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FIVE at FIVE AU: Fortescue releases mixed results; retail sales data remains flat despite small uplift

Published 28/08/2023, 04:09 pm
© Reuters.  FIVE at FIVE AU: Fortescue releases mixed results; retail sales data remains flat despite small uplift
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The ASX is higher today. The S&P/ASX200 gained 43.60 points or 0.61% to 7,158.80. Over the last five days, the index is virtually unchanged but gained 1.71% over the last year to date.

The top-performing stocks in this index are Tabcorp Holdings Ltd and Venetia Services Group Ltd up 4.46% and 3.95 respectively.

Looking at the sectors, only Information Technology fell into the red, down 0.80%. Healthcare, Consumer Discretionary and Utilities led the way, up 1.36% and 1.26% and 1.11% respectively.

Retail spending remains flat

All eyes were on July’s retail figures as a guide to what the Reserve Bank of Australia (RBA) may do with the cash rate next week.

The Australian Bureau of Statistics (ABS) linked higher numbers with the successful FIFA Women’s World Cup.

“The rise in July was boosted by additional spending at catering and takeaway food outlets linked to the 2023 FIFA Women’s World Cup and school holidays,” the ABS said.

While the figures for July were higher, according to UBS analysts nominal spending since October last year "has been close to flat".

Generally speaking, Ben Dorber, ABS head of retail statistics, said: "The rise in July is a partial reversal of last month’s sharp decline in turnover. This was after weaker-than-usual end of financial year sales.”

The rise in July follows a 0.8% fall in June 2023 and a 0.8% rise in May 2023.

“While there was a rise in July, underlying growth in retail turnover remained subdued. In trend terms, retail turnover was unchanged in July and up only 1.9% compared to July 2022, despite considerable price growth over the year,” Dorber said.

July’s retail sales came in modestly stronger-than-expected, bouncing by 0.5% month on month: market expectations were for a 0.3% increase. Year-on-year to July growth slowed to 2.1% – the weakest since August 2021.

Based on those figures, UBS expects RBA governor Philip Lowe’s last meeting in charge to be inconsequential where the cash rate is concerned.

The RBA is expected to hold the cash rate steady at 4.10%.

UBS stated: "Specifically, for the RBA's next meeting in September, the Q2 GDP data is due the next day. This argues to wait to see the extent of wage pressure … especially after the Q2 Wage Price Index was below expected.

"The RBA will also likely want to wait and see if the weaker labour market data in July was noise or the start of a deteriorating trend. Hence, we still think if the RBA were to end up hiking rates by 25bps again, the more likely timing would be in November. "

Fortescue (ASX:FMG) earnings

One of the big earnings reports today came from Fortescue Metals Group (ASX:FMG).

eToro market analyst Farhan Badami comments, "Fortescue Metals Group posted a set of mixed results for the year, with revenue slightly surpassing estimates at A$16.87 billion – however, net income fell short of expectations at A$4.80 billion.

"The group reported a 23% drop in annual profit due to lower iron ore prices and an A$726 million impairment charge related to its unsettled Iron Bridge project.

“Investors will be cautious given concerns around declining demand from China, the world’s largest iron ore importer. China recently issued a directive to local steel mills to reduce production, following market rumours of additional government involvement in the iron ore sector.

"These actions, which are part of a broader effort to improve air quality in the region, dampened sentiments across the industry.

“Complicating matters further, China grapples with an escalating property crisis. Experts predict a prolonged halt in new construction projects, given the nation's efforts to address the default rate among property firms. In general, steelmakers are dealing with rising challenges due to a weak economy and property market distress.

“Earning numbers aside, the biggest surprise came when current CEO Fiona Hick decided to mutually step down a mere six months into her tenure.

"As a result, Fortescue reshuffled its leadership and board structure by fast-tracking Dino Otranto's appointment as CEO and bringing on board Dr Larry Marshall as a non-executive director for guiding technology strategies.

"Hick was initially entrusted with the responsibility of guiding Fortescue to mine battery minerals for decarbonisation. She was also tasked with expanding mining operations in Africa and ensuring the group's cash cow, Pilbara mines, thrives."

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