Devon Funds Morning Note - 18 August 2025

Monday 18th August 2025

Signs of life

Global

The Dow gained 0.1% on Friday, with United Health soaring 12% on news that Warren Buffett had taken a stake in the health insurer. The S&P500 and Nasdaq were 0.3% and 0.4% lower in what was a still a strong week, with gains of 0.9% and 0.8% respectively. The Dow jumped 1.7% over the five sessions. A softer than expected consumer price index print has raised hopes for a Fed rate cut next month, although a read on consumer sentiment suggests that concerns are growing over who will foot the bill for tariffs. The US consumer has been resilient to date though, with retail sales rising in July. We will get a further read on the state of the US consumer with earnings from Walmart, Target and Home Depot this week. Also in focus will be US housing data, the Fed minutes, and central bank chatter at the annual symposium in Jackson Hole.

The state of play with respect to trade tensions will be a top agenda item, but geopolitics will also be a feature. The “summit” between Trump and Putin did not yield anything substantial, with the Russian President evidently proposing another meeting in Moscow. The White House played down the meeting as “a listening exercise” with Trump saying “There’s no deal until there’s a deal.” It will be interesting to see how Zelensky responds to suggestions of a land swap – the Ukrainian President may take some comfort he will not be subject to the same bullying as his last meet in the Oval Office. He is being accompanied by several European leaders.

It seems the US consumer is also hanging in there. US retail sales rose as expected in July up 0.5% last month to US$726 billion, extending June's upwardly revised 0.9% move. On a year-over-year basis, sales increased 3.9%. It is worth pointing out that these numbers are not adjusted for inflation, so this could also just be about higher prices/tariffs being paid.

Americans love of cars continues to drive spending. Automobiles remained a key driver for the second consecutive month, with motor vehicles and sales parts jumping 1.6%. Excluding autos, core retail sales increased by 0.3%, suggesting a slight moderation in overall discretionary spending.

Indeed, there have been signs of spending fatigue and cautious consumer behaviour, particularly among lower-income households. We’ve seen suggestions of this during the earnings season and this was also on show in another print on Friday.

US consumer sentiment declined for the first time in four months in August, according to the University of Michigan, falling to 58.6 from 61.7 in July. This was well below consensus forecasts of 62. The drop was principally due to renewed concerns over inflation and a sharp deterioration in buying conditions for durable goods.

Consumers expect prices to rise at an annual rate of 4.9% (up from 4.5% in July) over the next year and 3.9% (from 3.4% in July) over the next five to 10 years, according to the University of Michigan survey. Consumers also see the employment market deteriorating in tandem.

This is having an impact on future spending plans. 58% of US consumers plan to cut back on spending this year as they brace for further inflation. Consumers may believe that, despite what the White House and recent CPI data may be saying, they will end up footing the bill. They might be onto something - in another data print, US import prices increase by 0.4% in July (against expectations for them to be flat).

This will not be lost on the Fed, even as markets are fully priced in for rate cut next month.

On the stock front, stake building and potential stake building were a feature for two big blue chips. United Health surged on Friday as Berkshire Hathaway increased its holding by US$1.6 billion. The company is now Berkshire’s 18th biggest position. Shares of the health insurer were down nearly 50% for 2025 amid the public blowback against the rising costs of health care and a Justice Department investigation into its Medicare billing practices. Michael Burry’s Scion Asset Management (of “The Big Short” fame) has also taken a stake.

Intel rose 3% on Friday, and surged 23% over the course of the week. There are reports that Trump administration is taking a stake in the beleaguered chip maker. Intel has had its fair share of problems, and has lagged the likes of Nvidia by some distance in the AI race. A stake being taken by the US government (at depressed prices) would likely be accompanied by more of a helping hand from officials to build out its US footprint further.

One chip-related stock under the pump on Friday was Applied Materials. Shares in the semiconductor equipment manufacturer tumbled 14% after earnings and revenues topped forecasts, but the current-quarter outlook missed expectations. Management said that current macroeconomic and policy environment was “creating increased uncertainty and lower visibility,” which was particularly affecting their business in China.

On the subject of China, the latest economic data has underscored slowing momentum in the economy. Reads for industrial production, retail sales and fixed asset investment in July all missed expectations. Industrial output grew 5.7% year-on-year, down from 6.8% in June and the weakest pace since November 2024, as flooding and extreme heat weighed on manufacturing. Retail sales rose just 3.7%, well below the 4.6% forecast and the slowest growth since December 2024, while fixed asset investment increased 1.6% in the January-July period, easing from 2.8% growth in the first half of the year. It appears there may well have been some anticipation of the tariff truce being extended for 90 days, with no frontloading of orders occurring. The CSI300 rose 0.7% on Friday, and had a strong week.

Japan’s market did even better. The Nikkei surged 1.7% on Friday and rallied 3.7% for the week. Claims from the US that Japan is behind the curve on addressing inflation have received a knock. Japan’s annual wholesale inflation slowed for the fourth straight month in July, rising 2.6% in July from a year earlier, slowing from the previous month’s 2.9%.

European indices also had a strong week. The STOXX50 gained 0.3% on Friday, and was up 1.9% over the five sessions.

New Zealand

The NZX50 rose 0.4% on Friday to 12,889, and was up 0.3% for the week. It is a busy week ahead, with 15 companies reporting locally, a services print, trade and credit card spending data, along with another dairy auction. There is also the small matter of the RBNZ meeting. Officials are expected to cut the OCR by 0.25%.

There was some good news on the manufacturing sector which has moved back into expansion during July, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI). The seasonally adjusted PMI was 52.8, up from 49.2 in June and above the average of 52.5 since the survey began. All five main sub-index values were in expansion, led by New Orders (the highest level of activity since March 2022) and production (the highest level since August 2022). Employment also edged into positive territory which is encouraging.

Despite the return to expansion, the proportion of negative comments from respondents stood at 58.6% (down from 65% in May/June). There is still some pessimism about over demand, costs, inflation and ongoing economic uncertainty, including the 15% tariff situation. Many manufacturers still cite a lack of confidence, and customers ordering only what is immediately needed. Activity has edged up, but we are still in a bit of a tepid state. Sounds like we might need another rate cut.

Meanwhile migration tailwinds continue to fade, and are now more like a stiff breeze. New Zealand’s net migration gain of 13,700 in the June 2025 year was down from a net gain of 70,400 in the June 2024 year. We had a net loss of 46,500 New Zealand citizens but there was a net migration gain of 60,200 non-New Zealand citizens. This was down though from the heady heights of a net gain of 115,800 in the June 2024 year. Migrant arrivals of non-New Zealand citizens have nearly halved from the October 2023 year.

New Zealand is not as attractive as it was.

This has also seen the brain drain continue with a net loss in the June 2024 year just below the record loss of 46,800 in the February 2025 year. There were 71,800 migrant departures of New Zealand citizens in the June 2025 year, just below the record of 72,400 in the February 2012 year.

Migrants aged 18 to 30 years made up 38% of the amount. At least we are better off than the peak back in 1979 when it hit 60%. Relative to our population this is 14 people are departing out of every 1,000.

At least though tourism is still humming. Stats NZ also reported that overseas visitor arrivals were 3.38 million in the June 2025 year, an increase of 162,000 from the June 2024 year. Australians are coming in droves, and numbers there rose 141,000 to 1.44 million. In the month of June, overseas visitor arrivals hit 186,800, which is around 87% of June 2019 levels pre-Covid.

Kiwis are also flying the coop on holidays, despite cost-of-living pressures. (particularly to Asia). Kiwis made a record 730,200 trips to Asia in the June 2025 year, up 20% on the year before. Asia accounted for nearly a quarter of all short-term overseas trips in the June 2025 year. The borders are busy!

Kiwis are finding dollars to go on trips despite rising pantry costs. Stats NZ reported that food prices increased 5.0% in the 12 months to July 2025, following a 4.6% increase in the 12 months to June 2025. Prices for the meat, poultry, and fish group rose 7.9% and were a big contributor. The average price of a kilo of beef mince costs $21.97 in July 2025, $3.50 more than a year ago. Milk is averaging $4.70 per two litres, up 16% annually. Away from food it is better news for rents – the 2.4% annual increase is the slowest since 2011.

On the subject of milk, A2 has released full year results this morning, with revenues jumping 13.5% to $1.9 billion. Earnings (EBITDA) rose 17.1% to $274.3 million. Growth in China/Asia drove the momentum, and the company is intending to pay a $300m special dividend. Guidance for net profit after tax was however flat at around $203m. Chinese birth rates are expected to decline, but A2 has been taking market share. The key announcement alongside the results is that A2 is transforming its supply chain with the acquisition of the Yashili manufacturing facility in Pokeno for $282m along with two existing China Label product registrations. The company is also divesting Matura Valley Milk for $100m.

Freightways has reported a 6.6% increase in full year revenues to $1.29b, with net profit rising 12.9% to $80 million. Group earnings (EBITDA) rose 7.7% to $246.8m. Allied Express in Australia performed strongly with volumes up 12%. Given the tepid state of the kiwi economy the result appears resilient, with Freightways making market share gains. The company has seen trading improve over the past six months, but is not providing earnings guidance.

Contact Energy has reported FY25 operating earnings (EBITDAF) of $872m, including a release of the Ahuroa Gas Storage facility onerous contract provision of $98 million which is now nil. Underlying EBITDAF is up 17% to $774 million. Against the backdrop of a volatile environment (i.e. the weather) and higher wholesale pricing, Contact saw a 34% uplift in geothermal generation (and as Tauhara and Te Huka 3 came online). The company is guiding for earnings of $980m for FY26, or $945m when accounting for $35m of transaction and integration costs associated with the acquisition of Manawa.

Australia

The Aussie market rose to a new record high on Friday, with the ASX200 adding 0.7% to 8,938. All sectors were in the green apart from technology which was slightly lower. The mining, financials and energy sectors were all up 1% or more. Westpac and ANZ both rose 2%. Ampol jumped 8% ahead of its numbers. Furniture retailer Temple & Webster fell 12%, while Amcor declined 10% on its numbers. Cochlear added 1% on its release. The ASX200 rose 1.5% for the week, aided by the RBA rate cut.

This morning construction company Lendlease has swung back into a profit of A$125m from a loss of A$1.5 billion last year. Fuel retailer Ampol has posted a 23% decline in full year profit, with profits at the company’s oil refinery business slumping. Full year profits were also under the pump at Bluescope Steel which has taken a A$439 million impairment at its US business. Revenues fell 4% to $16.3b while net profit after tax was 90% lower at A$83m. Outdoor advertising company oOh!media has delivered a 46% jump in first-half profit. Demand for outdoor signage is robust it seems.

National Australia Bank has reported a 3% increase in revenues for the third quarter, with net interest margin up eight basis points. Cash earnings were 1% lower at A$1.77 billion, with expenses up 3% on higher staff costs and increased technology spend. The bank said its operating expenses this financial year will be 4.5% higher due to payroll issues, estimated to cost A$130 million. Credit impairment charges also ticked up to A$254 million, driven mainly by those in business lending in Australia and New Zealand.

Comments from our readers

No comments yet