Firetrail Weekly | Insights from the Trail
In markets this week...
Equity markets were down across the board this week with concerns growing over the outlook for the global economy.
In Australia, GDP rose 1.0% versus the year prior, in-line with expectations. That was the weakest reading since the recession of 1991. Two things are keeping the numbers positive – immigration and Government spend. On a per capita basis, that marks six quarters of decline.
Iron ore broke down and now sits just above $90/t. That is still a good price for the big Australian producers. Remember BHP operating costs are still below $20/t. For high-cost players, $90/t may present a few challenges, and it will be interesting to see if any tonnes are removed from the market in coming months.
In US, data was generally weaker. Job openings missed expectations and printed the lowest reading since January 2021. The ISM manufacturing survey showed a decline in new orders, further bolstering the case for a September rate cut. Election news, the polls are favouring Harris, while the betting markets are suggesting 50/50.
Three other things that got the team talking this week
1. No Deal – Japan unwelcome in US steel M&A
Nippon Steel bid a big 40% premium for $15bn for Pittsburgh based, U.S. Steel in December last year.
This week the deal looks much less likely. Speaking at a Labor Day event, Kamala Harris explained that "U.S. Steel is a historic American company, and it is vital for our nation to maintain strong American steel companies." She added, "I couldn't agree more with President Biden, U.S. Steel should remain American owned and American operated". Trump also opposes the merger.
Alongside the bid, Nippon committed to invest $3bn in US steel plants and protect jobs. U.S. Steel says if the Nippon deal doesn’t go through, plants will be shut and jobs will be lost.
U.S. steel has fallen below the pre bid value as the market anticipates political resistance from both sides of politics. A rare moment of agreement between Democrats and Republicans!
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- Hospitals looking a bit sick
After reaching share price highs of >$80, this week private healthcare owner Ramsay broke below $40/share. And they aren’t the only ones doing it tough. Healthscope owner Brookfield are also calling for help after they paid $4bn to acquire 43 hospitals in 2019. Since then interest rates are up and profits are down.
The core issue for the private system is the supply of beds is exceeding demand for beds. We put it down to a few key issues:
- More day surgery, less overnight stays – more rehab is being undertaken at home;
- Higher out of pocket payments – with cost of living pressure, there is less elective surgery happening due to high out of pocket;
- Public shift – we are anecdotally hearing more maternity is shifting to public due to a reasonable offering.
What is the solution?
This week Australian Health Minister Mark Butler ruled out a taxpayer-funded bail out. Private hospitals want the insurers to help.
Our view: Either demand needs to rise or supply needs to fall. Both look hard to achieve without something radical.
A situation to watch...
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- Volvo hits reverse
In response to increased hybrid demand, Swedish auto maker Volvo Cars is now aiming for 90% of global sales to be electric by the end of the decade. The prior goal was 100% by 2030.
“It is clear that the transition to electrification will not be linear, and customers and markets are moving at different speeds of adoption,” Volvo Car Chief Executive Jim Rowan said in a statement.
Interestingly, hybrid cars generally use 70% less lithium compared with electric only. Piling on the pain for lithium producers.
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Anthony Doyle is Head of Investment Strategy for the Firetrail S3 Global Opportunities Fund. His primary responsibilities include fundamental idea generation, portfolio analysis, and economic insights including currency and macroeconomic risk management. Anthony has two decades of experience including 10 years working as an investment manager in the UK.
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This communication was prepared by Firetrail Investments Pty Limited (ABN 98 622 377 913, AFSL 516821) (Firetrail). It is for general information only. It has been prepared without taking account of any person’s objectives, financial situation or needs. It is not intended as a securities recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment. Any persons relying on this information should obtain professional advice before doing so.
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Head of Investment Strategy - Firetrail S3 Global Opportunities Fund
Firetrail Investments
Anthony Doyle is Head of Investment Strategy for the Firetrail S3 Global Opportunities Fund. His primary responsibilities include fundamental idea generation, portfolio analysis, and economic insights including currency and macroeconomic risk...
Expertise
Head of Investment Strategy - Firetrail S3 Global Opportunities Fund
Firetrail Investments
Anthony Doyle is Head of Investment Strategy for the Firetrail S3 Global Opportunities Fund. His primary responsibilities include fundamental idea generation, portfolio analysis, and economic insights including currency and macroeconomic risk...
Expertise
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