The Monday Report – 28 March 2022

This story features BLUESCOPE STEEL LIMITED, and other companies. For more info SHARE ANALYSIS: BSL

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

World Overnight
SPI Overnight	7413.00	+ 33.00	0.45%
S&P ASX 200	7406.20	+ 19.10	0.26%
S&P500	4543.06	+ 22.90	0.51%
Nasdaq Comp	14169.30	– 22.54	– 0.16%
DJIA	34861.24	+ 153.30	0.44%
S&P500 VIX	20.81	– 0.86	– 3.97%
US 10-year yield	2.49	+ 0.15	6.45%
USD Index	98.80	+ 0.01	0.01%
FTSE100	7483.35	+ 15.97	0.21%
DAX30	14305.76	+ 31.97	0.22%

By Greg Peel

Cautious Friday

The local market was already timid heading into a Friday, with the futures showing up 38 points in the morning despite another big session on Wall Street. The ASX200 did exceed that level by lunchtime, but faded into the afternoon Friday-style.

It was once again all about the resource sectors, with energy up 0.9% and utilities 1.0% while materials rose 1.3%. The main counters were the banks (-0.5%) and healthcare (-0.8%).

It’s not every day you see the Nasdaq rally 1.9% and our tech sector fall -0.5%.

The usual volatility played out on the losers’ board, which these days is dominated by tech and biotech stocks, as is the winners’ board on any other day.

Leading the winners on Friday was BlueScope Steel ((BSL)), with 5.1%, seemingly the result of an industry report highlighting the growth in popularity of metal roofing. Thanks Scoop. When did one last see a new housing development without Colorbond?

Brickworks ((BKW)) and JB Hi-Fi ((JBH)) both kicked on after their positive earnings result/trading update on Thursday, rising another 4.8% and 3.5%.

Lithium featured in gains of 3.5% each for IGO ((IGO)) and Allkem ((AKE)).

All this talk of surging oil prices providing the impetus for EV domination. Have you seen the prices of lithium and nickel?

Speaking of commodity prices, one development over the weekend was a White House announcement it will increase LNG exports to Europe by 15bn cubic metres to help Germany and others wean themselves off Russian gas. The US this year has edged past Australia and Qatar as number one LNG exporter.

The problem is LNG requires terminals at the other end to return the LNG to NG, and an increase in exports means more terminals are required. They only take years and billions to build.

The bottom line must nevertheless be LNG prices are not crashing anytime soon.

Following a 0.5% gain for the S&P500 on Friday night – most of it in the dying minutes – our futures were up by a similar level on Saturday morning, supported by further gains in commodity prices and a big jump in US yields (good for banks).

Tomorrow night brings the federal budget, in which “Back in Black” Frydenberg will dive even further in the red in order to save the election. Look out for handouts and sticker shock relief, any of which are perfect inflation drivers.

It is suggested the fuel excise will be cut by -5c a litre, saving the average family $2.50 a week. I think the Coalition’s a shoe-in.

Yields Ramp Up

The US ten-year bond yield hit 2.50% on Friday night, before closing at 2.49%, up 15 points. There was no specific trigger, such as a data release.

Wall Street is looking ahead to the March CPI release in a couple of weeks, believing that the additional inflation spike brought by the war will leave the Fed with no choice but to go the full 50 points in May.

But we knew that.

Friday night’s Michigan Uni consumer sentiment index for the latter half of March fell to 59.4 from 59.7 mid-month to mark the lowest reading in eleven years. The number of Americans surveyed who believed they will be financially worse off in the year ahead jumped to its highest level since the mid-1940s, around the time of another war.

Again, no surprises, and Wall Street opened higher, with the Dow up 230 points, before fading in the afternoon to be flat Friday-style. Then a very late kick sent the S&P up sharply at the close.

The Nasdaq underperformed, slightly. A year ago a 15 point hike in the ten-year would have had the Nasdaq plummeting.

The suggestion is that stocks like Apple, which has recovered 15% from its lows, are simply not overly exposed to rising rates. They are in fact defensives. Meanwhile, the smaller tech names, particularly those yet to make a profit, had been so trashed from November last year to this month that they were well oversold.

The S&P500 has now retraced over 50% of the loss from its January high. History shows that in every bear market since 1929, and bear in mind while the S&P dropped over -10% the Nasdaq fell -22% and many a stock fell -40, -50, -60%, so the bear market label is fitting, a -50% retracement has resulted in a stronger market thereafter every time.

Wall Street’s hanging on to that one.

While investors are hardly dismissive of the war, and appreciate the risks still inherent, they cannot afford to hide under the bed. Money has to go somewhere, and fixed income is not the place until rates can find a stable level.

The US, and Canada, are expected to see further investment inflows into strong economies when the economies of Europe and Asia are under pressure from the war fallout.

There is widespread fear that removing 13% of the world’s “calories”, ie agricultural production from Ukraine/Russia, will lead to inevitable famine in the third world, particularly Africa and the Middle East.

I assume we can put Australia in with the US and Canada.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1959.40	+ 1.00	0.05%
Silver (oz)	25.53	+ 0.03	0.12%
Copper (lb)	4.67	– 0.03	– 0.60%
Aluminium (lb)	1.74	+ 0.02	1.18%
Lead (lb)	1.06	+ 0.01	1.04%
Nickel (lb)	16.11	+ 1.32	8.89%
Zinc (lb)	1.85	+ 0.02	1.16%
West Texas Crude	113.90	+ 2.48	2.23%
Brent Crude	120.65	+ 2.63	2.23%
Iron Ore (t)	150.20	+ 1.20	0.81%

A 9% gain for nickel is actually a quiet day.

The oils are ticking back up on expectation Germany and others will simply have to bow to energy sanctions on Russia and cop it were Putin to take more lethal measures.

After its rapid run up to US75c, the Aussie has stalled at US$0.7508.

The SPI Overnight closed up 33 points or 0.5%.

The Week Ahead

Australia will see February retail sales numbers tomorrow but they will be a revision from the earlier release. Of more interest will be the federal budget.

On Thursday we’ll see building approvals and private sector credit.

A big week for the US economically includes February PCE inflation, and March jobs numbers.

China will release its March PMIs on Thursday and everyone else will begin PMI releases on Friday, being no fools.

In the local market, Wednesday is quarterly ex-dividend day for most REITs and other funds.

Sigma Healthcare ((SIG)) reports earnings tomorrow.

Cochlear ((COH)) goes ex today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ALX	Atlas Arteria	Downgrade to Neutral from Outperform	Macquarie
		Downgrade to Hold from Add	Morgans
ASB	Austal	Downgrade to Neutral from Outperform	Macquarie
BHP	BHP Group	Upgrade to Add from Hold	Morgans
BKW	Brickworks	Upgrade to Buy from Accumulate	Ord Minnett
RMD	ResMed	Downgrade to Accumulate from Buy	Ord Minnett
SEK	Seek	Downgrade to Neutral from Outperform	Macquarie
SHL	Sonic Healthcare	Upgrade to Outperform from Neutral	Credit Suisse
VTG	Vita Group	Upgrade to Speculative Buy from Hold	Ord Minnett

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

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