Good Evening,

Welcome to Equity Espresso

We’re here to catch you up on all the day’s news in Australia and abroad.

Here’s a sample of what you may have missed today:

1. 🪨 Material Sector Gets a Boost

2. 🚗 Strike Hits Three Auto Makers

3. 🔋 Novonix Stock Spike

4. 🔂 ASX200 Rebalance

5. 🦾 Arms Debut

The Recap

ASX Rises: Materials Shine from Chinese Economic Surge

A bumper day on the market, with the ASX200 index rising 1.3% to 7,297.0 after a sea of green on global markets overnight. All 11 sectors finished higher today as the ASX200 closed the week 1.5% higher.

Materials had another cracking session, with the sector rising 2.5% today, stemming from positive Chinese economic data showing strong retail sales and higher industrial output. For the week, BHP (+5.5%), Fortescue (+8.3%), and Rio Tinto (+3.0%) all rose.

The price of Crude Oil continues to climb, rising above US$90 a barrel as production cuts from Saudi Arabia and Russia, along with record global consumption, drive prices higher. The Energy sector locally rose by (1.7%), with the Tech sector the other big winner today (+1.9%).

It was a busy day for economic news, with the U.S. reporting higher-than-expected retail and producer prices; meanwhile, the ECB raised interest rates for the 10th consecutive month.

The ASX200 will complete a quarterly rebalance this month, set to take effect from Monday, September 18. Companies that enter the ASX200 include Data#3, Genesis Minerals, Neuren Pharmaceuticals, Ramelius Resources and Weebit Nano.

Abacus Group, Abacus Storage King, BrainChip Holdings, Imugene, Lake Resources and Syrah Resources are dropping out of the index.

Breaking news this afternoon. After both sides failed to reach a deal, the United Autoworkers Union (UAW) said it would go through with threats to strike against the Big Three automakers — Ford, General Motors and Stellantis. This is the first time in history that strikes have hit all three automakers simultaneously. Ford CEO Jim Farley said that if the company signed up to the UAW request, Ford would have lost $15 billion and gone bankrupt, claiming that the average employee salary would be $300,000 per year for a 4-day work week.

Economic News

Key U.S. economic data overnight:

• Retail trade sales rose by 0.6% in August, which was more than expected, as food services were up 8.5% from August 2022.

• Initial claims for state unemployment benefits climbed to a seasonally adjusted 220,000 for the week ended September 9 from 217,000 the week before.

• Monthly producer prices rose 0.7% in August, against expectations of a 0.4% increase. On an annual basis, they increased 1.6% compared with estimates of a 1.2% rise.

Over in China:

• China’s industrial output grew 4.5% in August from a year earlier, accelerating from the 3.7% figure in July, suggesting that the recent flurry of support measures might be slowly stabilising the economy.

• Retail sales grew at a faster pace of 4.6% in August, aided by the summer travel season, the quickest growth since May. That compared with a 2.5% increase in July and estimates of 3% for the month.

ASX200 Stock Snapshot

Wall Street

The S&P500 closed Thursday's session 0.8% higher. This was due to the release of better-than-expected economic data, which eased concerns about a possible recession. All sectors ended the day positively, with Banks and the Auto industry leading the way. The impressive U.S. economic data suggests the consumer is still thriving, supporting the notion that the U.S. economy will experience moderate growth and avoid a recession in the next 12 months.

British chip designer Arm had its much-anticipated debut on the Nasdaq stock exchange. The stock price surged by nearly 25% on its first trading. The strong debut has sparked investor optimism for a potential revival in the lacklustre market for initial public offerings (IPOs). The stock started the day at $56.10 and closed at $63.59, resulting in a valuation of $65 billion for the company. This marks Arm's return to public markets after a seven-year hiatus.

In company news, Berkshire Hathaway sold 5.5 million shares of HP Inc., reducing its stake in the company that it had only recently acquired last year. Berkshire Hathaway still holds almost 12% of the printer and computer manufacturer company despite the sale.

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Quick Singles

🪃 Local News

• Alliance Aviation Services has won a five-year contract extension with BHP Iron Ore. The company will provide 14 air services between Perth and two mining sites in Coondewanna & Barimunya, with a two-year extension option also included in the contract.

• Leo Lithium went into a trading halt today pending an announcement about correspondence from the government of Mali.

• Link Group provided an update on the divestment of its U.K. and Ireland Fund Solutions business to Waystone Group, saying it has received all necessary regulatory approvals. The transaction is on track to be completed by October 2023.

• Macquarie Bank will phase out its cash, cheque and phone payments for customers starting next year as it moves to digital-only payment systems.

• Metcash held its AGM today, where it also provided an update on trading for the first 13 weeks in FY24. Total sales are 1.7% higher, with food sales excluding tobacco increasing by 6.2%.

• The ACCC has rejected Qantas' request to extend its partnership with China Eastern Airlines due to concerns about increased prices.

• Wildcat Resources went into a voluntary suspension pending the release of an announcement to the market about material exploration results.

🌏 Around The Globe

• Caesars Entertainment paid around half of a $30 million ransom to a hacker’s demands after a cyberattack late last summer.

• Etsy stock rose 3.2% after Wolfe Research upgraded the e-commerce retailer to an outperform rating, citing improving consumer spending and margins.

• Semtech stock rose 10% after beating Q2 expectations with 11 cents per share earnings, exceeding the consensus estimate of 2 cents per share.

• Starlink earned $1.4B in revenue last year, a $222M increase from 2020 but $11B short of projections. The company no longer incurs losses from producing satellite antennas.

• Several Tech Executives, including Mark Zuckerberg, Sam Altman, Sundar Pichai, and Elon Musk, had a closed-door meeting with lawmakers and labour leaders at the A.I. Insight Forum. This gathering is the first of a series of meetings focusing on A.I. During the senate meeting, they discussed how the U.S. government should regulate generative artificial intelligence.

• Walt Disney expects to fall tens of millions of subscribers short of its last publicly stated 2024 target for the Disney+ streaming service. The company set a goal of 215 million - 245 million subscribers back in August 2022 by then-Chief Executive Officer Bob Chapek.

₿ Crypto Corner

• In Singapore, Su Zhu and Kyle Davies, co-founders of Three Arrows Capital, were given a 9-year prohibition from carrying out financial activities in the city. This was due to their alleged hiring of a hedge fund manager without notifying the Monetary Authority of Singapore (MAS), providing false information about it, and lacking risk management for 3AC's crypto trading operation.

• Deutsche Bank will partner with Swiss fintech Taurus to provide digital asset custody and tokenisation services. Deutsche Bank will leverage Taurus custody and tokenisation technology to manage cryptocurrencies, tokenised assets, and digital currencies.

Markets

Index & Commodity Prices

Bond Prices

ASX By Sector

ETF Watch

Newsletter Recommendation

Movers and Shakers

✅ Biggest Gainers

Battery producer Novonix (NVX) shares rose by 38% after reporting it had demonstrated successful production with the company’s generation 3 furnaces, which met design, throughput, cost, and sustainability targets. Novonix increased its production target by up to 20,000 tonnes per annum (tpa), compared to the initial target of 10,000 tpa.

This recent production demonstrated Novonix’s ability to reach competitive cost targets. The company raised its targeted operating margins from 23% to 28% based on estimated sales prices ranging from $7/kg to $10/kg depending on customer product specifications.

Ramelius Resources (RMS) increased by 6% after it reported a 28% or 70,000oz increase in production from its Penny Gold mine during June. This takes the total Mineral Resources across Ramelius’s Penny North and Penny West mine to 320,000oz.

Approximately 15,300m of underground drilling was conducted from April to August 2023, focusing on the Penny North strike extension and Penny West resource definition. Many of the results have seen a 90-metre increase in strike in the southern area of the resource model for Penny North.

🔻Biggest Fallers

Meridian Energy shares fell by 2% after posting its monthly operating report today. Meridian is a NZ-based power company that generates electricity through 100% renewable sources. For the month through to September 11, national hydro storage decreased from 106% to 83% of historical averages.

Retail sale volumes during August were 4.1% higher than the same month last year, with sales across all segments above the prior year, led by SME (+6.4%), residential (+4.3%) and corporate (+3.6%).

Merdian said that August 2023 was the coldest month in seven years, with temperatures below average for most of the country. Rainfall was below average for the eastern, central and northern parts of the North Island and most of the South Island. Electricity demand remains 4.5% higher than last year.

Deep Dive

Is ResMed a Buying Opportunity?

A closer look at ResMed from TheAsymmetricalEdge

ResMed reported FY23 earnings, which on face value seemed positive. Revenue increased by 18%, and Earnings Per Share was up 15%, with solid growth in all divisions. Despite this, the share price has since dropped by 30%. 

The share price drop has seen ResMed’s valuation take a significant fall, with the price now currenlty trading at approximately x25 earnings - 49% below its 5-year average and the lowest point in eight years.

Danish company Novo Nordisk’s ‘wonder’ drug Ozempic is one driver of the recent price drop post-earnings. A simple needle that can ‘cure obesity’ could lessen the need for ResMed CPAP machines that assist patients with sleep apnea - some of whom could be overweight or obese.

Ozempic works by injecting a solution into your body, usually every week, that mimics the naturally occurring hormone GLP-1, which tells your brain you are full. Increasing this hormone makes you feel more full more often, resulting in people eating less and losing weight.

Another possible reason for the lower share price is Resmed's largest competitor, Phillips, re-entering the market.

For a deeper look into ResMed’s financials, competitive advantage and whether now is a good buying opportunity, read the full article here.

Daily Quiz

Test Your Knowledge

Yesterday’s Daily Quiz Question. Which sector has performed the worst on the ASX in 2023?

Answer: Health Care! Not Consumer Discretionary, which attracted 61% of the vote. Well done to the 15% who got that correct.

The Health Care sector is down by over 5% in 2023, with staples the only other sector in the red. Consumer Discretionary is actually the second-best-performing sector this year (+15%), trailing only Tech (+30%).

A Little Extra

📉 Going Down?

Top 10 shorted stocks on the ASX - as of September 11

1. Pilbara Resources (PLS) - 10.53%

2. Flight Centre (FLT) - 9.65%

3. Syrah Resources (SYR) - 9.45%

4. Elders Limited (ELD) - 9.07%

5. Core Lithium (CXO) - 8.00%

6. IDP Education (IEL) - 7.70%

7. Brainchip (BRN) - 7.39%

8. Select Harvests (SHV) - 7.34%

9. Mesoblast (MSB) - 7.34%

10. Appen (APX) - 7.14%

📊Broker Ratings

What do the brokers have to say?

1. Carsales (CAR) - Outperform rating (Macquarie). Target Price $31.50

2. Myer Holdings (MYR) - Hold rating (Ord Minnett). Target price $0.75 

3. Westpac (WBC) - Neutral rating (Macquarie). Target price $21.00

4. Westpac (WBC) - Add rating (Morgans). Target price $22.58

👨‍💼 Director Transactions

What are the insiders doing? (On-market only)

💲Dividends

Companies trading ex-dividend today

📅 Economic Calendar

Data to keep an eye on this week

DISCLAIMER: None of the information provided in this newsletter should be constituted as financial advice. This newsletter is strictly for educational purposes only. It should not be taken as investment advice or a solicitation to buy or sell assets or make financial decisions. Please do your research.