Markets Extend Gains | BOQ Disappoints

12 October 2023

US

The US market (S&P 500 Index, +0.4%) was up for a fourth day in a row, despite a hot inflation print, as markets tried to recover from a weak September performance and investors brace for the start of earnings season.

September Fed minutes were out this morning which were digested as less hawkish than expected, Fed policymakers judged that one more increase in the federal funds rate at a future meeting would likely be appropriate, while some judged that no further increases would be warranted, minutes from the September 2023 FOMC meeting showed. However, all agreed that policy should remain restrictive for some time until inflation moved down sustainably to 2%. The recent rise in bond rates also created similar restrictive conditions being enough for some Fed members to opt for a hold – so while the Fed may hold, interest rates globally are still set to remain higher for longer.

The meeting came after producer price inflation in the US rose +0.5% month on month coming in higher than expected – reiterating more needs to be done. Goods prices were up +0.9%, prompted by a +5.4% surge in gasoline cost, which would eventually be passed through. Markets will now be watching consumer price index data for the month of September due tomorrow morning.

Birkenstocks “stocks” fell -12% down to $40.20 after making its debut on the market today.  ARM Holding which IPO last month, initially started strong the first day of trade, but it is now down ~15% from its peak. After a dry spot for IPO’s due to challenging market conditions, the weak performance is a reminder that investors are still in a very cautious mindset.


Bank of Queensland (BOQ.ASX)

Bank of Queensland shares were down -7.4% after its statutory net profit after tax slumped -70% from last year to $124m. This was affected by material one-offs $200m of impairment of goodwill, $57m of ME integration costs, a $42m provision for the Group’s Remedial Action Plans and $35m in restructuring costs incurred as part of the group’s simplification program. Ignoring the one-off cash earnings slipped -8% from last year to $450m, as increased income off offset by increased operating expense and an uptick loan impairment provisions.

A weak result showing signs the smaller banks are struggling with cost inflation. We remain HOLD rated on Bank of Queensland, and prefer ANZ, Westpac, and Macquarie as our banking exposures – the latter two trading near 12-month lows which we view as attractive entry point, hold some funds back post result to see how loan book quality holds up.


Fletcher Building shares entered a trading halt following a Australian building firm BGC claimed issues with Fletcher Building subsidiary Iplex will cost the company A$1.8 billion (NZ$1.9b). We prefer to avoid the stock in the current juncture, given our bearish view on construction over the near to medium term.

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