The Monday Report – 06 June 2022

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This story features DOMINO'S PIZZA ENTERPRISES LIMITED, and other companies.
For more info SHARE ANALYSIS: DMP
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

Material Gains

After another volatile week on the ASX, the ASX200 closed down around -20 points for the week, but not before a resource-led rally saved the day on Friday.

Aside from a 2.3% gain for the technology sector, materials (+2.6%) and energy (+1.0%) were the prime movers, while the banks were flat and no other sector much troubled the scorer.

The top five index winners were all miners, covering iron ore, lithium, nickel and gold.

The top five losers were a mixed bag, led out by Domino’s Pizza ((DMP)), which fell -3.7% to have discretionary as the only sector in the red (-0.1%).

Sentiment in the local market was supported by a bounce on Wall Street, but it was Shanghai’s reopening and the implications for commodity prices that propped up an otherwise nervous session.

Data showed a -6.4% drop in the value of new home loans in April following a 2.1% gain in March, value being price times volume.

Goldman Sachs and Bank of America both suggested on Friday the RBA would add one full percentage point to the cash rate in the next two months, implying two 50 point hikes, a la the Fed, to a rate of 1.35%.

That’s a lot more hawkish than is suggested by the current discussion locally of whether the RBA will go a standard 25 points or a full 40 tomorrow.

Janus Henderson’s Australian fixed interest team expects the cash rate to end this year at 1.5%, (over seven meetings) and has pencilled in further tightening in 2023 to take it to 2.75%.

As they say, if you lined up all the world’s economists head to foot you still wouldn’t reach a conclusion.

Friday’s rally for the index followed a solid night on Wall Street, after falling on Thursday following a weak night on Wall Street. Friday saw another weak night on Wall Street, so on Saturday morning our futures were down -32 points.

But that’s only -0.4% to the S&P500’s -1.6%. Go commodities.

Good news bad again

The US added 390,000 jobs in May when economists had forecast 328,000. The unemployment rate remained at 3.6% and the annual rate of wage growth eased off to 5.2% from 5.5% in April.

But wage inflation at that pace is still considered too hot for the Fed to handle, alongside goods inflation.

The May result will not affect the Fed’s June and July policy decisions, which are locked in at 50 point hikes. The current discussion on Wall Street, and cause of angst, is whether the Fed will then pause at its September meeting or power ahead.

Rhetoric suggests the latter. Last week the Fed vice chair upset Wall Street by suggesting no pause is likely – it will be 50 points each time. On Friday night this call was backed up by another Fed president, who also saw no cause to pause.

The US ten-year yield rose another 4 points to 2.96%.

The mood on Friday night was not helped by an email from Elon Musk to Tesla executives telling them to pause all global hiring (of executives, not factory workers), as he had a “super bad feeling” about the economy. Tesla fell -9%.

In other news, one analyst downgraded her outlook for Apple, citing easing demand for apps. Apple fell -4%, and all round in was another tough night for the Nasdaq, with the three main tech sectors all posting the worst falls.

The only positive sector on the night was energy, as oil prices pressed ever higher.

But, who knows? The current climate has volatility elevated on Wall Street, hence tonight could see another bounce. Or further fall. The S&P500 rallied 6.5% the week before, and last week closed down -1.2%, after falling -1.6% on Friday night.

So if you’re optimistic you could say the trend is up.

Commodities

The LME remained closed again on Friday night, and will reopen tonight.

One respected oil analyst suggested on Friday night OPEC-Plus had “broken down”. There had been talk of suspending Russia from production quota negotiations but there was no indication of such when the cartel announced on Thursday night it would increase production by 648,000 barrels per day to bring its covid-driven production cuts to an end earlier than previously anticipated.

But oil prices have only continued to push higher since. The problem is that while OPEC might talk production increases, many members were already failing to meet quotas prior to the increase, and have limited spare capacity available to do do.

Gold is again under pressure as the US ten-year yield again eyes the 3% level.

The jobs numbers reversed the brief pullback for the US dollar hence the Aussie is down -0.7% at US$0.7216.

The SPI Overnight closed down -32 points or -0.4%.

The Week Ahead

We won’t have to wait long to assess the RBA’s intentions. It meets tomorrow.

Critical for US policy will be the May CPI due on Friday night.

Locally we’ll see May job ads today.

The US will see numbers for trade and inflation this week, along with consumer sentiment, while China will also see trade and inflation numbers.

Domino’s Pizza hosts an investor day today in Japan.

ALS Ltd ((ALQ)), Champion Iron ((CIA)) and Incitec Pivot ((IPL)) all go ex today, and then the corporate calendar dries up.

The Australian share market over the past thirty days…

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