The Monday Report – 02 May 2022

This story features UNIBAIL-RODAMCO-WESTFIELD SE, and other companies. For more info SHARE ANALYSIS: URW

The company is included in

By Greg Peel

Buy Australia

The most notable aspect of Friday’s trade on the ASX was its uniformity.

If we disregard a 2.3% gain for the tech sector – a foolish move given Amazon’s share price was collapsing as our market opened – then all bar two sectors rallied in a range of 1.0-1.9%.

Only materials (+0.4%) lagged, on a dip in the iron ore price, while real estate just missed out with 0.9% as UR Westfield ((URW)) topped the losers’ board with a -4.4% fall.

The index opened up 70 points and dipped down to up 50 on and off during the session, only to see a late kicker. While we might put that down to end of month window-dressing, the news from stockbrokers is that the foreigners are back.

With the US economy one quarter away from a possible recession, and Europe assumed to be in one already, the commodity-backed Australian market is for the first time in a while looking like the place to be. TINA has donned an Akubra.

The global commodity supply-side is being completely disrupted by the war, and while Chinese lockdowns are countering on the demand-side, Beijing is in “do whatever it takes” mode with regard fiscal and monetary stimulus, with infrastructure the main target.

It would all be such a terrific argument if Wall Street didn’t tank on Friday night, sending our futures down -94 points on Saturday morning.

Foreign buying also appears at odds with our currency, which continues to slip away. (To buy Australian stocks, foreigners must buy Australian dollars.) This is good news for the exports that drive our economy, but bad news for Aussie consumers who buy a lot of foreign-made stuff.

Shares in “Australia’s Amazon”, Kogan ((KGN)) fell -14% on Friday to a three-year low after the retailer reported a downbeat start to FY22, with sales going backwards and the business swinging to a loss as consumer demand wanes. Kogan had already had its ASX200 membership revoked.

Amazon bemoaned rising costs and supply constraints when it released weak June guidance in Thursday night’s US aftermarket. Sleepy ResMed ((RMD)) said much the same here on Friday, warning that chip supply problems were eating away any of the benefits of its competitor’s major product recall.

Looks like gambling’s your best bet. PointsBet Holdings ((PBH)) won Friday with a 10.7% jump, citing a growing US business.

But no point in banging on any further. Falls in both Amazon and Apple on their earnings/guidance had Wall Street back in panic mode on Friday night, which is why our futures suggest we’ll give up all of Friday’s gains today, and some.

Simply the Worst

So how did Wall Street fare in April – historically one of the most positive months of any year?

Well, the Nasdaq had its worst month since October 2008 (Lehman Bros collapse) and the Dow and S&P500 had their worst Aprils since 1970 (dunno, I was in primary school).

The 2022 pattern, of which I spoke last week, held true again on Friday night, except this time the snap-back rally from a bottoming session lasted only the one day when at least two has been standard. The trigger for major falls – most notably a full -4% for the Nasdaq – was a -14% plunge for mega-cap Amazon, as well as a -3.7% drop for the most defensive mega-cap of them all – Apple.

Amazon had posted a weak earnings result after the bell on Thursday night, blaming supply constraints and inflation, and guided to another weak quarter in June. Apple had actually posted stellar March quarter numbers, but then pointed to supply issues in locked-down China as impacting on the June quarter.

Amazon is a big slice of the Nasdaq and S&P500, while the world’s largest company is in all three indices. Aside from the numerical impact these falls had on the indices, on many an ETF, and many an individual 401K (US equivalent of super), it seemed the resultant sentiment was the complicit driver of Friday night’s general rout, in which all S&P sectors closed in the red.

If Australia saw a window-dressing kicker on the last day of the month, the US saw a “get me out”. The S&P500 fell through the March closing low which has offered support ever since, but if you like clutching at straws, not yet through the February intra-day low posted the day Putin went troppo.

And this in the face of a slight glimmer of hope in Friday’s US PCE inflation numbers. The March headline personal consumption & expenditure measure of inflation came in at 6.6% annual, up from 6.4% in February, but the core rate (ex-food & energy), which is the Fed’s  go-to measure, fell to 5.2% from 5.3%.

More straw-clutching, maybe, and Putin had only gotten started in March, so too China’s lockdowns.

For many a stock market veteran, such as Warren Buffett, who held his annual stockholders’ gathering on Friday night, it’s a case of “bring it on”. Wall Street had become way overvalued post the covid crash, on the Fed plasma it was receiving for far too long, and such a washout is both healthy and helpful when one can restock portfolios at attractive levels once the panic-merchants have done their dash.

Fed meeting this week.

Commodities

A reported increase in nickel sulphate inventories in China was apparently the cause of the nickel price pullback on Friday night.

Otherwise, commodity markets continue to wrestle with the supply-side impact of Russia/Ukraine and the demand-side impact of Chinese lockdowns, themselves countered by Chinese stimulus.

Not even a -0.7% pullback for the US dollar index could prevent the Aussie falling -0.3% to US$0.7074.

The SPI Overnight closed down -94 points or -1.3% on Saturday morning.

The Week Ahead

Former RBA governor Glenn Stevens said in 2007, just before the Kevin-07 election, that it was more apolitical to raise rates when required than to do nothing because there is an election on. Philip Lowe makes a decision tomorrow.

The Fed’s decision will be known on Thursday morning our time.

We’ll see numbers for job ads, retail sales, building approvals and trade this week.

The US will see April jobs numbers.

The Bank of England holds a policy meeting on Thursday.

Following May Day, the UK is closed tonight and China is closed until Friday.

Unrelated, Japan is closed Tuesday to Thursday.

All of ANZ Bank ((ANZ)), National Bank ((NAB)), Macquarie Group ((MQG)), REA Group ((REA)) and News Corp ((NWS)) report earnings this week, kicking off on Wednesday.

The Australian share market over the past thirty days…

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms