Marco + FX
Has the Gold rally ran out of steam?
After posting a high last week of $1,996.30 an ounce amid the tension in the Middle-East. Generally, geo-political events and potential escalations are quickly priced into Gold, with traders always looking for take profit opportunities, and we’ve seen a round of profit taking this week, starting with a gap lower at the open and consolidation between $1982 and $1970 and ounce. Yesterday’s wick down below $1950 an ounce demonstrated further appetite to sell Gold from these highs as the RSI points to overbought conditions. With a return back to $1970 an ounce, the base of the consolidation area, it wouldn’t be a shock to see further correction moves back towards or below $1950 this week. Fundamentally, Gold remains on a bullish bias, given underlying rates and persistently high inflation prints, and with the 10-year yield retracing post upbeat US data, we could see Gold hold ground firm above $1900 an ounce heading into November.
NZ/AUS
EBOS > We attended the AGM yesterday (we even received a goodie bag of some dog treats + some Red Seal vitamin C…much needed after late nights reading the constant stream of US earnings reports!) — after a few AGMs this year where shareholders were disgruntled (Pacific Edge, Metro Performance Glass), it was heartening to see one where questions from the audience were basically null, save for an American gentleman who said something to the effect of “well, you’re doing a great job — thank you”. The dream of CEOs everywhere — John Cullity, EBOS CEO, must have slept well last night. Well done that man. Continue to be buy rated on the stock…trading at 23x earnings with solid growth prospects across the board. Underlying EBITDA has grown at ~15% on a ten yr stack…what’s not to love?
Synlait announced yesterday that its chair, the former CFO of AIA, Simon Robertson, had resigned, effective immediately. Never a good look — we don’t like stock. Ongoing litigation with A2 is an issue, as is the slowing rate of births in China…as a wise old man used to say, never buy chicken (Tegal), milk (A2, Synlait) or salmon (NZ King Salmon) — save that for the grocery shop!
Xero — earnings coming up early November, we continue to feel bullish on it (buy) — US market penetration is still only ~7.00%, while we are seeing shrinking market share for dominant US players like Intuit.
NZ conviction list > EBOS, IFT, NZX, SCL, MFT
AUS conviction list > DGL, XRO, DUR, LYC
Going up…shipping costs sit at the highest level in a decade (excluding ‘21)
US earnings…big tech ramps up
US big tech > great result from Microsoft as Azure (cloud) continues to grow at +28%, while revenue rose +13% to $56.5b, while earnings per share came in at $2.99. Wall Street had been expecting earnings of $2.65 a share on revenue of $54.5bn. Cloud continues to be the main driver here — all that data has to go somewhere. Microsoft Teams now has 300+ million users — quite a stat. Retain buy.
Alphabet posted +11% growth in revenue, and EPS grew +46% to $1.55. Stock is trading down on a weaker quarter for Google’s cloud unit (it “only” grew +22%). Remember — Alphabet is an advertising company — cloud is a “side bet”. And ad revs came in at $44bn vs. $39.5bn the quarter previous, while YouTube ads grew +$900mn to $7.9bn. Advertisers continue to spend and the bulk of the spend appears to be going to Alphabet, Meta and Amazon.
For perspective…In 1999 Google’s revenue was $200k. Now it’s $200k every 24 seconds.
Amazon earnings coming up > we expect AWS to do well (AWS doing a big expansion in APAC at the moment). Expecting consumer sales to sit flat — we’re looking at prime memberships and advertising revenue, which we think will pleasantly surprise. Noting Spotify has swung to a profit — a mere €65mn — prefer exposure to music via the “source” (UMG, WMG).
Watching Mastercard and Visa earnings closely to get an idea of where the consumer is at. The consumer appears resilient — Visa reported cross-border payments growth of 21% (consumers keep traveling), while overall revenue grew 11%. Visa and Mastercard are “forever owns” to us — toll booths on consumer spend. From a macro view suggests that one more hike is needed — JPow needs to see consumer spending growth slow…we ain’t there yet.