News Analysis: US inflation falls, Nine CEO exits, office values drop

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

This week's highlights include:

-Inflationary pressures persist in the US: Despite easing US inflation, costs for key categories like housing and services remain sticky. This makes it challenging for the Federal Reserve to implement aggressive rate cuts.

ECONOMY & MARKETS

Easing US inflation fuels hopes for a Fed rate cut next week.

News highlights

US inflation eased to 2.5% in August, down from 2.9%, marking the fifth consecutive drop. However, core inflation was higher than expected, rising 0.3% in August to 3.2%.

• Takeaway: The higher core inflation suggests inflation pressures are continuing, particularly in services. This could lead the Fed to adopt a more cautious approach to rate cuts, likely opting for a smaller reduction.

Fears of slowing growth in the US and China have shaken commodity markets, with iron ore dropping below $US 90 a tonne. Copper is also in a bear market, down 20% from its May peak.

• Takeaway: The bearish trends in commodity-related assets will likely continue due to weak Chinese demand and a global slowdown, while gold remains a strong hedge against uncertainty.
  
  

Australian bank hybrid securities are surging in price as APRA plans to phase them out by 2032. The move has sparked increased investor demand, despite concerns about higher risks and future impacts on tier 2 bonds.

• Takeaway: The scarcity of bank hybrids could boost their short-term value due to minimal extension risk. Additionally, the shift may lead to more attractive margins for tier 2 bonds, which have already seen wider spreads following APRA’s announcement.

Office tower values in Australia’s CBDs have fallen 22%, surpassing declines seen during the global financial crisis. Decreased tenant demand and increased flexible working are driving the drop, with analysts predicting further declines.

• Takeaway: The sector remains under pressure with potential for more downsides. While markets like Sydney show some recovery signs, high financing costs are limiting growth prospects.
  
  

Vladimir Putin proposed limiting exports of uranium, titanium, and nickel in response to Western sanctions. This drove up commodity prices, boosting shares of uranium mining firms and nickel on the London Metal Exchange.

• Takeaway: Putin's proposal to impose restrictions on exports of key metals like uranium, and nickel could drive up their prices. Investors in the uranium and nickel sectors might see gains due to expected supply constraints, while broader market volatility could affect metal prices.
  
  

CORPORATE NEWS

Lithium stocks show signs of a potential rebound, suggesting the market might be nearing its bottom.

News highlights

Hedge funds are scrambling to cover short positions in ASX-listed lithium stocks after Chinese EV battery maker CATL suspended production at a major operation in China. Shares of Pilbara Minerals and Liontown Resources soared over 13% as lithium prices jumped.

• Takeaway:The production cut at CATL may help balance supply and reduce excess inventory, potentially leading to equilibrium in the lithium market. While the short-term sentiment is positive, long-term price stability continues to remain uncertain.

Mike Sneesby resigned as Nine Entertainment CEO after 3½ years due to cultural issues and shareholder dissatisfaction, compounded by rising costs. Despite record earnings in 2022, Nine has faced financial struggles, including a 22% drop in profit and a 57% fall in share price during Sneesby’s tenure.

• Takeaway:Sneesby’s exit and Nine’s share price drop suggest continued volatility is likely. The search for a new CEO and ongoing digital disruption, along with rising competition from global streaming giants, indicate increased risk and uncertainty.

NextDC has raised $750 million for expansion, fuelled by surging demand for digital infrastructure following AirTrunk's $24 billion sale. The funds will be used to build new data centres in Thailand and Malaysia.

• Takeaway:The raise by NextDC following AirTrunk’s sale, signals strong growth opportunities in the data centre sector. Investors might see the increased value and expansion potential, with heightened demand for data centre services likely driving up returns.
  
  

Until next time...