The Monday Report – 28 November 2022

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This story features HARVEY NORMAN HOLDINGS LIMITED, and other companies.
For more info SHARE ANALYSIS: HVN
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

The New Black

Consumer discretionary was among one of the better performing sectors for the ASX200 on Friday, rising 1.2%. It’s beginning to look a lot like Christmas, and retailers are giving thanks. Black Friday sales are this year expected to outdo the traditional Boxing Day sales.

One day someone might explain to me how discounting before Christmas is a better earner than discounting after Christmas.

The likes of heavyweights Harvey Norman ((HVN)) and JB Hi-Fi ((JBH)) were strong on Friday as was Nick Scali ((NCK)), which rose 7.4%.

However, no one got the memo at City Chic Collective ((CCX)), which following a trading update fell -28.4%, and is now looking a lot skinnier. Four of the five FNArena database brokers covering the stock had a Buy or equivalent rating before Friday, including an upgrade from Citi earlier this month.

City Chic is not in the ASX200, and the five biggest index losers on the day were all lithium miners, from Allkem’s ((AKE)) -8.6% fall to IGO’s ((IGO)) -4.7%.

Fear not – they could all be up by that much on any day. The materials sector was the only major drag on the index on Friday (-1.1%), with energy doing its bit as well (-0.3%).

All other sectors closed in the green, in what was a fairly thin market following the US holiday, and being a Friday and all. The defensives of communication services, real estate and utilities all topped 1%, but then they’ve hardly been all that defensive this year.

Aside from discretionary the real driver were the banks, up 0.8%, which are continuing to draw support on the expectation the RBA does not have far to go.

Meanwhile, investors in EML Payments ((EML)) are revolting, according to reports. They pulled the trapdoor on the chairman at the AGM on Friday and issued a first strike on executive pay. How did they rate the chairman’s performance? The stock rose 22.6%.

Admittedly, EML management did outline its new path forward.

Topping the index (which EML is not in) was infection prevention company Nanosonics ((NAN)), up 11.1%, after Ord Minnett and Morgans simultaneously upgraded the stock, to Add and Hold respectively.

Outside of the volatility of commodity prices, the local market definitely has a feel of wanting to chase Santa into the new year.

Next year is another story though.

Stewed Apple

There were only two stories in focus in a half-day, half-hearted session on Wall Street on Friday night – Black Friday and Apple.

Investors were keenly watching real time retail sales data and mall traffic along with searches online to gauge what was hot and what was not for Christmas.

But data were already in for actual Thanksgiving Day sales – up 2.9% from last year – and acknowledgement that Black Friday actually runs all week and into Cyber Monday. Yet as all agreed, it’s difficult to tell just how much of the increase is volume and how much is price, given the inflation impact.

For Apple, it was all about China. If you were planning to give a loved one a new iPhone 14 for Christmas and you haven’t bought it yet, you might need a Plan B.

Protests and riots at Apple’s major iPhone manufacturer Foxconn in Zhengzhou over factory lockdowns and unpaid wages has led to iPhone 14 supply being some -25-30% below a typical lead-in to Christmas.

It seems strange to think that only a couple of weeks ago global markets were getting all excited about speculation Beijing was set to ease restrictions and rethink zero-covid. It would appear Xi’s response has been to double-down, even if ten people have to die in a fire in a locked down apartment block.

Hence, Apple is being hit not just on the supply-side but on the demand-side as well, as many can’t get out to buy an iPhone even if they could get one. And the demand-side story is not just impacting Apple.

The impact of lockdowns was evident across the spectrum of retailers reliant on Chinese sales on Friday night.

The PoBC has responded with another cut to the reserve ratio requirement for Chinese banks, which is a bit like a cash rate cut but directly through lending, but analysts are not convinced this will make much of a difference.

While there remains hope for an easier Fed in 2023 and a standard Santa Rally into new year, another year of Chinese lockdowns is seen as a major risk to global economic growth in 2023, when Putin is providing his own drag.

Apple fell -2% to impact on an otherwise positive Dow, hold the S&P500 flat and help the Nasdaq down -0.5%.

In other news, seeing as there appears to be a bit of it about on the subject at present, the world’s most recognisable sports franchise, soccer club Manchester United (yeah try and find a Yank who’ll say “football”), has jumped 250% in a week when typically it hardly ever moves.

It’s due to talk the majority shareholder family is looking to sell. Seems counterintuitive to buy because they’re looking to sell, but it’s all about what the family reckons they can get for the company.

Funny that they should choose this particular moment to put soccer in the spotlight.

Commodities

Nothing much to see here, except for oil, for which you can blame President Xi.

The Aussie is down -0.7% at US$0.6721.

The SPI Overnight closed down -9 points on Saturday morning.

The Week Ahead

We hope Americans enjoyed their holiday, because they’ll be right back in the thick of it this week.

There’ll be a pre-Christmas measure of consumer confidence tomorrow night, private sector jobs and another GDP revision on Wednesday, October PCE inflation data on Thursday and non-farm payrolls on Friday.

There’ll also be data on house prices and manufacturing, and Jerome Powell will make a speech and hold a Q&A on Wednesday.

Things are hotting up downunder as well, as we head into the Silly Season. Wednesday brings September quarter construction work done and Thursday private sector capex, ahead of next week’s GDP result.

We’ll also see numbers for retail sales (today), building approvals, house prices and private sector credit.

China reports November PMIs on Wednesday and everyone else manufacturing PMIs on Thursday.

The AGM season is finally winding down, with just a handful on the calendar this week.

Collins Foods ((CKF)) and Fisher & Paykel Healthcare ((FPH)) report earnings tomorrow.

The Australian share market over the past thirty days…

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