The Monday Report – 09 May 2022

This story features MACQUARIE GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: MQG

The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

No Chance

The ASX200 may have lost -159 points on Friday, but it did so in the first half hour of trade. There was a little sojourn to down -200 at midday, but otherwise share prices took a step-down from the open and that was that.

Sector moves were reasonably uniform, with nine of eleven sectors falling by -2% or more. The “winners” on the day were the defensives of consumer staples, down only -0.2% as investors hid in the supermarket aisles, and to a lesser extent utilities, which fell -1.5%.

The big loser in percentage terms was of course technology, down -4.5%. Real estate lost -3.4%, as it continues to be thumped by rising bond yields.

The trigger was the big fall on Wall Street overnight, which had followed a big jump on Wall Street on the Wednesday night, following the Fed release. The market’s take on the Fed release, and more so the press conference, was very different on Friday night than on Thursday night. More on that below.

It didn’t help on Friday that the RBA’s quarterly Statement on Monetary Policy included a warning inflation could exceed the board’s expectations (headline 6.0% by year-end, core 4.75%) if workers demand higher wages to compensate for increased living costs, as it forecasts the jobless rate to decline to its lowest level in almost half a century.

No mention of the impact of a new government throwing money at punters to counter the cost of living.

The Aussie ten-year yield rose 9 points on Friday to 3.47%. The two-year yield, which is seen as the closest proxy for where the cash rate is headed, is at 2.73%, compared to the current cash rate of 0.35%.

Among the day’s earnings reporters, Macquarie Group ((MQG)) fell -7.8% on its FY22 result, which profit-wise was up 56% year on year. The market was spooked by no guidance being offered, when typically Macquarie offers guidance commentary that ultimately proves conservative.

REA Group ((REA)) fell -8.1% on its quarterly numbers, dragging major shareholder News Corp ((NWS)) down -7.8%.

It was indicative of the weak session that none of these three made it on to the top five index losers’ board. That contained the usual suspects, as well as IDP Education ((IEL)), which is impacted by Chinese lockdowns. It fell -8.2% for fifth spot.

Speaking of Chinese lockdowns, despite growing anger with the CCP’s handling of the Shanghai lockdown, and talk of ructions in the government ranks, what the Financial Times describes as a “stunning report” from a politburo standing committee meeting chaired by the president warned against “any slackening in the control efforts” and stressed the importance of “resolutely fighting any attempts to distort, question or dismiss China’s anti-covid policy”.

The Hang Seng fell -3.8% on Friday, after being closed all week.

The fallout has included some sharp moves down in metals and minerals prices on Friday night, noting China was back from holiday on Friday.

With the S&P500 closing down -0.6% on Friday night, our futures were down -0.7% on Saturday morning, with commodities no longer our safety net.

Imperfect Number

Wall Street’s sharp rally on Wednesday night was attributed to Jerome Powell declaring a 75 point Fed funds rate hike in one go was not currently being considered by the FOMC. Instead, 50,50,50 is the plan so far.

Wall Street’s capitulation on Thursday night has since been attributed to the Fed implying 75 points was off the table.

While Wednesday night’s press conference may have brought blessed short term relief in the hour or so of trading left in the day, as is always the case, the “smart money” lets the traders go berserk in that period before responding the following day.

The smart money believes Powell has erred in taking 75 off the table (not that he actually has – just not right now), as inflation needs to be tackled aggressively before the Fed loses control.

Others fear the Fed will be too aggressive and send the US into recession.

It also didn’t help that on Thursday night the Bank of England declared the best cure for high inflation is high inflation – high prices lead to demand destruction – implying a tepid policy response. But as is oft highlighted, most periods of high inflation are caused by excess demand, but this round is a supply-side issue due to the pandemic, then the war, and now perpetuated by Chinese lockdowns.

The US added 428,000 jobs in April, it was revealed on Friday night, when 400,000 were forecast. The unemployment rate remained steady at 3.6%. This is not suggestive of a recession around the corner.

But some would rather see the unemployment rate rise – not on fewer new jobs but on greater participation to fill the stubborn backlog of job vacancies which is pushing wages higher. That said, average hour wage growth cooled to 0.3% in the month when 0.4% was expected, so in all a mixed bag of data.

Wall Street posted yet another of its possible bottoming sessions on Friday night, with the Dow dropping over -500 points from the open, returning to the flatline, dropping -300 points, returning to the flatline, and closing down -98. The stock market largely tracked the bond market, in which the ten-year yield also fluctuated in the session before closing up 6 points to 3.12%.

Despite all the dust, the S&P500 only closed down -0.2% for the week, although it was the fifth straight losing week and the benchmark is down -15% from its high. The Nasdaq closed down -1.5% and is down -25%.

The weakness has come during what has actually been a positive earnings season, in terms of percentage beats of earnings and revenue forecasts. However, it has been June quarter guidance that has sparked some serious concerns, and serious share price falls on the day.

On Friday night sportswear company Under Armour warned of supply-side issues in locked-down China, and fell -26%.

Commodities

We can thank China’s Politburo for metal and mineral prices, and the counter of the EU’s proposal to ban Russian imports for oil price strength.

The impact of commodity price falls has the Aussie down -0.6% at US$0.7071.

The SPI Overnight closed down -51 points or -0.7%.

The Week Ahead

The US reports April CPI numbers on Wednesday night. I could leave “the week ahead” right there. If it comes in lower than March a swift rally is on the cards. If it comes in higher…

The US will also see the PPI thereafter and consumer sentiment.

China posts April trade and inflation data.

Locally we’ll see the NAB business confidence survey tomorrow and the Westpac consumer confidence survey on Wednesday.

Westpac ((WBC)) reports earnings today.

Across the week, earnings reports are due from CSR ((CSR)), Pendal Group ((PDL)), GrainCorp ((GNC)), Orica ((ORI)) and Xero ((XRO)).

There is also a handful of AGMs this week.

ANZ Bank ((ANZ)) goes ex-div today.

The Australian share market over the past thirty days…

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