The Monday Report – 22 August 2022

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This story features SANTOS LIMITED, and other companies.
For more info SHARE ANALYSIS: STO
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Energised

The ASX200 was up as high as 25 points on Friday as the day’s earnings reports rolled in, but fell back and again pretty quickly before slumbering to a flat close. Were it not for the energy sector, it would have been worse.

The energy sector closed up 4.0%, with Santos ((STO)) up 6.4%, Woodside Energy ((WDS)) up 4.2% and Beach Energy ((BPT)) up 3.4%. There was no corporate trigger, rather an outsized response to oil prices bouncing back and WTI regaining US$90/bbl.

It was not otherwise a great session for some of the day’s reporters, with TPG Telecom ((TPG)) the biggest index loser on -12.4%, while Inghams Group ((ING)) fell -9.4%, AGL Energy ((AGL)) -3.9% and Stockland ((SGP)) -2.1%.

By contrast, Newcrest Mining ((NCM)) made the top five winners on 3.6% and Cochlear ((COH)) rose 2.2%, but the healthcare sector fell -0.9% as CSL ((CSL)) pulled back and Fisher & Paykel Healthcare ((FPH)) issued a profit warning, falling -5.2%.

Real estate was the worst performer (-1.3%) on Stockland and a pullback for Goodman Group ((GMG)). The Aussie ten-year bond yield rose 6 basis points to 3.38% which was not good for REITs, utilities or, indeed, the banks (-0.8%).

So take out materials, which rose 0.8% with some help from Newcrest and Whitehaven Coal ((WHC)), up 6.2%, and energy and it was not such a nothing session as the index close would suggest.

Bond yields will be under upward pressure again today with the US ten-year rising 11 points on Friday night. Wall Street subsequently pulled back and our futures were down -29 points on Saturday morning as we enter the biggest week for local earnings results by a margin.

We are three weeks into earnings season but only a third of the way in by number of stocks reporting, which gives you an idea about what the next week and a half will bring.

So far beats and misses are fairly neck and neck by FNArena’s assessment, with a slight bias to misses (28% to 26%), while in-line results are above average.

Let the games begin.

Inflated

German economist jaws dropped on Friday when having forecast a 0.6% month-on-month rise in the German producer price index in July, it came in at 5.6%. Annual wholesale inflation hit (are you sitting down?) 37.2%.

The shock data comes after last week the UK reported a CPI in excess of 10%. Bond yields across Europe jumped in response and the US ten-year responded in kind, rising 11 points to 2.99%.

The S&P500 had recovered 50% of its loss in the rebound rally, and touched its 200-day moving average, and each time the US ten-year has hit 3% this year it has sparked a sell-off in growth stocks.

The last kicker for the rally was a belief the Fed was ready to begin easing off its aggressive rate hike agenda but rhetoric from Fed presidents since has implied nothing could be further from the truth. Wall Street now awaits what Jerome Powell has to say at Jackson Hole later this week.

European inflation is unlikely to make him more relaxed.

The good news is more and more observers are now conceding June probably did mark the low for the S&P500, but a pullback of some extent is expected from here – maybe 50% of the 50% rally?

Growth stocks and tech stocks led the losses on Friday night and Nasdaq underperformance.

Oh and it looks like it might be all over for the meme stocks once again. Bed, Bath & Beyond fell -40%.

Investors are beginning to doubt whether the US really has seen a peak in inflation, or even if it has, whether the CPI can actually post anything beyond incremental falls to lingering, stubbornly high levels. The “sticky” elements of inflation – wages and rents – are not likely to recede anytime soon.

That leaves the likes of commodity prices to drag inflation down, but as the German PPI indicates, gas prices are not about to come down with winter approaching, oil prices have started to move back up as lower gasoline prices have reinvigorated US demand, and food prices are not only beholden to Russia but to heatwaves, droughts and floods across the northern hemisphere.

The Chinese heatwave “is a quite dire situation,” Dan Wang, the chief economist at Hang Seng Bank China said on Friday. “It will affect those big energy-intensive industries and it will have a knock-on effect throughout the economy and even to the global supply chain.”

Which is another issue for inflation.

Commodities

Another bounce in bond yields and another flight to the safety of the US dollar (+0.6%) has weighed on gold, which gradually retreated all week.

The Aussie is down -0.6% at US$0.6875.

The SPI Overnight closed down -29 points or -0.4% on Saturday morning.

The Week Ahead

US economic data due this week include new home sales, durable goods orders, PCE inflation, consumer sentiment and a revision of June quarter GDP.

Jackson Hole kicks off on Thursday night.

Nothing of note on the Australian economic calendar. There never is in the biggest week of result season.

The number of stocks reporting this week will be extensive today and then grow to a peak on Super Thursday.

Today’s reporters include Adbri ((ABC)), Lendlease ((LLC)), nib Holdings ((NHF)) and Star Entertainment ((SGR)), to name but a few.

FNArena’s Corporate Results Monitor provides both a calendar of upcoming result releases and a summary of all reports to date: https://www.fnarena.com/index.php/reporting_season/

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.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

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