The Monday Report – 11 April 2022

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

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

World Overnight
SPI Overnight	7480.00	+ 27.00	0.36%
S&P ASX 200	7478.00	+ 35.20	0.47%
S&P500	4488.28	– 11.93	– 0.27%
Nasdaq Comp	13711.00	– 186.30	– 1.34%
DJIA	34721.12	+ 137.55	0.40%
S&P500 VIX	21.16	– 0.39	– 1.81%
US 10-year yield	2.71	+ 0.06	2.30%
USD Index	99.80	+ 0.03	0.03%
FTSE100	7669.56	+ 117.75	1.56%
DAX30	14283.67	+ 205.52	1.46%

By Greg Peel

Inflation Positioning

In a relatively quiet Friday session, the ASX200 opened up in the morning and then closed around the same level, with a little bit of up and down in between.

Sector moves were mixed and relatively muted, with the exception of a 1.3% gain for materials.

Index leviathan BHP Group ((BHP)) rose 1.7% after an independent body found the petroleum division merger with Woodside Petroleum ((WPL)) to be fair and reasonable. Woodside slipped -1.5% as the naysayers gave up.

Uranium stocks were hot, led out by flag bearer Paladin Energy ((PDN)), up 13.2% to top the index by a margin, after Boris Johnson pledged to approve eight new UK reactors in eight years.

The top five index gainers were all inflation hedges. GrainCorp ((GNC)) took silver with 5.7% and ag peer Nufarm ((NUF)) rose 4.1%. Gold Road Resources ((GOR)) gained 4.7% and Whitehaven Coal ((WHC)) chimed in with 4.0%.

No lithium miners in the top five on Friday, but they saw further modest gains after UBS upgraded its lithium price forecast, having run very hard to date.

We saw a flow-on from ag stock strength reflected in consumer staples (+0.7%), while industrials were the only other sector to post a meaningful gain (+0.9%).

Otherwise the banks, energy and utilities were a little stronger while discretionary, healthcare and real estate were slightly weak.

Biggest loser on the day was Platinum Asset Management ((PTM)), which fell -15.0% on quarterly funds flow numbers. Why anyone would invest in wealth managers is beyond me.

We now head into a shortened week with many in holiday mode, as school holidays begin along with Easter. This suggests it could be quiet, but by the same token volatile if trading is thin.

We’ve finally got a date for the big event downunder but this week the big event will be the release of the US March CPI on Tuesday night. That could lead to some fun and games on Wednesday.

Then on Wednesday night, JP Morgan (Dow) unofficially kicks off the US March quarter earnings season.

On Saturday morning the futures closed up 27 points, with most commodity prices mildly higher.

Beware the Ides

The US ten-year yield rose another 6 points to 2.71% on Friday night and it’s hard to find anyone who does not believe it is heading to 3% and beyond, with all talk of 50 point Fed rate hikes (unless the war takes a nasty turn).

As a result, the US dollar index has also been marching steadily higher and on Friday night hit 100, before slipping back to 99.80.

While a strong dollar is an impediment to the big US multinationals, that impact is yet to be seen. Investors await forward guidance accompanying the upcoming flood of US earnings reports for any sign of “currency headwind” warnings.

Domestically, a strong dollar is in itself an inflation hedge against rising import costs.

While the ten-year was on the move again, so too was the two-year, and good news is that two-ten spread has now moved back to 20 points to the positive, so yield curve inversion warnings have subsided for now.

Rising rates are not beneficial to so-called “long duration” growth stocks – those with exciting price-to-sales measures but as yet no profit – dominating the Nasdaq in number. They don’t dominate in market cap, with the Big Tech cash flow machines casting a wide shadow.

Which is why Big Tech has been flip-flopping this year – generally down on the very swift rate rise but still playing defensive against the price-to-sales crowd, which has been trashed since last November. On Friday night the rotation we saw all last year returned, with the Dow outperforming on another bad night for the Nasdaq, and the S&P500 stuck in the middle.

For the week, the Dow closed down -0.3%, the S&P -1.3% and the Nasdaq -3.9%. The rapid bounce-back in the Nasdaq that began a month ago has now rolled over, suggesting it was nothing more than a classic bear market rally.

From here it all depends on Tuesday night’s CPI result, and PPI on Wednesday. Just how much of an impact has the war, and Ba2, had?

Fifty basis points?  There is talk of a shock of a CPI forcing the Fed to go 75.

Whatever happens on Tuesday night, it’s then on to earnings results.

Meanwhile Wall Street has become ever more defensive in its allocations, with Friday night yet another example. Inflation-busters materials, energy and the banks led the S&P, with healthcare staples and utilities continuing to chug along, while the pain came in technology, communication services and discretionary, which had been the trend for the week.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1946.70	+ 15.50	0.80%
Silver (oz)	24.77	+ 0.19	0.77%
Copper (lb)	4.68	+ 0.02	0.51%
Aluminium (lb)	1.63	+ 0.01	0.36%
Lead (lb)	1.10	+ 0.02	1.60%
Nickel (lb)	15.48	+ 0.01	0.08%
Zinc (lb)	1.91	+ 0.00	0.05%
West Texas Crude	98.26	+ 2.23	2.32%
Brent Crude	102.78	+ 1.44	1.42%
Iron Ore (t)	155.50	– 1.14	– 0.73%

Data out last week showed LME warehouse stocks of copper, aluminium, nickel, tin and zinc all at the lowest levels since records began being kept in 1997.

The flipside is ongoing lockdowns in China crimping demand.

Analysts had warned releasing oil from Strategic Reserves would help, but not for long.

The good news for Australia is that as commodity prices continue higher, the ever-rising greenback is keeping our currency at bay, down  -0.4% at US$0.7458 this morning.

The SPI Overnight closed up 27 points or 0.4%.

The Week Ahead

The US CPI on Tuesday nigh will be followed by the PPI on Wednesday and retail sales and consumer sentiment on Thursday before the Good Friday break.

The RBNZ holds a policy meeting on Wednesday followed by the ECB on Thursday.

China reports March inflation numbers today.

Locally we’ll see the NAB business confidence survey tomorrow and Westpac consumer confidence on Wednesday, followed by the March jobs numbers on Thursday.

Bank of Queensland ((BOQ)) reports earnings on Thursday, and Whitehaven Coal ((WHC)) quarterly production numbers.

All Western markets are closed on Friday, but given it’s not a national public holiday in the US (no religious holidays are), industrial production numbers and the Empire State activity index will be released.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
KLS	Kelsian Group	Upgrade to Outperform from Neutral	Macquarie
ORG	Origin Energy	Downgrade to Hold from Add	Morgans
SGM	Sims	Downgrade to Neutral from Buy	Citi
WSA	Western Areas	Upgrade to Add from Hold	Morgans

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

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