The Monday Report – 18 July 2022

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            [1] => ((NSR))
            [2] => ((CHC))
            [3] => ((GOZ))
            [4] => ((WTC))
            [5] => ((NIC))
            [6] => ((IGO))
            [7] => ((MIN))
            [8] => ((PNV))
            [9] => ((PTM))
            [10] => ((WHC))
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            [6] => IGO
            [7] => MIN
            [8] => PNV
            [9] => PTM
            [10] => WHC
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This story features METCASH LIMITED, and other companies.
For more info SHARE ANALYSIS: MTS
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

All Metals

After further big falls in metal prices on Thursday night, and a weak start to US Big Bank earnings on Wall Street, our futures suggested down -52 points on Friday morning but the ASX200 opened down a rather capitulative -114 points in the first 40 minutes.

There it bounced, somewhat tenuously to begin with, but momentum built through the session as the banks fought back. By the close, the banks were only down -0.4%, which was not a bad result given our tendency to follow the US banks. JPMorgan fell -3.5% on Thursday night.

Materials closed down -3.2%, which was the story of the day. The next worst performers were telcos, down -0.7%. The best performers were staples, up 1.0%, with a 2.6% gain for Metcash ((MTS)) taking silver on the index leaders’ board, and healthcare, up 1.0%, reflective a defensive switch out of cyclicals.

Utilities rose 0.6% on the same theme while real estate rose 0.7%, which you could say was defensive as well, except that that sector has been flying all over the place recently on bond rate moves.

It’s not often you see a leaders’ board dominated by REITs, with all of National Storage ((NSR)), Charter Hall ((CHC)) and Growthpoint Properties ((GOZ)) gaining between 2.0 and 2.3%.

WiseTech Global ((WTC)) topped the list with a 3.4% gain following a positive update.

The losers’ board unsurprisingly reflected metal price falls, with Nickel Mines ((NIC)) down -5.8%, IGO ((IGO)) -7.1% and Mineral Resources ((MIN)) -7.5%.

Rounding out the losers were Polynovo ((PNV)), which is on either board most days, and Platinum Asset Management ((PTM)), reflecting a weak stock market.

No one much blinked when China’s June quarter GDP came in at a mere 0.4% growth, when 0.9% was expected, given lockdowns over the period.

But month of June industrial production rose 3.9% (year on year), retail sales 3.1% and fixed asset investment 6.1% (year to date) as lockdowns eased.

But wait…

Citigroup and Wells Fargo reported earnings on Friday night and knocked it out of the park, spinning the US bank sector to lead the S&P500 to a solid rally.

The oils were a bit higher after Biden failed to get a commitment on Saudi oil production, but metal prices were again mostly lower.

The net result is our futures were up 57 points on Saturday morning, pretty much the reverse of Friday morning.

Bank on it

It’s not every day you’d see Citigroup surging 13.2% and Wells Fargo, after initially falling, closing up 6.2% on earnings results. This rather flipped the tone of earnings expectations on Wall Street, which had been damaged on Thursday night by JPMorgan (Dow) and Morgan Stanley.

Morgan Stanley’s fall was only minimal but JPMorgan fell -3.5% after missing on earnings (mainly due to shifting earnings into loan loss provisions) and suspending its buyback.

Citigroup also suspended its buyback, yet that didn’t seem to matter. JPMorgan duly jumped back 4.5%, as did Morgan Stanley, while Goldman Sachs (Dow) rose 4.4% and Bank of America 7.0% ahead of their own reports tonight. The S&P500 bank sector rose 3.5%.

Next best performer was healthcare (2.5%) after United Health jumped 5.4% on its result, accounting for 170 Dow points alone.

If there was one point of agreement heading into this result season it was that earnings forecasts were too high. Well, not so far. It’s only early days but the banks are seen as an economic bellwether.

It has also been noted that among the lesser lights that have also been reporting up to now, misses have not really been punished, highlighting the fact Wall Street has fallen a long way already.

But it was not just the banks that led every S&P sector to close in the green on Friday night.

US retail sales rose 1.0% in June, ahead of 0.9% forecasts, after falling -0.1% in May. Although it might be a bit misleading, as the figure does not separate volumes from prices. CPI inflation rose 1.3% in June, so you could say, roughly, that sales actually fell -0.3%.

Wall Street was more excited about the latest Michigan Uni consumer sentiment survey. Sentiment rose to 51.1 from a record low 50.0 at end-June, but the inflation expectations survey within showed a fall to 2.8% (over five years) from 3.1% end-June – the lowest level in 16 months.

The Fed places a lot of importance on inflation expectations, so good news for those expecting the Fed to ease off the accelerator. That said, more and more economists are moving their July rate hike assumptions to 100 points from 75.

Last night Bank of America lowered its year-end S&P500 forecast to 3600 from 4500 (last 3860) to be the lowest on the Street, forecasting a recession this year and a Fed pivot to easing in 2023.

The debate continues as to whether investors should take the opportunity of any rally to reduce exposures, as it will only be a bear market rally. Even if earnings do end up surprising to the upside? That’s what we’re yet to find out.

This week brings a wealth of reports from big Dow names, among others.

Commodities

Not much reprieve in metal prices.

While Biden failed to get a commitment out of the Saudis on increasing oil production, he did insist one will be forthcoming over the next few weeks.

The US dollar took a step back for once on Friday night (-0.5%) so the Aussie is up 0.6% at US$0.6793.

The SPI Overnight closed up 57 points or 0.9% on Saturday morning.

The Week Ahead

On Wall Street it will be all about earnings, but data on housing sentiment, housing starts and existing home sales will be watched for signs of an easing market.

The Bank of Japan and ECB both hold policy meetings on Thursday.

Flash estimates of July manufacturing PMIs will be published on Friday.

New Zealand releases June quarter CPI numbers today.

The minutes of the July RBA meeting are out tomorrow.

This week sees the corporate quarterly result season shift into gear, with a lot of big resource names reporting among others.

Whitehaven Coal ((WHC)) kicks off the week today.

The Australian share market over the past thirty days…

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

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