The Monday Report – 30 May 2022

This story features APPEN LIMITED, and other companies. For more info SHARE ANALYSIS: APX

The company is included in ALL-ORDS and ALL-TECH

World Overnight
SPI Overnight	7271.00	+ 83.00	1.15%
S&P ASX 200	7182.70	+ 76.80	1.08%
S&P500	4158.24	+ 100.40	2.47%
Nasdaq Comp	12131.13	+ 390.48	3.33%
DJIA	33212.96	+ 575.77	1.76%
S&P500 VIX	25.72	– 1.78	– 6.47%
US 10-year yield	2.74	– 0.01	– 0.47%
USD Index	101.67	– 0.10	– 0.10%
FTSE100	7585.46	+ 20.54	0.27%
DAX30	14462.19	+ 230.90	1.62%

By Greg Peel

Confirmation

On Thursday, local investors were looking a bit once-bitten-twice-shy with regard yet another turnaround session on Wall Street. We’ve been here often enough this year. But when Wall Street kicked on on Thursday night, investors became more positive.

And swung back to risk-on. Friday night saw Wall Street really hit the accelerator, and our futures were up another 84 points on Saturday morning.

Retail sales numbers for April released on Friday looked positive at face value, and enough to send the consumer discretionary sector to a session-winning 2.0% gain. Despite inflation angst, sales rose 0.9% in the month, to be up a whopping 9.6% year on year.

Yet the 0.9% was short of a run of 1%-plus numbers in prior months, and economists had forecast 1.0%. It’s not clear how much price rises are reflected in the gain vis a vis volumes. Plus April brought us the Easter and Anzac long weekends, which drove spending on holidaying, dining out and home gatherings, implying we copped those much higher food and fuel prices anyway.

Discretionary spending numbers were otherwise weak, with household goods sales down -2.7% in the month and department stores down -2.5%.

So if we look to May, we did have Mother’s Day but beyond that it’s likely the high cost of everything will come to bear on the next retail sales update. And we note consumer staples were the only sector to sit out Friday’s rally.

Energy (+2.3%), materials (+1.5%) and the banks (+1.1%) drove the index. The defensives of healthcare (+0.1%), telcos (+0.6%) and industrials (+0.5%) were quieter, while utilities followed energy (+1.5%) and real estate cheered the retail sales numbers (+0.9%). Technology was also “quiet” on only a 1.2% gain.

The latter included a -21.0% reversal for Appen ((APX)) – the latest victim of the on one minute, off the next takeover offer.

The winners’ board was quite a gamble, with PointsBet Holdings ((PBH)) up 16.4% for no obvious reason beyond “risk-on” and M&A potential in the sector. Tabcorp Holdings' ((TAH)) demerger got a nod of approval (+4.7%).

The opposite was true for Incitec Pivot ((IPL)), which is sizing up a demerger and fell -4.1%, while having reported a mixed earnings result recently, CSR ((CSR)) fell -4.7%.

This smacks of stock picking – selling the “duds” to buy the better offerings, or in the case of staples, selling what has worked on the way down and buying the losers.

We’ll see if that theme plays out again today, with the futures suggesting a 1.2% gain, which would take the ASX200 back through 7200.

Positive Sign

Wall Street has been itching for a rally that lasts more than a couple of sessions, even if it does ultimately prove to be of the bear market variety. Everyone agrees the market had become oversold, but there is scant faith in the final bottom yet been seen once the Fed starts withdrawing liquidity.

It’s a bit late in the day for the much-expected May rally to kick in, and with Wall Street closed tonight it leaves only Tuesday night to wrap the month, so Friday night was the better option for squaring up shorts and backing momentum into June.

Friday night’s rally confirmed the Dow had broken its eight-week losing streak in style, gaining 6.2% for the week. But the severely trashed Nasdaq gained 6.8%, dragging the S&P500 up 6.6% on the tech overlap.

Yet the major impetus on Friday night was the April private consumption & expenditure measure of inflation, which rose only 0.2% to mark the smallest monthly gain in a year and a half, slowing the year on year headline PCE to 6.3% from 6.6% in March.

April saw a pullback in oil prices, and May has seen prices recover, but the core, ex food & energy rate fell to 4.9% from 5.2%.

Wall Street has been impatiently waiting for the big inflation jumps of 2021 to cycle through to reductions in growth in 2022, while the Fed is trying hard to make it happen. The bi-monthly Michigan Uni index of consumer sentiment fell to 58.4 from 59.1 earlier in May, to mark a ten-year low.

Signs are that US consumers will be tightening the purse strings this summer. And with the average cost of petrol now US$4.60/gal, compared to US$3.00/gal a year ago, the famed “summer driving season” might just be a bit of a fizzer despite pent-up demand for escape. The less consumers spend, the more the pressure is eased on inflation.

As Nasdaq outperformance on the night suggests, investors poured back into the heavily beaten-down tech names, and after a couple weeks of mixed but mostly weak retailer earnings results, back into some of those names as well.

All S&P500 sectors closed in the green, with consumer discretionary, technology and communication services leading the charge, but there were no standout laggards across all eleven.

Wall Street now has a three-day break to think about what the strategy should be for June. How far can this go?

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1854.10	+ 3.50	0.19%
Silver (oz)	22.12	+ 0.12	0.55%
Copper (lb)	4.28	+ 0.02	0.44%
Aluminium (lb)	1.39	+ 0.00	0.22%
Lead (lb)	0.96	– 0.01	– 1.03%
Nickel (lb)	12.78	+ 0.74	6.14%
Zinc (lb)	1.74	+ 0.04	2.54%
West Texas Crude	115.07	+ 0.98	0.86%
Brent Crude	119.43	+ 1.79	1.52%
Iron Ore (t)	133.41	+ 0.94	0.71%

Nickel is playing its volatile games again, with traders citing “macro sentiment”.

And so much for global efforts to cool oil prices providing any respite.

Looks like the “strong” local retail sales numbers were behind a 0.9% jump for the Aussie to US$0.7162.

The SPI Overnight closed up 83 points or 1.2% on Saturday morning.

The Week Ahead

It’s GDP week in Australia, although January-March seems a long time ago. The final result is due on Wednesday, preceded by March quarter numbers for company profits and inventories today and the current account tomorrow.

We’ll also see monthly numbers for building approvals tomorrow and trade on Thursday.

China will report May PMIs tomorrow, and everyone else manufacturing PMIs on Wednesday – the first of the month.

The US will see consumer confidence along with the private sector jobs numbers, and then the non-farm payrolls report on Friday.

The US is closed tonight.

The UK gets out the bunting and shuts down Thursday and Friday for the Jubilee. Let’s hope she makes it.

China is closed on Friday.

Link Administration ((LNK)) holds its AGM today and Paladin Energy ((PDN)) tomorrow.

Elders ((ELD)) goes ex-div today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ABP	Abacus Property	Upgrade to Hold from Lighten	Ord Minnett
ALQ	ALS	Upgrade to Add from Hold	Morgans
CGF	Challenger	Downgrade to Lighten from Hold	Ord Minnett
CMW	Cromwell Property	Downgrade to Hold from Buy	Ord Minnett
DXS	Dexus	Downgrade to Hold from Buy	Ord Minnett
MGR	Mirvac Group	Upgrade to Accumulate from Hold	Ord Minnett
MQG	Macquarie Group	Upgrade to Buy from Accumulate	Ord Minnett
SCP	Shopping Centres Australasia Property	Downgrade to Lighten from Hold	Ord Minnett
TAH	Tabcorp	Downgrade to Neutral from Outperform	Macquarie

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

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