The Monday Report – 27 February 2023

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

By Greg Peel

Nice Try

Some relief on Wall Street on Thursday night allowed the local market to forget US inflation for a moment and concentrate on the day’s earnings reports. The result is the ASX200 recovered what it lost on Thursday.

Alas, yet another hot reading on US inflation on Friday night had our futures down -51 points on Saturday morning.

The last week was by far the busiest in the reporting season, and the net result for the index was a drop of around -0.5% for the week. From the beginning of the month, the index has fallen -2.7% across reporting season.

That’s before we see a weak session today. There are still two solid days of earnings results to come before month-end, and then we swing sharply back to focus on the macro, with the GDP result due on Wednesday.

Brambles ((BXB)) starred on Friday with 7.5% gain on result, sending the industrials sector up 1.4%.

Block ((SQ2)) can go up and down by large amounts on any day, has been doing so recently in particular, and on Friday jumped 5.9% on result.

Having reported on Thursday, Rio Tinto ((RIO)) mimicked BHP Group ((BHP)) earlier in the week by waiting the extra day to fall -3.6%. Materials was the only sector to close in the red on Friday (-1.2%), but there were also a few ex-dividends in there to upset the numbers.

The next two weeks will bring a peak in the number of stocks going ex-dividend each day. It’s zero-sum, as you get the money in the hand, but it still handicaps the index. What we need to see is that money being reinvested into the market. Actual payment dates lag ex-dates so there’s a gap.

Outside of the ASX200, Infomedia ((IFM)) was a winner on Friday (+14.4%) and Omni Bridgeway ((OBL)) a loser (-18.7%).

There were more Day Two moves evident outside of Rio, with Bega Cheese ((BGA)) rebounding 7.5%, Smartgroup Corp ((SIQ)) jumping 5.5%, while on the other side, Maas Group ((MGH)) fell -9.0% and Perpetual ((PPT)) -4.2%.

Otherwise, Friday looked a lot like a bargain hunting exercise for investors, given materials was the only weak sector. Real estate rose 1.3%, consumer discretionary 1.2%, energy 0.9% and the banks 0.6%.

The big miners and gas companies are now past their peaks in extraordinary dividends. The banks are in theory past peak net interest margins. From here it’s up to the RBA.

But also the Fed.

More Heat

The US CPI and PPI numbers reported the week before last were both “hot”, in the sense they showed a fall in annual rate from the month before not by as much as economists had forecast.

On Friday night, the US personal consumption & expenditure of inflation showed a 0.6% increase in January to an annual rate of 5.4%, which is a gain on December’s 5.3%. It is the biggest monthly gain since mid-2022 and the first uptick in seven months.

The Fed’s preferred measure of inflation – the core PCE – also rose 0.6% to 4.7%, up from 4.6%.

If hotter than expected consumer and wholesale price inflation numbers had Wall Street wobbling, an actual tick up in PCE was not what the doctor ordered. It rather upset what the Street has been calling “immaculate disinflation” – the expectation that inflation would track a path from the peak last year down to 3% on a steady trajectory.

Not all assumed this would be the case, expecting there would bumps in the road and the path to lower inflation would not be linear.

The issue for the Fed, aside from the inflation rate itself, is consumer spending rose 1.8% in January – the biggest increase in almost two years. The Michigan Uni bi-monthly survey showed consumer sentiment continues to recover from covid lows.

There are those things the Fed can influence with rate hikes, such as consumer demand, and those things it can’t, such as the price of oil and inflation driven by ongoing supply constraints. There is no point in the Fed trying to counter that which it cannot control.

But on Friday night’s data, it appears the Fed still has work to do.

The US bond market certainly sees it that way. Friday night saw the ten-year yield rise 7 points to 3.95% and the two-year 12 points to 4.81%.

The US dollar index jumped 0.6%…

Commodities

…which was not helpful for commodity prices. Nor is it helpful that the Fed will need to further kill demand.

Russian production cuts have the oils hanging in there.

It’s a bit of a double-whammy effect on the Aussie, which is down -1.1% at US$0.6736.

The SPI Overnight closed down -51 points or -0.7% on Saturday morning.

The Week Ahead

Plenty of earnings reports to come today and tomorrow before it all comes to a screaming halt. Then ex-dividends take over.

The macro also returns to the fore this week, starting with December quarter company profits and inventories today and the current account tomorrow, followed by the GDP on Wednesday.

We’ll also see January retail sales, along with private sector credit and building approvals.

China will report February PMIs on Tuesday and the world will follow thereafter.

The US will see numbers for durable goods orders and consumer confidence.

Today’s list of stock going ex includes Aurizon Holdings ((AZJ)), Beach Energy ((BPT)), Fortescue Metals ((FMG)) and Santos ((STO)).

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/)

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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