The Monday Report – 07 February 2022

This story features QANTAS AIRWAYS LIMITED, and other companies. For more info SHARE ANALYSIS: QAN

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

World Overnight
SPI Overnight	6993.00	– 41.00	– 0.58%
S&P ASX 200	7120.20	+ 42.20	0.60%
S&P500	4500.53	+ 23.09	0.52%
Nasdaq Comp	14098.01	+ 219.19	1.58%
DJIA	35089.74	– 21.42	– 0.06%
S&P500 VIX	23.22	– 1.13	– 4.64%
US 10-year yield	1.93	+ 0.10	5.64%
USD Index	95.49	+ 0.12	0.13%
FTSE100	7516.40	– 12.44	– 0.17%
DAX30	15099.56	– 268.91	– 1.75%

By Greg Peel

Come on, feel the noise

There was a lot of noise going into Friday’s session on the ASX. On Wednesday night in the US aftermarket, Meta reported earnings and fell -20%. More importantly to Australia, PayPal reported and fell -23%. Our BNPL sector was trashed on Thursday.

On Thursday night, Meta closed down -26% and Wall Street in general was trashed. Our futures closed down -72 points at 8am on Friday, despite the fact we’d arguably done the damage the day before. But then Amazon reported in the aftermarket, and jumped 17%. Snap reported, and jumped 57%.

The chances were Wall Street would call out Meta as a loner and rebound on Friday night. How would this all impact an the Australian market which, outside of BNPL, has little connection to US Big Tech?

The answer was a small fall on the open, followed by a swift rally to be up 25 points in the first half hour. By lunchtime we were then down -33, by 4pm up 18, and on the closing rotation, up 42.

Phew. Except that on Saturday morning, the futures closed down -41.

US tech volatility aside, the mid-session wobble on Friday was likely a response to the RBA’s quarterly Statement on Monetary Policy. The important numbers therein were a revised forecast of only 4.25% GDP growth in 2022, down from a prior 5.5%, unemployment to fall to 3.75%, previously 4.25%, and inflation to rise to 3.75%, previously 2.75%.

Wages are now expected to rise by 2.75%, up from a prior 2.5%, but match that to 3.75% inflation and you see the problem. The stock market turned tail as the Australian ten-year yield jumped 9 basis points to 1.96%. But, by the afternoon, all was forgiven.

In the wash up, technology bounced back 1.1%. Alan Joyce took a swipe at the hermit kingdom of Western Australia, and its indefinitely closed border, and Qantas ((QAN)) responded with a 4.8% gain, helping industrials up 1.2%.

Energy rose another 1.1%, and should be set for another decent gain today.

All sectors closed in the green except telcos, which had the day off.

Leading the index winners was battery metals miner Liontown Resources ((LTR)), which rose 6.2% after completing its capital raising. Then came News Corp ((NWS)), which reported earnings ahead of the bell and gained 5.7%.

Strong News Corp results usually reflect a solid contribution from its major shareholding in REA Group ((REA)), which typically beats on its results. But not this time. REA fell -0.4% and put the scare into Seek ((SEK)), which was the biggest loser on the day on -3.8%, and Domain Group ((DHG)), which fell -1.9%.

Our own earnings season starts to pick up pace this week but it doesn’t look like a strong start, given the futures closed down -41 points when the S&P500 rose 0.5% on Friday night.

Lies, Damned Lies…

Had there been no other distractions on Friday night, a 17% gain for Amazon in the day-session, not to mention a 58% jump for Snap, would have implied a cracking bounce-back for the Nasdaq and S&P. But there was the small matter of the US jobs report.

Economists were already expecting a weak, omicron-impacted jobs number for January, but when the private sector report out on the Wednesday night showed a loss of -300,000 jobs, forecasts turned negative for non-farm payrolls.

Then the number came in at a positive 467,000 jobs added.

The US ten-year yield leapt 10 points to 1.93% — its highest level since December 2019. The major indices fell once more, with the Dow down -300.

No one was expecting the jobs number, were it to be weak, would prevent the Fed from hiking in March. The question is whether the Fed will hike five times in 2022, or right up to the full seven. Friday night’s jobs number upped the odds.

But those earnings results were hard to ignore, and by late afternoon the Dow was up over 100 points, before fading into the close. Volatility is still king.

Amazon, Snap and other reporting tech stocks provided Wall Street with a great deal of relief, suggesting Meta’s problem was Meta’s problem, and not an industry problem. There was no bounce for Meta on Friday night. It closed down -0.3%.

Biden wasted no time in seizing on the record growth in jobs under his presidency to date, and on knocking off the IS leader, and on an omicron case-rate now on the decline.

There remains the issue of the Ukraine, and the ominous sign of Xi and Putin cosying up at the Olympics, and there are still more US earnings reports to come.

Meanwhile, oil prices power on higher, so headline inflation will not be easing in a hurry.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1808.40	+ 2.40	0.13%
Silver (oz)	22.50	+ 0.14	0.63%
Copper (lb)	4.46	+ 0.03	0.66%
Aluminium (lb)	1.41	+ 0.01	1.03%
Lead (lb)	1.01	– 0.00	– 0.07%
Nickel (lb)	10.62	+ 0.03	0.27%
Zinc (lb)	1.65	+ 0.01	0.40%
West Texas Crude	92.31	+ 2.12	2.35%
Brent Crude	93.27	+ 2.18	2.39%
Iron Ore (t)	146.60	+ 0.65	0.45%

By sticking to its intended 400,000bpd oil production increase, and not increasing it, OPEC-Plus has given the green light for oil prices to keeping on running. Big freezes across the US and Europe are not helping to alleviate demand.

China is back in business today, so metals prices might start moving again.

Presumably a -0.8% fall in the Aussie to US$0.7078 reflects the RBA’s reduced GDP growth forecast.

The SPI Overnight closed down -41 points or -0.6%.

The Week Ahead

Speaking of inflation, the US January CPI is out on Thursday night. The US will also see numbers for trade and consumer sentiment this week.

The UK reports December quarter GDP on Friday. Apparently the party planned for the occasion has been cancelled.

New Zealand is closed today, in case you don’t notice.

Locally we’ll see ANZ Bank’s job ads series today, the NAB business confidence survey tomorrow and Westpac’s consumer confidence survey on Wednesday.

The local reporting calendar begins to fill up this week, ahead of the avalanche that is the next two weeks.

James Hardie ((JHX)) is in the box today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ABB	Aussie Broadband	Upgrade to Outperform from Neutral	Credit Suisse
ABC	AdBri	Upgrade to Neutral from Underperform	Credit Suisse
COF	Centuria Office REIT	Upgrade to Outperform from Neutral	Credit Suisse
CPU	Computershare	Upgrade to Buy from Neutral	UBS
CSR	CSR	Upgrade to Outperform from Neutral	Credit Suisse
OZL	OZ Minerals	Downgrade to Hold from Add	Morgans
PNI	Pinnacle Investment Management	Upgrade to Add from Hold	Morgans
PPT	Perpetual	Upgrade to Accumulate from Hold	Ord Minnett
SWM	Seven West Media	Downgrade to Accumulate from Buy	Ord Minnett
TNE	TechnologyOne	Upgrade to Neutral from Underperform	Macquarie
		Upgrade to Neutral from Sell	UBS

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