US CPI showed an unexpected slowdown for October, forcing the bird to break it’s 10-day losing streak, now surging over 2% at the time of writing.
As the DXY falls by more than 1%, investors are now pricing in the possible scenario of a pause to the FED’s rate hiking path.
US Treasury yields have plummeted by more than 4% and short-term dramatic moves in the Kiwi point to trading opportunities above 60c, as the pair trades above a key resistance level.
Traders could find opportunities to trade the Kiwi up to last month’s high at 0.6050, with the fib levels indicated in the chart representing new obstacles to cross before reaching the level. As the week progresses, we could see some relief from the rally, however, markets would need a firm close below 60c to ruin the party.
Christmas rally come early?
US inflation cools
US Inflation for October came in slightly lower than expected, increasing by only +3.2%, down from the +3.7% increase reported in August and September. Across the board, prices increased at a slower rate while energy and gasoline costs declined.
Headline US Inflation (Annual)
Markets cheered, anticipating the Fed was now done with the rate hiking cycle, and that the first cut could come as early as May next year. Accordingly, US 10-year Treasury yields fell 20 basis points to 4.44%.
Core Inflation rose +4.0% for the year — so while heading in the right direction there’s still some work is required to get this down to the Fed’s 2% target. The monthly increase for Core Inflation rose +0.3% which is still in line with monthly increases over the last 12 months as seen before — some parts remain sticky.
Core US Inflation (Monthly)
NZ/AUS
The New Zealand market (NZX 50 Index, +0.7%) was up yesterday continuing the positive trend, after being whacked for a few weeks.
Port of Napier shares rose +3%, after reporting a softer result compared to the previous period but not as bad as feared, a similar situation to Mainfreight. Citing lower container volumes (-12%), and the company’s profits fell -18.8% from last year to $16.58mn. We strongly prefer Port of Tauranga — we think the recent expansion work carried on at Port of Napier is a bit of a ‘white elephant’ for now.
Noting NZX stock is up +4.90% — we think the stock is undervalued and worth ~$1.25 per share — note our sum of the parts valuation before…+$127mn of potential upside…
The Australian market (ASX 200 Index, +0.8%) was up yesterday as mining and energy stocks led gains, with commodity prices rebounding on optimism about China’s property sector.
Origin Energy — Aussie Super now owns 16.5% of the energy giant (picked up a bunch more shares up at $8.65). Brookfield and co made an eleventh hour last-ditch bid for the co. at $9.53 per share — not enough for Aussie Super, who are pushing for a +$10.00 situation. Could be a little arbitrage situation here — pick it up at $8.50 and pray that “daddy” Brookfield comes in and pays $10.00 or so a share.
CBA shares rose +1% on its result, which revealed its loan book fell -4.5%, squeezing profits and margins.
What becomes of the dream of the 70s?
Brazilian cosmetics company Natura has agreed to sell The Body Shop to private equity firm Aurelius, after struggling to revive the UK retailer’s fortunes. The deal gives the company an enterprise value of £207mn, Natura said in a statement, a fraction of the €1bn that Natura paid to acquire the business from L’Oréal in 2017. Reminds us of Buffett quoting an old country song — I’ve never gone to bed with an ugly woman, but I sure woke up with a few. The Body Shop was early on the ethical bandwagon — founded in the 70s — but its fortunes have waned in recent years as ethical ingredients and product have become a de-facto requirement. It also highlights just how good L’Oréal is at doing business — they sold the business at arguably the “peak” and left Natura with the crumbs…
Now the question is the classic private equity question: can Aurelius turn the company around and sell it to someone else? Game of hot potato. We’re bullish on L’Oréal, Estee Lauder, though we think EL needs to pull up its socks…