The Monday Report – 11 July 2022

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            [6] => ((NWL))
            [7] => ((RIO))
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This story features LIFE360 INC, and other companies.
For more info SHARE ANALYSIS: 360
The company is included in ASX100, ASX200, ASX300, ALL-ORDS and ALL-TECH

By Greg Peel

Commodities Try Hard

The ongoing rally on Wall Street ahead of Friday night’s jobs report had the ASX200 up 67 points on Friday morning, led by rebounds in commodity prices. Amidst otherwise lacklustre trading elsewhere, early resource sector gains waned in the afternoon to a 30 points close for the index.

This may have reflected some caution ahead of said jobs number but also ongoing school holiday thinness.

Energy closed up 2.1% and utilities 1.1% as oil prices continued to creep back, while materials rose 1.2% as base metal prices stopped falling.

They fell again on Friday night, and iron ore slipped slightly as well. The oils, however, pressed on.

Otherwise, there was a 0.8% gain for industrials, and you know it’s a quiet day when tech moves up only 0.8%.

There was little movement elsewhere other than in telcos, down -0.6%, and the banks, down -0.2%.

The top five index winners’ board was represented by gold, coal and lithium miners, notwithstanding a 14% gain for Life360 ((360)) – recently the most volatile stock in the index.

Orora ((ORA)) was a surprise on the losers’ board, outside of some of the usual suspects, which appears to be in response to a downgrade to Hold from a US broker.

Collins Foods ((CKF)) made the list simply by going ex.

Little much else to report on the day, and with Wall Street’s response to the US jobs report fairly benign, we now look ahead to US CPI on Wednesday and our own jobs report on Thursday. So, with school holidays ongoing for another week, things might be quiet in the next couple of days.

We did at least finish the week up 2.1% to mark the best week since March.

Mixed Blessings

The US added 372,000 jobs in June when economists had forecast 250,000. The unemployment rate remained steady at 3.6% and the average wage rose 5.1% year on year.

So, what does one make of that?

Well, judging by the fact Wall Street spent all day moving up and down through the flatline, in a relatively tight range compared to recent sessions, the answer can only be “unsure”.

The strong jobs number underscores the expectation the Fed will go another 75 points this month, and that’s bad.

But strong employment eases recession fears, and that’s good.

The fact workers have more money in their pockets also helps ease inflation fears, but while 5.1% wage growth is down from May’s 5.3%, the still-elevated level implies the risk of a wage-price spiral, and that’s bad. The Fed wants to see the unemployment rate rise to take some heat out for the labour market.

Not so far.

And despite the rosy labour picture, consumer confidence remains at historical lows.

There was little indecision in bond markets, as the US ten-year yield rose 7 points to 3.08%, with the two-year settling at 3.11%.

Yet the Nasdaq was the only major index to close in the green, albeit only slightly, as the push to pick up beaten-down growth names continued.

All attention now turns to Wednesday night’s CPI. While oil prices have pulled back from their highs, they still remain stubbornly elevated and at risk of further spikes depending on what either Europe or Putin or both decide to do from here. This means freight costs remain elevated.

Raw materials costs have pulled back a long way, but it will take time for those moves to be reflected in consumer prices. So with wage growth strong, there is no guarantee the June CPI print will be meaningfully lower than May’s 8.6%, and it may even be higher.

There’s little consensus.

Beyond war risk, there remains ongoing lockdown risk in China, with Shanghai reporting some higher case numbers on Friday – 45 to be precise, but it doesn’t take much to spark a lockdown.

China will report its June quarter GDP on Friday but little above zero is expected, and the Chinese government has pledged lots of stimulus, as it typically does.

Which is only any good if there are no lockdowns.

Commodities

While the US dollar index was steady on Friday night, strong US jobs implies ongoing aggressive Fed rate hikes which imply ongoing strength in the greenback, and that’s a headwind for commodity prices.

So metals were back to being weak on Friday night.

The oils are nonetheless creeping higher.

The Aussie is up 0.2% at US$0.6854.

The SPI Overnight closed up 20 points on Saturday morning.

The Week Ahead

It’s US CPI on Wednesday night and PPI on Thursday night, then on Friday night it’s industrial production, retail sales and consumer sentiment.

China reports industrial production, retail sales and fixed asset investment on Friday, along with June quarter GDP.

The RBNZ meets on Wednesday.

Locally we’ll see the NAB business confidence survey tomorrow and Westpac consumer confidence on Wednesday, ahead of Thursday's June jobs report.

This week AGMs and quarterly reports begin to flow, with Link Administration ((LNK)), Eagers Automotive ((APE)) and Mirvac Group ((MGR)) in the former category and Netwealth Group ((NWL)) and Rio Tinto ((RIO)) in the latter.

The Australian share market over the past thirty days…

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