Retailer pain as rates rise; 5 MPs ejected in Canberra chaos; Alphabet, Microsoft results
News in brief
ASIC examines failed Firmus float: The corporate regulator is making preliminary inquiries into investment banks involved in the abandoned $44 billion listing of AI company Firmus. ASIC is examining whether investors were misled about demand for shares and whether conflicts of interest existed. No findings of wrongdoing have been made, and no formal investigation has commenced.
Five MPs ejected as Parliament erupts: Question time descended into chaos, with five MPs expelled following heated exchanges over inflation, government spending and a $6 million grant to Marrickville Golf Club in the Prime Minister's electorate. Four Coalition MPs and one Labor MP were removed as the Opposition challenged Anthony Albanese over the grant.
General Motors dumps NYSE for Nasdaq: General Motors is moving its sharemarket listing from the New York Stock Exchange to the technology-focused Nasdaq, ending an association dating back to 1911. The shift reflects GM's growing investment in artificial intelligence, software and autonomous driving as it competes with Tesla and Chinese carmakers.
Alphabet and Microsoft deliver contrasting AI results: Investors have delivered sharply different verdicts on two technology giants. Alphabet shares plunged 10 per cent in after-hours trading after disappointing sales and concerns over massive AI spending. Microsoft shares rallied after stronger cloud growth and better cost control, highlighting the pressure on technology companies to demonstrate returns from AI investment.
Putin-Musk: Russian President Vladimir Putin says he is in close contact with Elon Musk over satellite technology, describing him as a genius. The comments come amid closer ties between Washington and Moscow and renewed questions about Starlink's role in Ukraine, after connectivity problems affected Ukrainian forces last week.
Fear-o-meter
Hugh Lam, Betashares Investment Strategist, on the Alphabet and Microsoft results:
The divergence in after-hours trading between Alphabet and Microsoft shares highlights growing scrutiny of how big tech companies are funding their ambitious data centre buildouts. While both reported cloud growth ahead of estimates, Alphabet’s capital expenditure more than doubled with free cash flow in negative territory for the second consecutive quarter. Microsoft, by contrast, kept free cash flow positive.
In our view, this points to an increasingly selective approach to AI hyperscalers this earnings season. The market is moving from indiscriminately rewarding AI spending to scrutinising how it is financed.
The sell-off came despite clear green shoots at Alphabet. Google Cloud revenue rose 103% year-on-year to $30.7 billion, and the division’s operating margin expanded to 36.2% from 23.7% a year earlier. Usage is growing too, with the Gemini app reaching one billion users.
The key question is whether Alphabet’s 2027 capex, which management expects to increase significantly, converts into Cloud revenue fast enough to bring free cash flow back into positive territory.
Fear & Greed Q+A today
Jason Ireland and Sean Wiles, partners at McGrathNicol Advisory, discuss McGrathNicol's latest Working Capital Report, and what $5.5 billion tied up in working capital really means for Australian businesses:
"[We] love talking about working capital because it's real. If you can improve your working capital metrics, you do have more cash in your coffers as opposed to being tied up. The reverse is also true, and this year that's what's happened.
So this $5.5 billion number that we've talked about is real. That is real cash tied up. That means that cash is not going to fuel growth, it's not going to reduce debt, it's not going to new investment. It's not going to productivity.
So that is a real deterioration in those metrics, which has a real knock-on effect to the economy. You take that next step. That is companies that may well need to borrow more in an environment where borrowing more costs more.
So what we're hoping is that this is just one year and that this is not a trend of deterioration, because that much cash coming out of that many companies is a concern."
Retailers warn of Christmas slowdown as households tighten spending
Some of Australia's biggest retailers are reporting weaker sales as higher interest rates, expensive petrol and falling house prices put increasing pressure on household budgets.
Bunnings, JB Hi-Fi and Super Retail Group have all flagged softer trading ahead of the crucial Black Friday and Christmas shopping periods.
The housing downturn is adding to the pain. Capital city house prices have fallen around six per cent, while property transactions dropped more than 17 per cent in the September quarter.
Fewer people moving house means fewer purchases of furniture, appliances and home improvement products.
And conditions could deteriorate further. The Reserve Bank is widely expected to lift interest rates again next Tuesday, potentially taking the cash rate to 4.85 per cent, its highest level in 18 years.
Analysts warn the retail slowdown could persist for another six to 12 months, as higher borrowing costs continue to squeeze consumers.
Greed-o-meter
Forwarded from a friend? Sign up to our daily newsletter
Usually we aim to share charts and tables that give you some useful knowledge - a little bit of info you can drop into a conversation at work. Then, occasionally, a chart comes along with no such value. In honour of Halloween tomorrow, we give you: the annual spike in pumpkin advertising, compared to other types of vegetables.