The Monday Report – 21 November 2022

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            [1] => ((BHP))
            [2] => ((LOV))
            [3] => ((FMG))
            [4] => ((SGR))
            [5] => ((SCP))
            [6] => ((WTC))
            [7] => ((EVN))
            [8] => ((TNE))
            [9] => ((SHV))
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            [2] => LOV
            [3] => FMG
            [4] => SGR
            [5] => SCP
            [6] => WTC
            [7] => EVN
            [8] => TNE
            [9] => SHV
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)

This story features BHP GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: BHP
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

The Calm Before

It was another dull session on the ASX on Friday to end a dull week, which saw the ASX200 fall a whopping -6 points in total.

While it feels like we’re winding down towards Christmas, December has the potential to rekindle volatility with US November jobs and CPI data to be followed by the last Fed meeting for the year, and also the December commencement of the cap on Russian oil payments.

Thus having adjusted higher for the US October CPI we’re now in a bit of a holding pattern, and it’s unlikely to change much this week with it being Thanksgiving and all. The jury is still out on whether the bottom is in on Wall Street or not, but this week that question will be put aside for now.

If anything, Friday’s trade on the ASX had a defensive bent, despite the Aussie ten-year yield being unchanged. Industrials rose 0.9%, communication services 0.8% and staples 0.3%.

Energy fell -0.4%, real estate -0.2% and discretionary -0.1%, while materials, healthcare and technology had a long weekend.

Otherwise it were the banks (+0.6) that broke the trend – perhaps a bit of buying after a round of ex-divs.

You know it’s a quiet day when the best performing stock in the index only gains 3.9%, but that was the case for OZ Minerals ((OZL)) after BHP Group ((BHP)) shocked no one in increasing its offer for the miner by 13%. BHP has made it plain it is in the market for more “future-facing” commodities, of which copper is one.

BHP will now conduct due diligence and if happy, the OZ board will be too, and then everyone’s off to the Emerald City.

On the other side of the ledger, Lovisa Holdings ((LOV)) revealed a 60% year on year increase in total sales, and fell -7.1%. Seems investors were expecting even more shiny things.

It’s crunch time for discretionary retailers this week as they back their exploitation of a US family celebration to squeeze as many bucks out of ignorant Aussie consumers as they can ahead of what is shaping up as a dour Christmas.

The futures closed up 24 points on Saturday morning.

Ditto

It was similarly dull on Wall Street on Friday night although the indices did come home with a wet sail, having been lower during the session.

For the week, the Dow closed down less than -0.1%, the S&P500 fell -0.7% and the Nasdaq -1.6%.

The week was dominated by Fed speakers who do rather like the sound of their own voices. The message was fairly consistent and plain nonetheless – we are simply not going to pause until the cash rate is where we need it to be. So please stop assuming we are.

Throughout history, Fed hiking cycles enacted to combat inflation have not ended until the cash rate is above the inflation rate. Only then is policy considered to be restrictive.

The bad news is the cash rate is currently at 3.75-4.00% and headline CPI inflation last printed 7.7%. The good news is the Fed’s benchmark is actually the core PCE level, and that last printed at 5.1% (September).

All last week’s Fed speakers suggested the cash rate would have to get to at least 5%, and probably more, before the Fed would then go on hold for a period, so that’s at least another 100 points of hikes. The next PCE reading is on December 1 (October).

Meanwhile, US data on Friday night showed sales of existing homes fell -5.9% in October – marking nine straight months of falls – and are down -28.4% year on year.

That’s good news on the inflation front, as lower sales lead to lower prices, which eventually lead to lower rents, and “shelter” is a big part of inflation measures.

On the other hand, oil analysts are warning oil prices are setting up for potentially another run at US$120/bbl (Brent), which would really upset the inflation apple cart and drive Joe Biden to drink.

OPEC-Plus meets on December 4 and then the cap on Russian oil prices, and prohibition of any transport or insurance being provided for Russian oil, comes into effect on December 5. While the intention of the cap is to bring prices down, making it near impossible for Russia to export oil by sea will have the opposite effect.

And if for some bizarre reason China comes out of lockdown…

Commodities

On that subject, China’s State Council warned cities on Friday to avoid “irresponsible loosening” of covid measures, according to the South China Morning Post. China reported a sevenfold surge in covid infections in the past two weeks, in the wake of a new policy of loosened measures aimed at reducing the impact of zero-covid restrictions.

The excitement generated a week ago over the possibility of China moving away from zero-covid in order to reverse the economic damage has now faded. It is a lack of demand from China that continues to weigh on oil prices for now.

The Aussie is down -0.3% at US$0.6664.

The SPI Overnight closed up 24 points or 0.3% on Saturday morning.

The Week Ahead

Wall Street is closed for Thanksgiving on Thursday night and Friday night sees a rather pointless half-session.

The concept of Black Friday is now all but dead and buried in the US, ever since stores were allowed to open on the Thursday a few years ago. Thanksgiving sales now run all week, and into Cyber Monday.

Apart from a rush of Christmas shopping at a discount (and there should be some bargains given the number of retailers stuck with excess inventory), the US will see house prices and consumer sentiment before Thursday this week.

Wednesday brings flash estimates of November PMIs from across the globe.

The RBNZ meets on Wednesday.

There are still plenty of AGMs to get through next week locally, including those of Fortescue Metals ((FMG)), Star Entertainment ((SGR)), Shopping Centres Australasia ((SCP)), WiseTech Global ((WTC)), and Evolution Mining ((EVN)), to name a few.

TechnologyOne ((TNE)) and Select Harvests ((SHV)) report earnings.

Following on from recent off-cycle earnings reports, there are a handful of ex-divs next week.

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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