The Not So DAILY BULLETIN 7 November 2023 No.595

The Not So DAILY BULLETIN 7 November 2023  No.595
Top Stories
Tuesday, 7 November 2023, the ASX 200 fell 20 points after rising 19 yesterday to finish at 6977. The market has tried to break above 7000 but couldn’t hold it. 

The Melbourne Cup winner – Without a fight was probably a signal for the RBA rate rise (only in hindsight does it look obvious). Hopefully, it was the last rate hike and brings the RBA in line with the ECB (Europe) and the Fed (US Federal Reserve) with talk of further rate hikes but no actions. 
As discussed over the last few weeks, we are still at a crossroads, as mixed signals are everywhere.
Bond rates are falling, Oil is down to $80, Gold is near $2000, Consumer is less confident & spending savings, China and Europe are sluggish, and Cash rates are high and elevated geopolitics issues. On the flip side, unemployment rates are historically low, company profits are okay, iron ore price remains elevated, US GDP was 4.9%, the fear index (VIX has retreated to a calm 14.89), retail sales are up, mortgage defaults are below 1%, and we are entering the best period of the year where US companies can undertake share buybacks to provide a Santa Claus rally. 
Bank results from NAB Nov 9 and ANZ Nov 13. 
WE ARE STILL CAUTIOUS in the short term but are moving back to our favour, saying BUY THE DIP.

We are happy for you to share our Not So Daily Bulletin with family and friends, and if we can help them, we are also happy to chat. 
RBA hikes, Without a fight!
The RBA meeting was held today, as Kevin Hanson and most economists predicted a rate rise occurred. Below are the important points from the RBA Governor Michele Bullock’s statement.
The Board decided to raise the cash rate target by 25 basis points to 4.35 per cent.
Inflation in Australia has passed its peak but is still too high and is proving more persistent than expected a few months ago. The latest reading on CPI inflation indicates the prices of many services are continuing to rise briskly. While the central forecast is for CPI inflation to continue to decline, progress looks to be slower than earlier expected. CPI inflation is now expected to be around 3½ per cent by the end of 2024 and at the top of the target range of 2 to 3 per cent by the end of 2025.

The Board had indicated that it would be paying close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market. The weight of this information suggests that the risk of inflation remaining higher for longer has increased. While the economy is experiencing a period of below-trend growth, it has been stronger than expected over the first half of the year. Conditions in the labour market have eased but they remain tight. Housing prices are continuing to rise across the country.

At the same time, high inflation is weighing on people’s real incomes and household consumption growth is weak, as is dwelling investment. Given that the economy is forecast to grow below trend, employment is expected to grow slower than the labour force and the unemployment rate is expected to rise gradually to around 4¼ per cent. 

Returning inflation to target within a reasonable timeframe remains the Board’s priority. High inflation makes life difficult for everyone and damages the functioning of the economy. It erodes the value of savings, hurts household budgets, makes it harder for businesses to plan and invest, and worsens income inequality. And if high inflation were to become entrenched in people’s expectations, it would be much more costly to reduce later, involving even higher interest rates and a larger rise in unemployment. To date, medium-term inflation expectations have been consistent with the inflation target and it is important that this remains the case.

Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks. In making its decisions, the Board will continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.
Chart from AMP and RBA
Financial Planning Snippets
– Super Guarantee (SGC) for employees increases to 11% from 1/7/23
– Commonwealth Seniors Health Care card has seen the income limit increase to $144k(couple) $95k (single). If you are of Age Pension age and don’t have the card, please let us know. 
– Account Based Pension minimum pension payments will revert back to normal from July 2023 (from half normal, which were put in place due to COVID in 2020). 
Other Stories 
– Goodman Group (GMG) 4th quarter confirmed 9% profit growth for FY24. $127bn of developments in pipeline.
– South Korea bans short selling (good idea) market up 10% in the first 6 days of Nov. 
– Chinese exports fell 6.4% in USD terms but imports rose 3%.
Broker Target Price changes – 

Ord Minnett

Amcor (AMC) increased from $14.25 (lowest broker) to $15.20
Macquarie Group (MQG) decreased from $194.40 to $182.80
Westpac (WBC) decreased from $21.61 to $21.58

Morgan Stanley
MQG decreased from $215 (highest broker) to $202 (still highest broker)
WBC increased from $20 (lowest broker) to $20.70 

AMC decreased from $14.83 to $14.80
BHP increased from $47 to $47.50
Woodside (WDS) decreased from $34 to $32 (equal lowest broker)

Bell Potter/Citigroup
BHP increased from $44 to $45
Goodman Group (GMG) increased from $24.50 to $25.50 (equal highest broker)

MQG decreased from $175 (equal lowest broker) to $161 (lowest broker)
WBC increased from $21.80 to $23.60

Sonic Health (SHL) increased from $34 to $36.50
Wesfarmers (WES) decreased from $57 (equal highest broker) to $56

Tracking changes for 2023
Upgrades 307
Downgrades 309

(we have noticed the overall trend is down, but the CORE stocks are seeing upgrades. It probably reflects the quality of stocks in our 30 CORE stocks).
Today’s ASX sector Movements
Best – IT +1.4%  
Worst – Financials -1%      
Core Watchlist Index (changes since last Not So)
The CORE Watchlist is a collection of 30 Australian shares, predominantly “Blue Chip”. We obtain research from up to 6 brokers on each share. Each broker provides a Target Price (value in 12 months) which then provides us with an average for each stock. We then compare that average to the current price as a percentage. IE Macquarie price $176.95   Av. Target Price $205.96= 85.9% (meaning 14.1% upside over next 12 months) + income 4.35% (including franking).

To get the CORE Index we take the average across the 30 stocks. This provides us with a market average as there are up to 80 teams of analysts providing the research and target prices. The CORE Watchlist stocks represent more than 55% of the ASX 200 and so provide us with a good indicator of the market value. When it’s at 100% then the market is fully priced. We have seen that when the index is below 90%, then it’s good buying, but that doesn’t happen very often. Should you have any questions, please let me know.  

The Core index increased from 87.04% to 88.34%. This is usually a good BUYING signal when the CORE index is below 90%. Interestingly Bank Index is still above 100%, which suggests (not a good buying time). As mentioned before, this is the first time in 12 years these to indices have been providing opposite calls. It first happened on 21/9/23 when ASX was at 7065. We haven’t moved far. 

Overall Earnings Per Share (EPS) 

We could see an uptick in overseas company earnings (BHP MQG CSL RIO STO WDS RMD AMC BXB) as they will benefit from a lower current assumption. We have been using 70c. Moved to 68c (still conservative).

FY23 decreased from 3.23% to 3.11%   
FY24 decreased from 8.04% to 7.98%  

Most expensive – CBA 109.5%            
Least expensive –  Lend Lease 51.2%  

The CORE Watchlist has 6 (5) stocks trading above 100%; they are; BHP CBA JBH NAB RIO WES, lowest number ever is 0, highest 9. While 11 (12) are trading below 85% (highest 18), while the lowest is 5. CSL LLC NEC NXT ORA ORI RMD S32 SEK SHL STO (Figures in brackets is last Not So).   

STOCKS TRADING BELOW ALL BROKER FORECASTS ARE AS FOLLOWS; (it has been a handy indicator in the past). 13 out of the 30 CORE stocks are trading below the lowest broker target price. Highest 24. Lowest for some time 5.

ALL current price $39.74    Broker range $42.80 to $46.50
AMC current price $13.98   Broker range $14.50 to $17.50 
CPU current price $23.88   Broker range $24.50 to $29
CSL current price $248.12  Broker range $321 to $340
LLC current price $6.36      Broker range $7.95 to $14.45
MQG current price $159.29 Broker range $161 to $202
ORA current price $2.47     Broker range $3.00 to $4.10
ORI current price $14.90     Broker range $16.23 to $19.50
RMD current price $23.76   Broker range $26 to $40
S32 current price $3.25       Broker range $3.40 to $5.15
SHL current price $29.81    Broker range $32 to $38
STO current price $7.33      Broker range $8.10 to $12.30
TLS current price $3.87      Broker range $4.14 to $4.75

Added CPU

Removed TCL
Banking Index (changes since last Not So)
Like the CORE Watchlist index, the Banking index is the four major banks’ average target price based on research from up to 6 brokers. The percentage below 100% is the potential upside over the next 12 months (not including income). If at or over 100%, then this indicates the Banks are fully priced. 

The Banking index increased from 98% to 100.9%. Over 100% suggests the banks are fully priced. They have run up into the results.
Westpac’s result was better than expected. Full-year $7.195bn Div 72c (up on same period last year) and a buyback of $1.5bn. Mortgage loans 90 days behind rose from 0.8% to 0.86% (still not a crisis).  

Macquarie’s profit was down 39% on last year which was below expectations. Dividends $2.55 was below last year, but announced a $2bn share buyback. 

ANZ cheapest at 94.9%

Based on today’s bank prices, the table below shows the estimated dividends (c) and yield. The expectation is slightly increased dividend payments and still very attractive yields. PLUS FRANKING.  

FY 23 % FY 24 % FY 25
ANZ 162.8 6.39% 163.7 6.43% 163.7 6.43%
CBA 450.0 4.50% 457.7 4.58% 469.5 4.69%
NAB 167.7 5.77% 168.2 5.79% 168.8 5.81%
WBC 142.0 6.66% 142.7 6.69% 174.8 8.20%
MQG  750.0 4.71% 683.2 4.29% 726.2 4.56%

Dividend expectations have been cut for BHP and RIO. Yields are still expected to be very strong. The forecasts below are for the full year. I have added FY25. BHP and RIO results will see some changing forecasts with the likelihood of further reduction.   

FY23 cps % FY24 cps % FY25 cps %
BHP 255.00 5.60% 226.50 4.97% 261.2 5.73%
RIO 617.33 5.07% 668.17 5.49% 609.4 5.00%   
Plus franking. Please note RIO is Calendar Year (CY). Cents per share (CPS).
Other Indicators (changes since last Not So)
US VIX Index decreased from 18.14 to 14.89. The VIX is showing the market is reasonably calm.   
Iron Ore increased from $119.25 to $123.75.  ALL-TIME HIGH of $237.57.  Av expected for 2023  is $114.1, while dropping to $99.4 for 2024.
Copper increased from $3.64 to $3.69. 
Gold decreased from $1983 to $1979.  Record high $2063. 
AUD/USD decreased from 63.27c to 64.38c. Recent low point 62.9c.  $A strengthening   
USD/CNY remains at $7.30  Lowest $6.31 Highest in recent years $7.35. 
Asian markets – DOWN    
US 10 year Bonds decreased from 4.97% to 4.64%. recent high 5% (20/10 highest since 2006).  The FED may or may not be on HOLD. US 30 year Bond decreased from 5.07% to 4.81%. Hit a 17 year high of 5.12%. US Federal Reserve on hold at 5.5% but maybe more to come in November. The US 2 year rate has increased from 5.07% to 4.92%  (5.37%, highest since 2006).  The gap between the 2 yr and 10 years an inverse -0.28%. It was -0.10% but still inverted, which historically has suggested a recession. Widest inverse gap is -1.3%. This is the most it has been inverted in 42 years.  The gap is narrowing as the long end of the yield curve increases (higher for longer). 
German Bonds decreased from 2.83% to 2.75%. Hit 3% in October highest since 2008.
Japanese Bonds decreased from 0.956% to 0.88%  highest in 10 years is 0.956%.  
Aussie Bonds 10 year Bonds decreased from 4.95% to 4.71%.  Recent high 4.95% 
Other Aussie Bonds 1 year 4.48%  2 year 4.31% 4 year 4.29% 5 year 4.35% 15 year Bonds 4.96%. Rates have decreased after the days RBA rate rise. Maybe on hold.      
Oil prices decreased from $81.05 to $80.43   
Tungsten – China remains at $305 to $315mtu. 
This week & next week 
Last “Not So” opened in 7 Aust states (excl NT ), US 5 states (California, Massachusetts, New York Colorado & South Carolina), Sweden, Israel & Malawi (45th country and 4th in Africa).   
Contact details  PO BOX 149 Deniliquin NSW 2710
125 End St Deniliquin NSW 2710
Ph. 03 58950100
Fax 03 58950101
Mobile 0412113524

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