The Monday Report (On Tuesday) – 19 April 2022

This story features BANK OF QUEENSLAND LIMITED, and other companies. For more info SHARE ANALYSIS: BOQ

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

World Overnight
SPI Overnight	7506.00
S&P ASX 200	7523.40	+ 44.40	0.59%
S&P500	4391.69	– 0.90	– 0.02%
Nasdaq Comp	13332.36	– 18.72	– 0.14%
DJIA	34411.69	– 39.54	– 0.11%
S&P500 VIX	22.17	– 0.53	– 2.33%
US 10-year yield	2.86	+ 0.03	1.20%
USD Index	100.80	+ 0.48	0.48%
FTSE100	7616.38
DAX30	14163.85

By Greg Peel

Thursday

After a second rebound session on Wall Street on Wednesday night, the ASX200 closed up 44 points on Thursday and 45 points for the shortened week. It’s good to see ASX investors have learned not to blindly follow Wall Street around if day to day volatility is all about movements in US Big Tech, as these mega-caps have little relevance to the little old Aussie market.

Rather we spent the week posting mild daily movements and far less volatility than Wall Street, with commodity prices once again providing a backstop.

Materials rose 1.3% on Thursday on ongoing strength in base metals and gold, along with the likes of uranium and lithium – the latter for which brokers have been lining up to raise their price forecasts. Energy gained 1.1% on further strength in oil prices and utilities followed with 1.1%.

There was general market-wide buying, in all but the banks (-0.3%). Overnight, JPMorgan had posted a beat on earnings but CEO Jamie Dimon warned of trouble ahead for the US economy and the bank subsequently took a larger than expected provision for bad debts, and fell -3%.

This was followed by Bank of Queensland ((BOQ)) disappointing with its earnings result, falling -6.3% to top the index losers’ board and sending regional peer Bendigo & Adelaide Bank ((BEN)) down -2.4% in sympathy.

And following the two-day pullback in US yields, the Aussie ten-year fell -9 points to 2.98%, all of above conspiring to provide headwinds for our Big Banks.

On the flipside, consumer discretionary jumped 0.8% as travel stocks starred on the day. Again the market looked to the US, where Delta Airlines had revealed on Wednesday night it had just recorded its highest number of March bookings in history.

Locally, news images of huge queues at airports sent heavily shorted Webjet ((WEB)) to the top of the leaders’ board with a 7.5%, jump, followed by Qantas Airways ((QAN)) on 7.1%, with the most shorted stock on the market, Flight Centre ((FLT)), managing 5.0%.

Australia’s March unemployment numbers released on Thursday fell short of economist forecasts, but the day the jobs numbers meet forecasts is the day the sky will likely fall in. They probably disappointed Josh, as unemployment fell only -1 basis point to take the rate to 3.95%, which rounds up to 4.0% — unchanged from February.

Underemployment fell to 6.3% from 6.6%, participation was unchanged, and the only disappointment was a drop in hours worked, but this reflected the floods.

Wall Street turned southward once more on Thursday night, but our futures closed up 10 points on Friday morning.

Thursday Night

One piece of news overshadowed all others on Thursday night. Having taken a 9% stake in Twitter, Elon Musk was initially coy on whether he’d seek a board seat, and whether 9% was the end of it, and ultimately announced he would not seek a board seat. Because he then made a full takeover bid for the company.

The bid of US$54 per share compared to the trading price of US45 — a premium, but not any premium to Twitter’s longer term valuation multiple. Musk also suggested in his typically vague fashion that he was looking to provide a platform for free speech, not for profit. Every man and his dog, including Musk himself, agreed a deal was unlikely. Rather than Twitter shares jumping on the news, they fell -1.7%.

If by some chance Musk proves successful, he’d need to find US$43bn down the back of his couch.

Back in the real world, the defining move on Thursday night was that of US bond yields.

Analysts had warned the prior two-day pullback in yields smacked more of a breather after a sharp run-up on ever more aggressive Fed rhetoric rather than any change in sentiment, and sure enough on the third day the ten-year jumped up 14 points to 2.83%, to mark a new post-pandemic high.

The Nasdaq subsequently ended its two-day recovery in falling -2.1%, dragging the S&P500 down -1.2% and Dow down -113 points or -0.3%.

As you were.

For the week, the Nasdaq lost -2.6%, the S&P -2.1% and the Dow -0.8%.

Following on from the JPMorgan (Dow) earnings release on Wednesday night, Thursday night saw four of the other US Big Banks report. Citigroup rose 1.6%, Wells Fargo fell -4.5% and Goldman Sachs (Dow) -0.1%, and Morgan Stanley rose 0.8%.

Make of that what you will.

The financials sector in the S&P500 fell a net -1.0%, topped by the three Big Tech sectors of technology (-2.5%), communication services (-1.8%) and consumer discretionary (-1.6%).

No relevance there for Australia, rather a lone gain for energy (+0.4%) is something we can latch on to.

Wall Street was nevertheless open again last night before we get our chance today.

Commodities

In a quiet session for base metals, only aluminium stood out with a 1.5% gain.

Not much action elsewhere either other than a further 2.6% gain in oil prices.

With US bond yields rebounding, the US dollar index jumped 0.5% to back above the 100 level, and as such the Aussie fell -0.6% to US$0.7410.

Monday

Beijing decided yesterday that China’s GDP grew 4.8% in the March quarter, beating 4.4% forecasts.

For the month of March, industrial production rose 5.0% year on year despite widespread lockdowns, ahead of 4.5% expectations. Retail sales nevertheless fell -3.5% when -1.6% was forecast.

Fixed asset investment rose 9.3% year to date when 8.5% was forecast.

Monday Night

The US ten-year bond yield rose another 3 points to 2.86% last night, continuing to push to new post-pandemic highs.

US stock markets on the other hand were directionless, up and down all session with the Dow moving in roughly a plus/minus 160 point range before all three major indices closed as good as flat.

Wall Street is looking ahead to a big week of earnings, including results from Netflix and Tesla, airlines and railroads, and several Dow names.

Speaking of Tesla, the Twitter board has implemented a “poison pill”, which means if a single shareholder reaches a 15% stake, new shares will be issued to dilute that stake. Twitter rose 7.5% as traders punted on Elon finding some like-minded friends to join in and avoid the poison pill, rather than just dumping the 9% he recently acquired.

Bank of America reported last night and rose 3.4%, lifting the other big banks along with it. In contrast, retail broker Charles Swab fell -9.4% after reporting a big drop in retail investment activity. The days of GameStop, AMC and other memes are now well and truly behind us.

Consensus forecasts currently have net S&P500 earnings growing 5.3% in the March quarter, but Morgan Stanley has warned earnings revision breadth has been trending down over the past two weeks, and could end up in the negative.

While the season ramps up this week, next week is the biggest by number of reporters and includes most of the Big Tech names.

The focus will be mostly on costs, given 8.5% CPI inflation. Food and energy costs are the biggest drivers of CPI, and last night corn hit a nine-year high and natural gas breached the US$8/mmbtu level to mark a 13-year high.

Note this is a US-only gas price that does not specifically reflect on LNG export prices.

Energy is the commodity most in focus for Wall Street. While it’s all well and good for central banks to ignore food and energy costs in their core inflation benchmarks, the cost of energy feeds indirectly into most everything, including food, but also goods and services.

The debate continues regarding Fed policy, with the Fed funds market pricing in rate hikes in every month this year and beyond, and many talking of consecutive 50 point hikes, while others believe the Fed will go hard early but then stop, for fear of tipping the US into recession.

At this stage we can only wait to see if the Fed does indeed go 50 points at the next meeting on May 4.

Insert Star Wars joke here.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1978.70	+ 4.50	0.23%
Silver (oz)	25.84	+ 0.18	0.70%
Copper (lb)	4.67
Aluminium (lb)	1.59
Lead (lb)	1.11
Nickel (lb)	15.02
Zinc (lb)	2.01
West Texas Crude	108.21	+ 1.26	1.18%
Brent Crude	112.79	+ 1.09	0.98%
Iron Ore (t)	155.18	+ 1.46	0.95%

The LME was closed last night so no base metal price movement beyond the small moves on Thursday night.

Not much movement in iron ore either, with the price above reflecting two sessions.

While commodity prices were running up hard, the Aussie was pushing ahead even as the US dollar was also rising. Now that the pace of commodity price gains has slowed, the normal relationship has been restored.

The US dollar index rose 0.5% last night and the Aussie fell -0.8% to US$0.7450, having fallen -0.6% on Thursday night.

Good for exports. Note that Australia has now been taken off the US “do not travel” list.

The SPI Overnight was closed last night, but given a flat session on Wall Street, Friday morning’s 10 point gain is presumably indicative enough.

The Week Ahead

The US will see housing data through the week and the Fed Beige Book is out on Wednesday night.

The world will see flash estimates of April PMIs on Friday.

New Zealand releases March quarter CPI numbers on Thursday.

The minutes of the April RBA meeting are out today.

The local quarterly reporting season ramps up this week, with the likes of BHP Group ((BHP)), Rio Tinto ((RIO)) and Santos ((STO)) in the frame, along with other non-resources companies.

Hub24 ((HUB)) reports today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ILU	Iluka Resources	Downgrade to Sell from Neutral	Citi
MPL	Medibank Private	Upgrade to Accumulate from Lighten	Ord Minnett
PLS	Pilbara Minerals	Upgrade to Buy from Neutral	Citi
WSA	Western Areas	Downgrade to Hold from Add	Morgans

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

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