The Monday Report – 03 April 2023

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            [2] => ((AMP))
            [3] => ((SEK))
            [4] => ((NVX))
            [5] => ((SCG))
            [6] => ((STO))
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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

Downs and Ups

The ASX200 step-jumped up from the open on Friday and stayed there, just as it had done on Thursday. The index managed to break a seven-week losing streak in the process, exacerbated by the global banking crisis, but still has a ways to go. The index closed up 3% for the quarter but down -5% from the February high.

While our market has been taking the lead from Wall Street, it’s been the resource sectors that have driven the charge, aided most recently by a partial comeback for the banks. Wall Street’s rebound has been all about Big Tech that we don’t have, and we’re still waiting for China to show any solid signs of a post-covid rebound.

China’s manufacturing PMI fell back to 51.9 in March from 52.6 in February. The services PMI surged to 58.2 from 56.3 – its highest level since 2011 – but tends to use less raw materials.

Materials rose a standout 1.9% on Friday, with iron ore providing the main drive, while energy slipped -0.8% on lower oil prices.

The banks managed a 0.5% gain, with bond yields falling -5-6 points, which helped real estate up 0.6% and discretionary up 0.4%, net of a -3.7% drop for Harvey Norman ((HVN)) going ex-dividend.

Healthcare found its feet again (1.1%) after struggling earlier as a funding source for investment in resources and banks.

Staples was the only other sector to close in the red, barely.

Technology showed it’s not really the Nasdaq in rising only 0.8%. If anyone’s still interested in EML Payments ((EML)), which at best only makes the All-Ords these days, it rose 31% after the company confirmed a regulatory move by the Irish Central Bank on its subsidiary did not affect the company's guidance for the 2023 financial year.

In other news, AMP ((AMP)) held its AGM on Friday and copped a shareholder vote against the company’s plans for executive bonuses. Strike one. The stock fell -2.8%.

The market has closed with positive momentum, albeit still well short of Wall Street. Following another solid US session on Friday night, our futures were up 45 points on Saturday morning. This implies investors are prepared to take the risk heading into tomorrow’s RBA meeting of not getting the pause they are hoping for.

Careful What You Wish For

The Dow closed the March quarter up 0.4%, the S&P500 7.0%, and the Nasdaq 16.8%.

The Nasdaq is dominated by Big Tech and Big Tech is a big chunk of the S&P. Only two Big Tech stocks are included in the Dow – Microsoft and Apple – and given they rose 20% and 26% respectively for the quarter, without them industrials did not have a great quarter.

Hence, the March quarter rally was largely a one-trick pony, with investors piling into what might be described as “safe haven growth” stocks, or Goldilocks by any other name, sitting in a sweet spot between value plodders and profitless future growth stories.

Wall Street entered 2023 assuming a Fed pause was not far off, and inflation will fall, which provided the impetus for tech stocks which were carted in 2022 to be bought once more. While they for the most past have simply regained lost ground, their PE valuations are now higher than they were before the 2022 sell-off.

On the subject of inflation, US February headline PCE inflation fell to 5.0% annual from 5.3%, and the Fed’s preferred core rate to 4.6% from 4.7%. The trend remains in the right direction but the drop in the core rate is hardly anything to write home about, and indicates that while inflation may have shot up like a rocket, descent will be with a parachute.

Wall Street thus had every reason to take profits for end-quarter on Friday night, but instead went the other way. This is smacking of the return of FOMO.

With stocks surging and bond yields having collapsed in the quarter, Wall Street is providing the Fed with a considerable level of comfort to do exactly what it has said it will do; keep pushing rates higher. Had the stock market tanked and bond yields shot up it would be a different story.

Wall Street believes the banking crisis will prevent the Fed from going again in May, but that, so far, has proven a storm in a tea cup, swiftly resolved. Given inflation remains stubbornly high, the Fed is more likely to risk pushing another small bank off the edge with another 25 point hike on the balance of risks in the bigger picture.

Expectations for what the Fed will do in May remain pretty much a 50/50 bet on pause or 25, but the market is still forecasting rate cuts in the second half of the year. This is because the market believes a recession is inevitable.

Stock markets tend not to like recessions.

US bond yields fell only slightly on Friday night on the PCE data.

The final Michigan Uni consumer confidence survey for March showed a drop to 62.0 from a mid-month 63.0 and end-February 67.0.

While the inflation expectation measure within the survey fell to 3.6% over twelve months from 4.1%, a read on the current state of the economy fell to 66.3 from 70.7 a month ago.

Bear in mind these are 100-neutral measures. If respondents were neither net positive or negative about the economy, that would be the reading.

Commodities

Nothing major on Friday night other than the oils coming back a bit.

With the US dollar up 0.3% (despite the lower PCE), the Aussie is down -0.4% at US$0.6684.

The SPI Overnight closed up 45 points or 0.6% to kick off the June quarter.

The Week Ahead

It’s a shortened week, leading into Easter and also into school holidays, which then end with the potential of another cheeky long weekend into Anzac Day in a couple of weeks. Volumes will likely be a bit thinner.

Before that we have the RBA meeting tomorrow.

We’ll also see building approvals today and the trade balance on Thursday.

The RBNZ meets on Wednesday.

The rest of the world reports March manufacturing PMIs today, and services on Wednesday.

The US will also see numbers for factory orders and trade, along with private sector jobs and non-farm payrolls. The latter is out on Friday as usual despite markets being closed.

All major markets outside of Asia are closed on Friday.

On the local stock calendar, Seek ((SEK)) hosts an investor day tomorrow while Novonix ((NVX)) and Scentre Group ((SCG)) hold AGMs on Wednesday and Santos ((STO)) on Thursday.

The Australian share market over the past thirty days…

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