The Overnight Report: Shopper Shift

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This story features BREVILLE GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: BRG
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

Hanging in there

What looked like another quiet-ish day on the ASX again featured contrasting moves across sectors. Thank heavens for rocks.

Yesterday our time US retail giant Walmart, which reports on a different cycle to the bulk of US stocks, issued a profit warning. Food and fuel inflation is driving spending away from the discretionary side of Walmart’s business (eg apparel, electronics) to concentrate only on the necessities (grocery).

We recall that some months ago, both Walmart and Target (US) warned of being stuck with excess inventory in those categories that went gangbusters in the lockdown period but which no one is buying anymore, preferring (if they can afford it) to spend on long lost travel and entertainment opportunities instead.

The warning subsequently led our own consumer discretionary sector down -1.7% yesterday, to be the worst performer. Breville Group ((BRG)) stood out with a -4.5% loss. But speaking of travel, Flight Centre ((FLT)) – the most shorted stock on the market – had enjoyed a pop on Monday on an upbeat update but brokers were far from convinced, and yesterday the stock fell -5.6%, dragging down Corporate Travel Management ((CTD)) by -4.5% and to a lesser extent Webjet ((WEB)), which is also heavily shorted, by -1.8%.

Also well shorted is Zip Co ((ZIP)), which is now officially a meme stock. On no new news, and having had a breather on Monday, Zip jumped another 19.9% yesterday. GameStop 2022.

Consumer staples (-0.4%) also suffered yesterday and healthcare fell another -0.7%. The stronger Aussie is having its impact but we might also note there are big names in healthcare that do most of their business in the US, and have a discretionary leaning (eg ear implants, sleep masks).

The banks, REITs and utilities were all benched yesterday so it was up to energy (+2.8%) and materials (+1.6%) to yet again save the day. Oil prices jumped when Putin cut half of Europe’s gas supply and data suggesting Chinese steelmakers are low on inventory ahead of Beijing’s stimulus measures has iron ore staging a recovery.

But back to shopping, and inflation. Today we get the June quarter CPI numbers.

Be afraid.

Earnings Mix

Walmart (Dow) fell -7.6% and the warning reverberated across the S&P500 consumer discretionary sector (-3.3%), from Target to Costco and also Amazon (-5.2%), which reports on Thursday night.

In another twist, e-commerce platform Shopify fell -14% after announcing it would lay off 10% of its workforce due to weak growth.

At the same time, the so-called “staples” and Dow stocks of Coca-Cola and McDonalds posted solid results and saw gains. Coke and Big Macs are recession-proof.

Two stocks that were dragged down last week following Snap’s big miss on advertising spend were Facebook and Google. Google has just reported in the aftermarket and posted a miss, but is up 5% as I write.

Google had already been knocked down thanks to Snap and the miss was a case of not as bad as feared. Facebook reports tonight.

Not so influenced by advertisers – more by cloud customers – is Microsoft (Dow), which has also reported this morning and was down initially on an earnings miss, but has spun around to also gain 5%. After six months of tech de-rating, it seems the bargain hunters were at the ready.

Microsoft had earlier warned of the impact of the surging US dollar, which was evident in its results, and will also impact on the company’s many multinational peers.

Shifting back to the consumer, also up 5% in the aftermarket is Visa (Dow), after reporting a beat backed by the aforementioned return to travel.

In economic news, the monthly Conference Board consumer confidence survey showed a drop to 95.7 from 98.4 in June, while June new home sales fell -8.1% to their lowest level since April 2020. Sales are down -17% year on year.

The earnings reports roll on tonight but by tomorrow morning we will also have the Fed decision.

Be afraid.

Commodities

Nothing of major concern here.

The Aussie is down -0.3% to US$0.6940 as the US dollar goes back into surging mode, up 0.7%.

Today

The SPI Overnight closed down -36 points or -0.5%.

As noted, June quarter CPI today, followed by the Fed tonight.

The US will also see data for durable goods orders.

Rio Tinto ((RIO)) will be the pace car into next month’s local earnings season by reporting today.

The Australian share market over the past thirty days…

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