The Monday Report – 27 March 2023

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            [3] => ((BKW))
            [4] => ((EHE))
            [5] => ((PMV))
            [6] => ((RMC))
            [7] => ((AUB))
            [8] => ((AMP))
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            [6] => RMC
            [7] => AUB
            [8] => AMP
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This story features ZIP CO LIMITED, and other companies.
For more info SHARE ANALYSIS: ZIP
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

Can’t Shake It

The futures had suggested a -39 point fall for the ASX200 on Friday, which seemed overdone given Wall Street’s modest rally, and sure enough after falling -45 points from the open the index closed down -15.

Banks remain the problem. Investors clearly are nervous regarding this sector and it wouldn’t help that Deutsche Bank found itself in the spotlight on Friday night.

Financials fell -1.2% to be the standout worst performer on the day with energy (-0.3%) a distant second, and four other sectors falling only slightly.

The offset was provided by materials (+0.6%) with gold shining again and the exotics continuing to flip-flop most days, with Friday in the positive.

Utilities jumped 0.7% on a 6.0% jump for AGL Energy ((AG)), after Barrenjoey upgraded the stock to equivalent Buy with a focus on FY24 forecasts.

Technology managed to hold its own (-0.2%) despite an -18.4% plunge for Block ((SQ2)) following an attack from short fund Hindenburg. BNPL peer Zip Co ((ZIP)) thus caught a bid (+8.1%) but is itself heavily shorted locally.

Brickworks ((BKW)), which starred on Thursday post-earnings, fell -4.6% after brokers pointed out the result was all about property revaluation while the company’s Building Products division was weak and looking weaker.

Residential aged care provider Estia Health ((EHE)) jumped 14.1% after receiving a takeover offer from Bain Capital.

While the banks remain in focus, there was nothing much going on in the macro scene on Friday. Investors were otherwise prepared to risk any weekend developments. The bond market saw a quiet session for once, with yields off only slightly.

Fortunately said developments were ultimately shrugged off by Wall Street. But despite a 0.6% gain for the S&P500 on Friday night, we’re again looking pessimistic this morning with the futures down -3 points on Saturday morning.

Storm in a Stein

Shares in Deutsche Bank suddenly slumped on Friday night, sending oh-no-not-another-one ripples through European markets. Markets in Germany and France fell -1.7% and London -1.3%.

The selling was triggered by a jump in the price of Deutsche’s five-year credit default swaps (CDS), which insure investors against failure. The reason for the sudden jump is unapparent, other than to note Deutsche has had its problems over the last decade as has Credit Suisse, but unlike CS, Deutsche had managed to turn the ship around and has since 2019 been sufficiently profitable.

To compare, the price of Deutsche Bank’s CDS is at 215; Credit Suisse's peaked at 1194.

The Dow was down -300 points from the open but once Europe closed, the tide turned, allowing Wall Street to graft back to a positive close, shaking off concerns. The S&P500 financials sector closed down only -0.1%.

Coincidentally, US Treasury Secretary Janet Yellen announced Friday she called an unscheduled meeting of the Financial Stability Oversight Council, which was created in the wake of the 2008 financial crisis to help the US government combat threats to financial stability.

The FSOC issued a short statement after the market closed on Friday saying that “while some institutions have come under stress, the U.S. banking system remains sound and resilient”.

But in the US, Wall Street is just waiting for “the next shoe to drop,” as they like to say.

The US ten-year bond yield fell -3 points to 3.37% and the two-year -4 points to 3.78%.

US durable goods orders fell -1.0% in February compared to a -0.3% forecast, weighed down by falls in aircraft and vehicle orders. Remove transport and orders were flat on the month. The business investment segment of the data showed a 0.2% increase – the second increase in two months — suggesting rate hikes are not biting that hard.

Yet.

Wall Street will be looking ahead to the next reading on inflation (PCE), but not until Friday night. Two measures of consumer confidence due during the week will also draw attention.

Commodities

The US dollar looked a bit more “safe haven” on Friday night in rising 0.5%, keeping commodity prices at bay and sparking a bit of profit-taking in gold.

The Aussie is down -0.5% at US$0.6657.

The SPI Overnight closed down -3 points.

The Week Ahead

For the US it’s Conference Board consumer confidence tomorrow night, and revision of the December quarter GDP on Thursday and PCE inflation and the Michigan Uni consumer sentiment survey on Friday.

It’s a telling week locally, as the RBA braces for data on retail sales tomorrow, the February CPI on Wednesday, and private sector credit on Friday.

China will release its March PMIs on Friday.

Premier Investments ((PMV)) reports earnings today, and during the week Reliance Worldwide ((RMC)) hosts an investor day, while AUB Group ((AUB)) and AMP ((AMP)) hold their AGMs.

The general flow of ex-dividends has slowed to a trickle, but Thursday is quarterly ex-day for a long list of REITs and other funds.

The Australian share market over the past thirty days…

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