The Monday Report – 14 February 2022

This story features GOODMAN GROUP, and other companies. For more info SHARE ANALYSIS: GMG

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

World Overnight
SPI Overnight	7075.00	– 33.00	– 0.46%
S&P ASX 200	7217.30	– 71.20	– 0.98%
S&P500	4418.64	– 85.44	– 1.90%
Nasdaq Comp	13791.15	– 394.49	– 2.78%
DJIA	34738.06	– 503.53	– 1.43%
S&P500 VIX	27.36	+ 3.45	14.43%
US 10-year yield	1.96	– 0.08	– 3.74%
USD Index	96.08	+ 0.49	0.51%
FTSE100	7661.02	– 11.38	– 0.15%
DAX30	15425.12	– 65.32	– 0.42%

By Greg Peel

Behind the Curve?

In the wake of the hot US inflation number on Thursday night, and the St Louis Fed president’s call for a full 1% hike in the space of three scheduled Fed meetings, the most notable move in the Australian market on Friday was another 10 point jump in the local ten-year yield to 2.20%, compared to the US's 2.03%.

In Philip Lowe’s testimony to parliament on Friday he reiterated that the RBA will remain “patient”, and there’s as much risk in moving too early as there is too late, but it is entirely possible that countries with higher inflation rates will need a bigger adjustment in interest rates than currently anticipated, and thus it is plausible the RBA could raise rates later this year depending on the economy.

It’s not like the market could not have assumed this for itself, but Lowe’s earlier, stubborn stance of no rate hike before 2024 seems but a distant dream.

Yield-sensitive sectors were among the hardest hit in the stock market on Friday. Property fell -2.7%. Even can-do-no-wrong Goodman Group ((GMG)) fell -3.9%, with supply issues biting.

Utilities fell -2.1% and industrials -1.9%, although industrials have become a little less yield-sensitive now Sydney Airport has left the building. Telcos and staples played a little more defensive in falling -1.4%.

Technology copped the biggest fall (-3.8%), following down the Nasdaq but also on local bond yields, for the same reason, and healthcare did not hold up its end (-2.1%).

Materials was the only sector to close in the green (+0.3%), on higher iron ore and base metals prices, which were all lower on Friday night. Financials was the second best performer in falling only -0.5%, helped by a well-received earnings report from Insurance Australia Group ((IAG)), and higher yields.

The local earnings season steps up the pace this week but in the face of elevated macro uncertainty, firstly on Fed policy concerns but now on heightened geopolitical risk. The Russia-Ukraine thing has been hanging ominously in the background for a while now, amidst varying opinions on Putin’s intentions, but as of Friday night, the US National Security Agency became convinced Russia could invade at any moment.

With ASX200 down -71 points on Friday, on Saturday morning our futures suggested -33 points, or -0.5% to the S&P500’s -1.9% fall.

Arguably, what happens in Eastern Europe seems a long way away, but considering oil prices jumped over 3% on Friday night, Australia is not immune to the consequences, both positively (our own oil & gas companies) and negatively (everybody else).

Not exactly helpful in the current inflationary environment.

Get out now

Nobody knows exactly why the NSA – a US intelligence agency more secretive and insidious than the CIA – has suddenly decided Putin is about to invade, even before the end of the Olympics, and maybe even this weekend (just past), because they’re not telling.

But while the Biden Administration has been criticised up to now, even by the Ukrainian government, for causing undue panic, the evacuation of the US embassy and a directive to US citizens to get out within the next 48 hours (as of Friday) suggests they must know something.

At least, that’s the way Wall Street decided to play it on the news.

Having tumbled -500 points on Thursday night – not because of the CPI print itself but because of James Bullard’s one-percent-before-July call — the Dow was up 200 points from the open on Friday night, until the NSA spoke up. There followed a swift flight to safety.

The US ten-year bond yield, which had jumped 10 points on Thursday night to 2.03%, duly gave back those 10 points on Friday night. The gold price rallied thirty dollars despite the US dollar gaining 0.5%.

Stock indices were trashed again. The Nasdaq, having fallen -2.1% on Thursday night on rising yields, fell another -2.8% on Friday night on falling yields.

Suddenly, Fed policy was not the issue, but with oil prices shooting up again, it is very much part of the inflation equation. Wall Street has decided to play it safe, as the ramifications of a Russian invasion, and the subsequent US and other Western sanctions that will follow, are unclear.

In other news, and in a survey taken before Friday night, Michigan Uni’s bi-monthly index of US consumer sentiment fell to 61.7 from 67.2 (100-neutral) to mark the lowest level since October 2011, with inflation cited as the major concern.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1859.00	+ 31.10	1.70%
Silver (oz)	23.57	+ 0.38	1.64%
Copper (lb)	4.45	– 0.16	– 3.53%
Aluminium (lb)	1.45	+ 0.02	1.20%
Lead (lb)	1.04	+ 0.00	0.15%
Nickel (lb)	10.71	– 0.17	– 1.52%
Zinc (lb)	1.65	– 0.04	– 2.16%
West Texas Crude	93.10	+ 3.04	3.38%
Brent Crude	94.44	+ 3.08	3.37%
Iron Ore (t)	150.15	– 3.60	– 2.34%

The “risk-off” sentiment was also apparent in base metal markets, according to commentators, with profit-taking noted.

The same may be said for iron ore.

Gold balanced out the jump in the US dollar with the fall in yields, as the safety play.

There are few who do not assume oil will hit US$100/bbl.

The Aussie is off -0.4% at US$0.71.39.

The SPI Overnight closed down -33 points or -0.5%.

The Week Ahead

It’s never helpful to have major macro drivers impacting on the market during reporting season, as it clouds individual performance assessments. But that’s what Australia is looking at as the season shifts up into top gear this week.

With the RBA remaining “patient”, our January jobs report on Thursday will be interesting.

China, the UK and Japan all report CPI data this week, and Japan reveals its December quarter GDP result.

The US PPI number for January is out tomorrow night, and Wednesday night brings the minutes of the January Fed meeting, held before last week’s CPI release.

The US will also see January numbers for retail sales, industrial production, housing starts and existing home sales.

Among today’s reporting companies are Bendigo & Adelaide Bank ((BEN)), Carsales ((CAR)), Goodman Group and JB Hi-Fi ((JBH)).

For upcoming earnings result dates, and a summary of results to date, please refer to the FNArena Corporate Results Monitor.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
BAP	Bapcor	Upgrade to Buy from Hold	Ord Minnett
COF	Centuria Office REIT	Upgrade to Add from Hold	Morgans
DOW	Downer EDI	Downgrade to Neutral from Outperform	Credit Suisse
MGR	Mirvac Group	Upgrade to Buy from Neutral	Citi
NAN	Nanosonics	Downgrade to Lighten from Hold	Ord Minnett
SUN	Suncorp Group	Upgrade to Add from Hold	Morgans
VSL	Vulcan Steel	Downgrade to Neutral from Outperform	Credit Suisse

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

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