Devon Funds Morning Note - 5 August 2025

Tuesday 5th August 2025

Fly like an eagle

Global

The US indices bounced back strongly on Monday, as markets regained their footing following the weak job numbers, and as investors came to grips with the implementation of reciprocal tariffs. Switzerland has issued a response after being somewhat stunned by its 39% rate, while India is also bracing for an increase in the duties it faces – Donald Trump said he would be “substantially raising” this due to the country’s “massive” purchases of Russian oil. This is also a tacit message to Moscow ahead of Trump’s insistence on a ceasefire in the Ukraine war by the end of this week. Markets have also regained some poise following the weak non-farm payrolls print, which may increase the prospect of a Fed rate cut next month. Two jobs that are set to be filled are for the Fed Governor (and a potential successor to Jerome Powell), and the Head of the Bureau of Labour Statistics – Trump plans to announce his replacements in the coming days. The earnings season, meanwhile, continues to be solid. Palantir jumped on its numbers, continuing a run that has seen shares in the AI darling soar ~2000% since late 2022.

The Dow rose 1.3%, the S&P 500 jumped 1.5%, and the Nasdaq surged 2%. With much focus on the various duty rates handed out on Friday, there has been some progress with America’s largest trading partner. The EU has announced that it will suspend its planned countermeasures against US tariffs for six months as officials work to finalise a joint statement and a definitive trade agreement.

Switzerland is in more flux. Following an emergency meeting, officials said on Monday that it was looking to make a more “attractive” trade offer, and highlight its foreign direct investments and research and development push in the US. Facing one of the highest tariff rates of any developed country, Switzerland is being penalised for running a US$38 billion bilateral trade surplus with the US last year, which was the 13th biggest for the world’s largest economy.

Switzerland is known for a lot of things (neutrality, mountains, cheese, knives, chocolates, clocks, and punctuality), but it is Swiss gold that is driving the distorted trade balance. Gold is not made/produced in Switzerland but is processed there – the country is the world’s biggest refining hub for the precious metal, with gold exports to the US of around US$15b last year (and nearly US$40b in the first quarter this year). Somewhat ironically, gold itself is exempt from US tariffs, which has increased calls for it to be ignored in the trade surplus calculations. Although even then, Switzerland exports around US$10b in pharmaceuticals to the US (where a sector tariff decision is yet to be made).

Switzerland is not about to change its historical position and become a military ally any time soon, so it is unclear what it can offer the US in return for a lower tariff. There have been some suggestions that the landlocked nation could buy US liquefied natural gas, but that would be physically convoluted and at odds with the country’s focus on hydroelectric and nuclear power. Between a rock and a hard place, it seems. The Swiss stock market fell as much as 2% on Monday before recovering to close just 0.2% lower.

Back to the US, Palantir (+4%) starred on Monday as the AI software provider’s revenues grew 48% during the quarter, and hit US$1 billion for the first time. The company also hiked its full-year revenue guidance to around US$4.145 billion. Net income rose 144% to US$327 million. The software analytics company has been an AI darling, but it is also seen as getting a boost from Donald Trump’s focus on cutting government costs. Palantir has lots of government contracts, which are seen as increasing its economic moat. There is a lot of focus on Nvidia as the world’s largest company, but Palantir has seen a bigger return stock price-wise (plus nearly 2000%) since the introduction of Chat GPT. The optimism around the stock can also be seen in the valuation – Palantir trades at around 275 times earnings.

It has meanwhile been reported that ChatGPT is shortly set to hit 700 million weekly active users (up from 500 million in March), with usage growing 4X year over year. OpenAI also now counts five million paying business users, up from three million in June, as enterprises and educators embrace AI tools. The time taken to reach its first million users seems a while ago now, but it still stands as a remarkable feat. Next stop, one billion.

Palantir’s PE is more expensive than Tesla's (170x), which was also in the news overnight. The company has awarded Elon Musk an interim pay package worth about US$29 billion. The award will be forfeited if the legal battle over Musk’s 2018 compensation ends with him being able to exercise shares from that package, which was valued at US$56 billion when it vested.

Another stock enjoying a positive response to its results was Tyson Foods. The shares rose 2% as the meatpacking company posted better-than-expected revenue (US$13.9b) and earnings, and raised its revenue guidance for the full year. Chicken demand has perked up amid cost-of-living pressures, with management saying more consumers are opting for nuggets and boneless chicken breasts. Meanwhile, livestock feed (the top expense when raising poultry) has gotten cheaper as grain prices fall, helping drive margins. Operating profit from the chicken business rose to US$367 million during the company’s fiscal third quarter, up from US$244 million a year ago.

On the subject of birds, shares of American Eagle soared 24% as Donald Trump complimented the retailer’s marketing campaign with actress Sydney Sweeney. The retailer had partnered with the “Euphoria” star for its fall marketing campaign, but the ads have been panned as chauvinistic (given the accompanying marketing tagline that Sweeney had great “jeans”). Trump noted that Sweeney was a registered Republican, and that the jeans were “flying off the shelves.” American Eagle had been going through a sales slump, and time will tell if the campaign has positively or negatively impacted sales.

Across the Atlantic, the STOXX 50 rebounded 1.5%. Curiously, investor confidence across the eurozone has unexpectedly dropped to its lowest in four months, with the trade deal struck between EU and US officials dampening spirits. The FTSE 100 in the UK jumped 0.7%. Bank stocks were the standout performers after the UK Supreme Court ruled that hidden commissions on car loans were not unlawful, significantly reducing the risk of large-scale compensation payouts. Lloyds Banking Group surged 8%, its biggest daily gain in over nine years. Oil major BP climbed 1.1% after announcing its tenth oil and gas discovery of the year, this time at the Bumerangue prospect offshore Brazil. The find is described by BP as its largest in 25 years, added to a growing list of hydrocarbon-focused projects amid efforts to reassure investors of its “post-green” pivot.

In Asia, the Nikkei fell 1.3%, but the CSI 300 in China rose 0.3%, and the Hang Seng rallied 0.9%. In Bangkok, Thai Airways soared 220% as it resumed trading some four years after going into bankruptcy-protected restructuring in 2020 at the onset of the pandemic.

New Zealand

The NZX 50 eased 0.4% to 12,684. Gentrack fell 3.2%, but Mainfreight edged back some minor ground after last week’s 10% fall, rising 1%. It was a very light day in terms of company announcements and data releases.

Briscoes rose 2% second quarter sales update, and Tourism Holdings rose 0.5% after rejecting the recent takeover approach as undervalued and opportunistic. See yesterday’s note for further details on both announcements.

Australia

The ASX 200 was flat at 8,663. The gold sector surged 3.6% while the consumer staples and mining sectors both added 1.2%. BHP rose 1%. Coles and Woolworths rose 1.7% and 1.3%, respectively. Drinks retailer Endeavour Group jumped 3% as its executive Chairman resigned over boardroom disagreements. Tech and financials were softer. ANZ fell 1.6%. The SPI futures are pointing to a 1% lift on the open for the Aussie market following the rally in the US.

Beach Energy jumped 3.5% as it trebled its second-half dividend payout despite recording an impairment-driven A$43.8m annual loss and providing soft guidance for production and a big jump in costs for decommissioning old fields. The oil and gas producer also cut reserves last week. Excluding one-time items, though, net profit rose 32% to A$450.5 million on sales that rose 13 % to A$2.1 billion.

Real estate portal Domain is set to leave the boards. Shareholders have overwhelmingly voted in favour of selling Australia’s second-largest online property listings company to US giant CoStar. Shares in Nine Entertainment, which has a 60% shareholding, rose 0.6%. The deal now just needs court approval tomorrow.

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