Devon Funds Morning Note - 14 May 2025

Wednesday 14th May 2025

Back in black

Global

The S&P500 jumped another 0.7% overnight, continuing a rally sparked by the White House’s pause on tariffs, and optimism around trade negotiations, fuelled further by this week’s cessation of hostilities between the US and China. Adding to the positive mood overnight was Donald Trump’s visit to the Gulf States, which has coincided with Saudi Arabia announcing a chip deal to invest US$600 billion into the US. In what has been an extremely volatile first 5 months of the year (the S&P500 was down 17% at one point), the index has now erased all its losses for 2025, and is “back in the black.” The rapid reduction of tariffs between the US and China, along with the prospect of similar outcomes with other major trading partners, has also raised hopes that inflation will continue to fall. Adding to positive sentiment overnight was a softer-than-expected inflation print with the CPI falling to 2.3% year over year in April, its lowest since February 2021.

The Nasdaq soared 1.6%, while the fell 0.6%, weighed by United Health, which fell 18% as the health insurer announced the departure of its CEO and suspended guidance due to higher medical costs. At the other end, Boeing lifted 2.5% on reports that China is lifting its ban on deliveries from the plane maker with the recent easing of trade frictions. Nvidia soared 5.6% to close above US$3 trillion in market cap on the news that the 18,000 of its top Blackwell AI chips will be winging their way to Saudi Arabia, where they will be used in a 500 megawatt data centre.

The White House also announced Saudi Arabia’s commitment to invest US$600 billion in a series of deals with the U.S, which includes a US$142 billion defence sales agreement (double Saudi’s existing budget), providing the kingdom with “state-of-the-art warfighting equipment and services from over a dozen U.S. defence firms.” Trump also had another defence-related announcement, saying that he will order the cessation of sanctions against Syria “in order to give them a chance at greatness.” Syria has been designated a state sponsor of terrorism by the U.S. government since 1979, but the US is now looking to normalise relations with the country’s dictator Assad now gone and a new President in place. Trump added, “Now, it’s their time to shine. We’re taking them all off. ... Good luck Syria.” It has been a big week for cooling of relations on key trade and geopolitical fronts.

Adding to the air of positivity was softer-than-expected inflation data. The CPI increased 2.3% year over year in April, below expectations for 2.4%. Month over month, CPI climbed 0.2% (shelter prices accounted for half of the move), matching expectations. Egg prices tumbled, falling 12.7%, though they were still up 49.3% from a year ago. The core CPI also increased 0.2% for the month, while the year-over-year level was 2.8%, against forecasts for 0.3% and 2.8%, respectively. With the increase in CPI, real average hourly earnings were flat for the month and were up 1.4% from a year ago. There remains much uncertainty about how tariffs will impact inflation, but the picture is more encouraging than it was.

The inflation numbers were not surprisingly seized upon by Trump, who promoted a familiar narrative on socials - “No inflation, and prices of gasoline, energy, groceries, and practically everything else, are DOWN!!!” Trump wrote in a social media post. “THE FED must lower the RATE, like Europe and China have done. What is wrong with Too Late Powell?” He went on to say that the Fed’s strategy was “not fair to America, which is ready to blossom”. He bemoaned, “Just let it all happen, it will be a beautiful thing!” No pressure then.

Back to the stock front, Microsoft shares were flat as the company said it is laying off 3% of employees across all levels, teams and geographies, affecting about 6,000 people. A spokesperson said one objective was to reduce layers of management. Companies across the tech sector have been leading the stock market, but are also the biggest in terms of driving layoffs (“you are what you eat”, perhaps given the extent to which AI has driven investor sentiment) over the past year. Last week, cybersecurity software provider Crowdstrike announced it would lay off 5% of its workforce. Blue chips across some more traditional sectors are going the other way – as noted yesterday, McDonald’s has announced plans to hire up to 375,000 workers across its company-owned and franchised U.S. restaurants this summer.

Another tech company on the charge higher was Coinbase. The crypto exchange had its best day on the market since the day after President Donald Trump’s election victory in November. Coinbase shares soared 24% on news that it is getting added to the S&P 500. The stock has been volatile this year, with enthusiasm over the incoming administration’s more crypto-friendly policies countered by a lack of legislation to date.

Donald Trump also appears to have been more focused on driving value in his own family’s meme coins. His $TRUMP meme coin surged to US$75 after Trump announced over his Inauguration weekend, but is currently trading around US$14. Since it was launched in January, 592,962 wallets have lost a combined US$3.9 billion. There is at least some comfort for top holders. The President has been running a contest to have dinner with him – the top 220 holders of the coin spent an estimated US$148 million (US$18.5m for the top of the leaderboard) and are being “rewarded” with an attendance at a gala dinner. The terms and conditions of the comp noted that Trump may not attend, and it could be “cancelled for any reason.” A win-win for Trump in any event – entities behind the Trump coin have earned US$320 million in fees to date.

On a more sedate side of the equation, shares in Hertz travelled 17% lower. The company delivered disappointing first-quarter earnings and fleet cuts amid slower bookings and tariffs. Automotive revenue for the quarter was US$200m less than expected at US$1.81 billion, falling 13% year over year, and the bottom-line loss exceeded estimates. On the brighter side, the company has been taking costs out and vehicle sales to retail customers were a record, amid a strong residual value market, all amid Trump’s tariff policies. Hertz shares are still up over 55% year to date, and with an activist having built up a near 20% stake.

Across the Atlantic, the STOXX50 rose 0.4%. The German Dax rose 0.3% to near a record high. The German ZEW economic sentiment index jumped to 25.2 in May from -14 in April, well above expectations. Bayer jumped 2.8% after the pharmaceuticals firm beat on the top and bottom lines on its first-quarter results. Bayer also added that it may be able to offset any impact from tariffs through ‘mitigation measures.’ Vestas soared 11% after the wind turbine maker reported a 29% year-on-year jump in first-quarter revenue. Though Reinsurer Munich Re fell after the reinsurer said claims arising from January’s Los Angeles wildfires are expected to total €1.1 billion.

In the UK, the FTSE100 was flat. Despite the good news around the US trade deal, data points towards a softening in the UK economy. Pay growth has moderated to 5.6% year-on-year in the three months to March, down from 5.9% previously and well below the 6.4% recorded in the final quarter of 2024. The number of payrolled employees fell by 47,000 in March and dropped 33,000 further in early April. The unemployment rate edged up to 4.5%, the highest since mid-2021. The Bank of England has been given more reasons to cut rates further.

In Asia, the Nikkei surged 1.4%. Asian markets generally had a more subdued reaction to the US/China trade deal progress. The CSI300 rose 0.2%, while the Hang Seng fell 1.9%, with tech stocks pacing the declines. Both indexes logged strong gains in the previous session. The Nifty50 in India fell 1.3%, partially reversing the best one-day gain since February 2021, following optimism over the ceasefire with Pakistan. India’s headline inflation also eased to 3.16% in April, the sixth consecutive month of decline.

New Zealand

The NZX50 jumped 0.87% to 12,786 following the news of the truce and retreat between China and the US. Stocks at the pointy end of trade sentiment rose. Fisher & Paykel Healthcare rose 2.8%. This was despite Trump’s executive order around the health sector (see yesterday’s note) and also with the firm having the majority of its manufacturing operations supplying the US based in Mexico, which appears not to be caught by tariffs due to the USMCA agreement. Mainfreight rose 4.2%. ANZ accounts for 75% of the logistic’s firm’s earnings (and the US just 8%), but trade has been disrupted by the stand-off. Skellerup, which manufactures much of its rubber offerings in China, rallied 4.2%.

Elsewhere, Meridian Energy fell 1.4% after announcing the deal to buy Z Energy’s electricity retail business, Flick Electric, for $70m. Shares in Vista Group leapt 2.8%. The cinema software group has announced another deal, with Picturehouse Cinemas in the UK, committing to implement the Digital Enablement solution of Vista Cloud for its 25 cinema sites. Picturehouse is owned by Regal Cineworld Group, one of the largest cinema exhibitors globally, with over 400 Regal sites in the US, plus 89 Cineworld sites and 25 Picturehouse sites in the UK and Ireland. A developing relationship should be good news for Vista.

On the data side, the “ANZ Truckometer” appears to suggest that the economic recovery is actually “bubbling away” under the surface. The Light Traffic Index lifted 0.6% in April and is unchanged versus a year ago. ANZ notes that light traffic (motorbikes, cars and vans) is generally a good indicator of the state of demand, providing a six-month lead on momentum in the economy, reflecting discretionary spending on outings, movement of couriers and tradespeople. The trend in light traffic is mildly upward over recent months, and in per capita terms, has flattened out after a sharp drop. The Heavy Traffic Index, though, rose 2.7%, and is up 1.7% y/y. It is trending higher in absolute and per capita terms. Heavy traffic data (mostly trucks, but also buses) tends to provide a steer on production GDP in real time.

Overall, staying invested through the market turmoil since the start of April and retaining a cool head has proven the right strategy. The NZX50 is also up over 7% so far in May.

Australia

The Aussie market lifted by 0.4% to 8269. The index has also reclaimed all post-Liberation Day losses and is up over 5% since the end of March. Gold prices fell, but oil and iron ore prices gained, with knock-on sector impacts. The technology and energy sectors were both up over 3% yesterday. Healthcare was up 2% following Trump’s mellower-than-expected executive order on prescription prices. Telix Pharmaceuticals jumped 3.6% and CSL gained 2.4%. On the downside, gold was 5% lower. CBA was 0/6% lower, but Westpac gained 1.8%. BHP rallied 2.1%.

Other stocks seen as benefiting from a cooling of trade frictions rallied. US-focused Corporate Travel Management and Breville both jumped 10%. Block and Flight Centre Travel Group both soared 6%. Life360, which makes its tracking devices in China, leapt 14%.

Elsewhere, PolyNovo jumped 14% after announcing positive results from an in-human study of its wound healing product, NovoSorb, to treat and manage type 1 diabetes. Ampol rose 1.1% after announcing the sale of its retail electricity business in New Zealand. Self-storage operator Abacus Storage King rose 1.7% after rejecting a takeover bid after an independent committee judged the offer was inadequate.

This morning, Commonwealth Bank is out with quarterly results, which showed a 6% rise in cash profit to A$2.6 billion, slightly ahead of estimates on stable margins. Business lending rose 9.1% to A$3.7 billion. Expenses have lifted 1% on increased spending on staff and technology. Loan impairment expenses were A$223 million, compared with A$191 million a year earlier.

Comments from our readers

No comments yet