The Monday Report – 27 June 2022

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            [3] => ((IMU))
            [4] => ((NVX))
            [5] => ((NEA))
            [6] => ((PDN))
            [7] => ((KGN))
            [8] => ((TPW))
            [9] => ((BET))
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            [11] => ((MTS))
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            [8] => TPW
            [9] => BET
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This story features ZIP CO LIMITED, and other companies.
For more info SHARE ANALYSIS: ZIP
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

Tech Check

The ASX200 slept its way through the first 45 minutes on Friday before suddenly waking up and deciding it was time to take a punt on the most heavily beaten-down stocks. After another consolidation session on Wall Street, ending to the upside, local investors decided the rally could really be on this time.

The index managed to close up 50 points without any help from the biggest sectors. Global recession fears continue to haunt resources, with energy (-1.5%) and materials (-0.1%) the only losers on the day, while mortgage stress fears ensured the banks only contributed +0.1%.

The standout rally was in the most beaten-down sector of all – technology. It rose 6.0%, led by the near-death BNPL plays. Zip Co ((ZIP)) topped the index with a 21.6% gain, while Block ((SQ2)) chimed in with 10.9% but failed to make the top five winners.

Real estate was the next best performer on 2.5%, while consumer discretionary jumped 2.2%. While the two are linked via retail REITs, the wider REIT sector has been thumped on soaring bond yields that have since retreated somewhat.

We then drop down to healthcare on 1.6%, aided by a 1.4% gain for CSL ((CSL)) but also strong gains for risky biotech/device stocks such as Imugene ((IMU)) , which leapt 17.9%.

Battery stock Novonix ((NVX)) jumped 13.5%, and Nearmap ((NEA)) found its way to a 12.0% gain, while the rubber ball that is Paladin Energy ((PDN)) bounced 11.2%.

For the likes of the BNPLs, Nearmap, Paladin and other stocks that had solid sessions, short-covering was clearly involved.

This would also be true among the retailers, with Kogan ((KGN)) up 11.4% and Temple & Webster ((TPW)) up 11.1%. The second most shorted stock on the ASX, Betmakers Technology ((BET)), jumped 20.0%.

No joy for the most shorted stock. Flight Centre ((FLT)) fell -1.1%.

To get on to the top twenty ASX300 winners’ table on Friday, you needed at least a double-digit gain.

The worst performer, Cooper Energy (COE)), fell -4.0%.

Short-covering rallies typically don’t last long, but Friday’s 6% gain for the tech sector followed only a 1.6% increase for the Nasdaq on Thursday night.

On Friday night the Nasdaq jumped 3.3%, and our futures were up 103 points on Saturday morning.

This despite metals prices all being trashed again on Friday night.

Same Game

This didn’t stop Wall Street investors including materials in their own buying of beaten-down names on Friday night. While every sector closed in the green, materials led with 4.0%.

Mind you, just about all stocks have been beaten down in 2022 but some sectors more than others. Financials led the S&P500 in market-cap terms in jumping 3.8%, also buoyed by the majors all passing their latest Fed stress tests, which inform, to varying degrees, what level of dividends they can pay and buybacks they can implement.

Collectively it was all about tech, with the big three of communication services, consumer discretionary and technology itself gaining 3.9%, 3.7% and 3.6% respectively.

Next best performer was real estate on 2.1%.

It was not about bond yields on the day. The US ten-year rose 6 points to 3.13%.

It was the first positive week to be seen in June, with the Dow closing up 5.4%, the S&P500 6.5% and the Nasdaq 7.5%. For the S&P it was the biggest weekly gain since late May, but for the Nasdaq it was the biggest since March.

Was there a specific impetus on Friday night?

We could point to Jerome Powell’s testimonies to both houses of Congress over Wednesday and Thursday nights, in which he suggested a recession is not out of the question, as implying the Fed may be ready to pause or even retreat from its aggressive hiking if it looked like that might be the case, as was the popular assumption last month before the 75 points hike.

Then on Friday night the Michigan Uni consumer sentiment index showed a fall to an all-time low of 50.0 (100-neutral) from 50.2 two weeks ago, but the inflation expectations gauge for inflation five to ten years ahead fell to 3.1% from 3.3%.

Clutching at straws? We can of course point to an oil price pullback from the US$120/bbl mark this month and ongoing falls in metal and food prices to see why talk is again of headline inflation having peaked, despite the shock May CPI reading.

There was also surprise on Friday night that in the face of surging mortgage rates, sales of new homes in the US jumped 10.7% in May to 696,000, when analysts had forecast 587,000.

And investors took heart from a 7.4% gain for economic bellwether FedEx, which had reported earnings in Thursday aftermarket.

The full US earnings season approaches, and despite a universal belief earnings forecasts for the June quarter are too high, analysts are simply not budging. Their biggest rivals (top-down strategists) think they’re mad.

We’ll soon see.

Commodities

Oversold and heavily shorted stock markets may be enjoying a bounce, but (arguably) overbought metals prices continue to sink on global recession fears.

After a couple of sessions of similar weakness, the oils nevertheless managed a bounce.

The Aussie is up 0.7% at US$0.6943.

The SPI Overnight closed up 103 points or 1.6% on Saturday morning.

The Week Ahead

The US will see durable goods orders tonight, Conference Board monthly consumer confidence tomorrow and a revision of March quarter GDP on Wednesday that all will ignore.

The big one comes on Thursday – May PCE inflation.

Locally we’ll see retail sales on Wednesday and private sector credit on Thursday.

China will report June PMIs on Thursday and everyone else manufacturing PMIs on Friday, the first of the month.

Metcash ((MTS)) reports earnings today and Collins Foods ((CKF)) tomorrow while CSR ((CSR)) holds its AGM on Thursday.

Wednesday will see the big quarterly ex-dividend round for REITs, other funds and developers, implying a big price adjustment for the sector from the open.

Four days to go until EOFY, suggesting anything could happen. If today brings the sort of momentum the futures are touting, we could be in for a solid rally to year-end to make fund manager returns look a little less terrible.

All things being equal.

The Australian share market over the past thirty days…

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