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ASX trims gains as core CPI smashes forecasts; Medibank dives 18pc

Updated

Consumer staples sold-off as cost of living bites

Vesna Poljak

Coles and Woolworths were sold-off on Wednesday as the leading ASX consumer staples stocks face a tougher outlook framed by accelerating inflation pressures in the economy.

The consumer price index rose 7.3 per cent in the September quarter on an annual measure. On Tuesday night, the Albanese government handed down its first federal budget, which offered no further cost-of-living relief.

Coles Group fell 2.7 per cent to $16.16 after the supermarket group posted a rise of just 1.3 per cent in first-quarter 2023 sales of $9.89 billion. Supermarket sales rose 2.3 per cent to $9.02 billion for the 13 weeks ended September 25 – below analysts’ forecasts, and slowing from 3.3 per cent in the previous quarter.

Coles’ liquor business declined 4.3 per cent to $839 million.

The S&P/ASX 200 Index added 0.2 per cent or 12.3 points to 6810.9 points; the All Ordinaries rose by the same margin to 7005.1.

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Kogan showing early signs of turnaround: RBC

Emma Rapaport

Kogan gained 6.4 per cent to $3.5 on Wednesday after the online retailer showed early signs of improvement in its quarterly trading update.

Gross sales and profit fell materially but RBC Capital Markets analyst Wei-Weng Chen pointed to gross profit margins, operating expenses, earnings and inventory levels showing quarter-on-quarter recovery.

Chen also noted growth in Kogan First subscribers as the number of active customers fell, saying this could highlight a trend towards a “lower but more loyal customer base which could prove to be a longer-term positive in a rising customer acquisition cost environment for e-commerce”.

It was a tough first quarter for Kogan. Gross sales fell 39 per cent year-on-year to $202 million; gross profit declined 40 per cent.

The management said its first-quarter result was not indicative of its projected trading performance, once the final sell-through of excess inventory has been completed, and it was looking to the second half of FY23 “with confidence”.

RBC has a neutral rating for Kogan with a price target of $4. Shares have fallen 65 per cent over the past year.

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Global X’s Green Metal Miners ETF hits ASX boards

Tom Richardson

Newly rebranded exchange traded fund (ETF) provider Global X (formerly ETF Securities) has launched its Green Metal Miners ETF on the ASX today.

The fund tracks the BITA Global Green Energy Metals Index, which means global companies included must earn more than 50 per cent of their revenue from producing green metals including lithium, copper, nickel, cobalt and rare earths.

Blair Hannon head of investment strategy at Global X ETFs 

Blair Hannon, head of investment strategy at Global X said: “Australian investor interest in green metals is surging as governments and corporations alike align in a common goal to reach net-zero carbon emissions by 2050.”

Hot inflation could be a net benefit for budget bottom line: economist

Tom Richardson

Australian inflation hitting a 32-year high of 7.3 per cent will have mixed consequences for government spending programs, debt ratios, and household budgets, says independent economist Michael Blythe.

A day after federal Treasurer Jim Chalmers announced Labor’s 2022-23 federal budget, Blythe’s PinPoint Macro analysis suggested higher inflation could be a net positive for the budget’s bottom line, as inflation lifts government revenues faster than spending requirements.

The Reserve Bank forecasts inflation to peak at 7.75 per cent in the December quarter. Blythe determined that government spending programs indexed to inflation – such as JobSeeker, family assistance, carers support, disability support, and the age pension – would need an additional $30 billion of funding over the next four years.

The economist also said higher inflation meant nominal gross domestic product (GDP) would grow at a faster rate than otherwise, and reduce ratios such as debt-to-GDP, which the government uses as a yardstick of fiscal responsibility.

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Future Fund’s private assets at record, equities weighting near low

Jonathan Shapiro

The Future Fund’s assets slipped by $1.25 billion to $193 billion during the September quarter as its holdings shifted further into private assets and exposure to equities declined.

The 0.6 per cent decline in assets in the three months to September 30 compared with a 5.2 per cent decline in listed stock markets. As a comparison, the median superannuation fund slid 3.1 per cent during the September quarter, according to Super Ratings.

Future Fund chairman and former federal Treasurer Peter Costello said that over the 12 months to September, its assets had slipped 3 per cent, compared with an 8 per cent fall in the S&P/ASX 200 index.

The long-term performance is intact as its annualised 10-year return of 9.2 per cent is well ahead of its 6.6 per cent target.

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China stocks climb as authorities seek to boost confidence

Bloomberg

Chinese stocks in Hong Kong extended their rebound from the historic rout earlier this week, as authorities sought to boost investor confidence in one of the world’s worst-performing markets this year.

The Hang Seng China Enterprises Index gained as much as 2.1 per cent, adding to its 1.3 per cent advance from the previous session. That followed a plunge on Monday that was its steepest since 2008. China’s benchmark CSI 300 Index climbed as much as 1.2 per cent.

The nation’s central bank and the foreign-exchange regulator said on Tuesday that they would maintain the healthy development of stock and bond markets. The China Securities Regulatory Commission said in a separate statement that it would accelerate the building of capital markets that are “regulated, transparent, open, robust and resilient”.

The offshore yuan steadied around the 7.33 per dollar level on Wednesday, rebounding from a record low of 7.3739 in the previous session.

Economists on RBA’s next moves

Emma Rapaport

Barclays: “Inflation accelerated to 7.3 per cent year-on-year, while the trimmed-mean rate registered another record high. Sequential inflation remained steady, increasing pressure on the RBA for another 50 basis point hike. That said, we expect the RBA to continue hiking by smaller increments as the bank has already factored in high inflation prints.

“We continue to expect the RBA to hike two more times by 25 basis points each this year, as the first meeting of 2023 is only in February, by which time we think the global economic outlook may have deteriorated further, and the RBA will likely see stronger signs of a decline in inflation.”

AMP, Diana Mousina: “Pressure remains for the RBA to lift interest rates further to get inflation down, especially if services inflation remains sticky in 2023 and today’s data means that the RBA will need to revise up its trimmed mean forecasts for 2023.

“We had been expecting a 0.25 per cent hike at next week’s meeting, following on from the 0.25 per cent done in October, which would take the cash rate to 2.8 per cent and we stick to that view. While the inflation data surprised to the upside today, the RBA has already aggressively lifted interest rates since May and the inflation data lags impacts from rate changes and arguably rate hikes will do little to get food and energy inflation down, so we don’t see a need for the RBA to move to 0.50 per cent hikes again.

“But we are adding another 0.25 per cent rate hike into our RBA interest rate profile in December, taking the cash rate to a peak of 3.1 per cent by the end of this year. The risk remains with more rate rises in 2023.”

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Square Peg closes new $860m fund, swelling total to $2.4b

Yolanda Redrup

Square Peg Capital has closed the largest venture capital fund in the country despite the challenging capital raising environment, swelling its funds under management by $US550 million ($861 million).

The VC, which has now raised a total of $2.4 billion across all of its funds, will deploy the capital cross two funds, as previously revealed by Street Talk - a core venture fund, which will invest in seed to Series B start-ups, and an opportunities fund for larger follow-on investments in its “emerging winners”.

Square Peg co-founder and partner Paul Bassat said the bulk of the funds were raised in the first four months of the year when market conditions were “perhaps more favourable” than they are now.

But, with investors including Hostplus, AustralianSuper and ROC Partners all buying into Square Peg’s new fund, having also previously invested, Mr Bassat said the VC was fortunate to have support of long-term investors.

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Red-hot inflation fuels bets of aggressive RBA rate path

Cecile Lefort

Bond prices fell and stocks pared gains after red-hot inflation data smashed forecasts, stoking speculation the Reserve Bank would return to a more aggressive pace of interest rate increases.

Three-year yields rose 8 basis points to 3.58 per cent, and the 10-year rate added 3 basis points to 3.99 per cent after inflation data handily came in above expectations.

Interbank futures are fully priced for a 0.25 percentage point lift to the cash rate on November 1, taking it to 2.85 per cent, and bets that the central bank might return to a bigger move have intensified. They imply a 25 per cent chance the RBA will lift the cash rate by 0.5 percentage points.

“The upside surprise in the September quarter numbers probably presage an increment in the size of the policy rate adjustment next Tuesday – either 40 or 50 basis points,” said Stephen Miller, an adviser to GSFM.

“I think the more prudent path might be to opt for the higher 50 basis points increment if only to prevent further awkward optics down the track.”

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CBA tips 25 basis point RBA rate rise in December

Emma Rapaport

Commonwealth Bank expects a further 25 basis point rate increase at the RBA’s December meeting, taking the cash rate to 3.1 per cent, following stronger-than-expected inflation data.

Gareth Aird, head of Australian economics at CBA. Louie Douvis

The bank has retained its forecast of another 25 basis points next month.

“There are no two ways about it – inflation is red-hot in Australia right now, as it is in many parts of the world, and we expect the RBA will respond by raising the cash rate again at the November board meeting next week,” CBA’s Gareth Aird said.

“Today we incorporate the second 25 basis point rate hike into our central scenario for the cash rate, which means we see the peak in the cash rate being 3.10 per cent. Our expectation now is that the RBA raises the cash rate by 25 basis points at both the November and December board meetings.

Aird also pointed out the Reserve Bank’s aggressive tightening cycle – 250 basis points of rate increases between the May and October board meetings – has had no impact on the June or September quarter inflation outcomes.

“Indeed the rapid recent rate hikes and our expectation of some further modest tightening is unlikely to shift the inflation needle over the December quarter; inflation is a lagging indicator,” he said.

“The impact of policy tightening will impact consumer inflation in 2023.”

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