The Fed Another hike by the Fed, which left markets largely unchanged as the hike was expected by (almost) all. JPow said “disinflation” 7 times in today’s presser. The next hike is data dependent — we published a chart yesterday which shows the short-rate market’s expectations for rates — it’s currently pricing in five cuts next year. We don’t see that happening with CPI remaining ~3.00% (still 1.00% ahead of the Fed’s target rate of 2.00%). Certainly we could see a pause, but we don’t see any rate cuts in the first half of next year — JPow will not be wanting to repeat the mistakes of the 80s.
PEB We just came back from the Pacific Edge AGM — the company is facing an uphill battle re: reinstating Medicare coverage (~70% of revs). Management has a tough job ahead of them. ~$70mn of cash on the balance sheet which mgmt estimates will last four years (hard task?). Stock is down ~8.00% after meeting.
Australia
The Australian market (ASX 200, +0.9%) moved to a 5-month high with markets optimistic of more stimulus in China to support mining stocks.
Rio Tinto fell -1.9%, which it reported a disappointing half-year result as weaker commodity prices meant revenue and earnings bother fell -10% and -25% respectively from the previous year.
In light of this the Rio Tinto board was forced to slash its fully franked interim dividend by 33% to US$1.77 per share. This represents a 50% payout ratio, which is smack in the middle of its 40% to 60% dividend policy. We remain HOLD rated as we see commodity prices still too elevated in a weak economic outlook.
Also a weaker-than-expected inflation print for Australia, CPI increased by +6.0% for the second quarter (below 6.2% increase expected by the market).
We still think RBA is in a position to hike another 25 points in August, with a high chance of following up with a second hike as a lot of work needs to be done to bring its down to the 2% to 3% target.
US
Meta reported strong earnings — revenues of $32bn and EPS of $2.98, slightly beating analyst’s estimates. Price drives narrative — the company still lost $3.74bn in the “metaverse” though most media outlets aren’t covering this (compare to last year, when the company’s cash burn was front and centre of the media’s mind). The stock has rallied this year, but the $3.74bn cash burn isn’t going away — Zuckerberg is still preoccupied by his flawed Metaverse drive. Also noting cost-per-ad fell 16%, as the company continues to offer cheaper advertising to drive revenue growth. Prefer GOOG.