The Monday Report – 13 February 2023

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            [6] => ((AZJ))
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            [10] => ((JBH))
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This story features NEWS CORPORATION, and other companies.
For more info SHARE ANALYSIS: NWS
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

Confluence

It was not a good set-up to begin with for the local market heading into Friday’s trade. Momentum that carried the market through January and into February had begun to fade, led by Wall Street, but exacerbated locally by the RBA’s hawkish statement last week.

The S&P500 had closed below support, and on Thursday the ASX200 failed to hold key support at 7500 as well. Wall Street was weak again on Thursday night. The ASX200 opened down on Friday morning and hit its nadir at 11.30am. Nothing happened thereafter.

On top of the RBA’s “more to do” statement on Tuesday came Friday’s Statement on Monetary Policy. Earlier the RBA’s chief economist had made the call that inflation had peaked late last year. In the SoMP, the RBA’s core inflation rate forecast for the December quarter 2023 was raised to 4.3% from a prior 3.8%.

Following Tuesday’s indication that more than one further rate rise is ahead, the market has shifted its expectations for a peak cash rate of at least 3.85% (two more hikes) if not 4.10% (three). The SoMP makes 4.10% sound more likely than 3.85%.

The Aussie ten year bond yield rose 4 points to 3.70% and the two-year 8 points to 3.39%.

We could single out technology (-2.0%) and consumer discretionary (-0.7%) as reflecting higher rate expectations on Friday, with the banks down -0.5% on increased mortgage stress. Real estate only fell -0.3% after a tough week.

Communication services dropped -1.7%, but that was thanks to the day’s earnings reports. News Corp ((NWS)) fell -6.9% on result to be the worst index performer on the day. Part of that weakness was due to its stake in REA Group ((REA)), which fell -2.7%.

Rival companies often fall in sympathy on a bad result from one player, but Domain Group’s ((DHG)) -6.1% plunge on REA’s numbers was one out of the box. There was a hint of REA increasing market share in Australia in Friday's result.

Technology was also impacted specifically by a -6.2% fall for Block ((SQ2)), as it responded to a big fall on result overnight from US rival Affirm.

Thursday night saw big falls in gold and thermal coal prices. On Friday materials fell -1.1%, energy -1.7% and utilities -1.1%.

Was there any saving grace for the market on Friday?

United Malt ((UMG)) held its AGM and rallied 4.8%. In a weak session, Endeavour Group’s ((EDV)) 2.4% gain stood out. When it all goes to hell we’ll be hitting the booze. Staples was the only sector to close in the green, up 1.0%.

Wall Street was mixed but net squarish on Friday night. Our futures were unchanged on Saturday morning.

The local earnings season ramps up this week and it hasn’t been the best of starts so far. On Tuesday night, the US CPI is due.

End of the Run

We’re used to seeing the Dow and Nasdaq close in opposite directions but it hasn’t happened in a while. January was all go among the indices with the Nasdaq leading the charge. But with Friday night’s fall the Nasdaq ended its run of five winning weeks.

For the week, the Nasdaq fell -2.4%, the S&P500 -1.1% and the Dow -0.2%.

Wall Street is now poised, albeit with tonight’s session to go, ahead of Tuesday’s CPI. But is a -1% pullback enough?

Another dip in headline inflation would be a relief, but enough to rekindle the rally? The Fed is unlikely to waver. And given it is clear food prices have come down notably in the US, while energy prices have remained relatively steady, the focus will be on the core CPI. Any tick up in inflation could be a disaster.

Next stop 4000.

There was some solace on Friday night provided by the Michigan Uni consumer sentiment index, which rose to a 13-month high of 66.4%. One after the other, major retailers have been describing the US consumer as “resilient” in the face of rate hikes, attributed to a strong labour market and subsequent wage growth.

Yet I noted last week that luxury brand owner Capri fell -24% on is result. In Thursday night’s aftermarket BNPL leader Affirm reported and fell -17%. On Friday night Uber rival, US-only Lyft, reported and fell -36%. Online travel agent Expedia reported and fell -8.5%.

Oh and in the US, News Corp fell -9.3%.

Lyft was nonetheless a standout, as Uber had earlier posted a strong result. Market share story.

The US consumer might be resilient but the US ten-year yield rose another 6 points on Friday night to 3.74%. On Wednesday, US retail sales numbers for January are released.

Rising bond yields are not ultimately good for the Nasdaq, but last week’s weakness also lent a lot to Google’s botched AI launch, rushed out to rival Mircosoft’s chatGPT.

Get ready for 2023 to be the year of AI, as companies across the spectrum rush to not be left out of the latest fad. Soon your local café will be boasting its AI credentials.

Not that they all haven’t been to date, but Tuesday night’s will be an interesting CPI result.

Commodities

Not much happening in metals.

Russia announced on Friday night it would cut its oil production by -500,000bpd, or about -5%, in the face of Western import bans.

The Aussie is pretty well “unch” at US$0.6931.

The SPI Overnight closed “unch” on Saturday morning.

The Week Ahead

We’ve had the warm-up laps and now the pace car has exited into pit straight.

Today’s earnings reporters include Aurizon Holdings ((AZJ)), Beach Energy ((BPT)), Carsales ((CAR)), Endeavour Group, Insurance Australia Group ((IAG)), JB Hi-Fi ((JBH)) and Lendlease ((LLC)), among others.

Quite a snapshot of the economy.

For a calendar of earnings result releases and a summary of earnings results to date, refer to FNArena's Corporate Results Monitor (https://www.fnarena.com/index.php/reporting_season/)

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