2.1% but is projected to rebound to 3.7% next year as the government energy rebates expire.

• Takeaway: Underlying inflation remains above the RBA's target, making interest rate cuts unlikely in the short term.
  
  

National Australia Bank has warned that a global trade war under President-elect Donald Trump could drive the Australian dollar below US60¢, especially if China weakens its currency in response to tariffs.

• Takeaway: A potential drop in the Australian dollar could impact returns on foreign investments, reduce export profits, and increase costs for imports. However, higher interest rates in Australia may offer some cushion.

CBA is leveraging AI to resolve daily payment disputes and enhance its services. With over 50 AI applications planned, including fraud detection and faster small business loan approvals, the bank is investing heavily in AI to boost efficiency.

• Takeaway: With a $1 billion annual tech budget, Commonwealth Bank is making significant investments to enhance operational efficiency, which could drive long-term growth.

Australia’s ETF industry is on track for a record-breaking year, with $23.7bn of inflows, surpassing 2021’s previous record. Low fees and strong performance are driving investor demand, especially among younger generations.

• Takeaway: Despite strong growth, ETFs still make up just 4% of the managed funds industry in Australia. This indicates significant potential for further growth.
  
  

CORPORATE NEWS

Stabilising borrowing and building costs point to a potential pick-up in housing and engineering construction.

News highlights

Housing construction rose 1.8% in Q3 2024, reaching a three-year high, according to the Australian Bureau of Statistics. While the residential and engineering sectors saw growth, non-residential construction declined.

• Takeaway: The residential sector shows potential for growth, but labour shortages may limit short-term expansion.

Insurance Australia Group will acquire 90% of RACQ’s insurance business for $855 million, adding $1.3bn in premiums. IAG may also acquire the remaining 10% after two years, pending approval from the Australian Competition & Consumer Commission.

• Takeaway: The deal expands IAG's market presence, particularly in Queensland, boosting its earnings and long-term growth potential. 
  
  

The AUKUS nuclear submarines project will drive a $35–40 billion boom in real estate around Port Adelaide and south-west Perth. Demand for warehouses, offices, retail, and residential units is expected to grow, supporting the construction and operation of the submarines.

• Takeaway: The project could create substantial real estate opportunities and drive economic growth in the surrounding regions, attracting investors and spurring development.

HMC Capital is set to report a 90% surge in operating earnings this financial year, driven by fees from a $4 billion data centre portfolio float and strong performance from its private equity fund. The company aims to grow its assets to $50 billion over the next 3-5 years.

• Takeaway: HMC Capital's strong earnings growth signals the potential for continued value creation, offering opportunities in high-growth sectors and diversification across alternative assets.

HaemaLogiX, a biotech company focused on blood cancer treatments, is preparing for an ASX listing in 2025. The company aims to raise $15–20 million for clinical trials, targeting the $31.5 billion myeloma market by 2028.

• Takeaway: HaemaLogiX's upcoming IPO offers investors exposure to the growing multiple myeloma market. The company’s innovative immunotherapy drugs show promise, but risks remain in its clinical trials and regulatory approvals.

Australia has passed a world-first law banning children under 16 from using social media platforms like Facebook and TikTok. The ban faces criticism from privacy advocates and tech companies.

• Takeaway: Australia’s social media ban positions the country as a test case for global regulations. While public support is high, concerns over implementation and potential impacts on tech giants like Meta and Snap could affect the market dynamics.
  
  

Until next time...