The Monday Report – 17 April 2023

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This story features BANK OF QUEENSLAND LIMITED, and other companies.
For more info SHARE ANALYSIS: BOQ
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Okay, I Think

The surge on Wall Street on Thursday night on a lower PPI result could have arguably led to another step-jump opening for the ASX200 on Friday but the futures showed only a timid 15 point gain. The index opened, and initially fell.

But not for long. Local sentiment may have been tempered by the previous day’s strong jobs report, weighed against the US PPI, but in the end confidence won the day. Heading into the US reporting season, and a ramp-up in the local quarterly update season, the index drew a straight line upward all session to close on its high – almost 2% up for the week.

Sector-wise it was a team effort, with only two not closing in the green being healthcare (-0.3%) and real estate (-0.3%), which had outperformed over the week.

Materials was again the leader, but only on 0.9%, with gold and lithium dominating. Gold took a tumble on Friday night.

Next best was financials, rising 0.8% despite Bank of Queensland ((BOQ)) pre-announcing a goodwill write-down of its Home Building Society acquisition and extra for increased risk management investment as required by the regulator. A reduced dividend payout was indicated. Bank of Queensland fell -0.9%, but this did not impact on the majors.

Energy chimed in with 0.5% and staples with 0.6% to underpin market-wide buying both cyclical and defensive.

Technology seemed asleep at the wheel with only a 0.2% gain when the Nasdaq rose 2.0% overnight.

Bond yields were again modestly higher.

Discretionary rose only 0.2% despite a good day for Domino’s Pizza ((DMP)) for once, up 4.5% to split all the miners in the top-five index winners.

Losers were a mixed bag, led by The Lottery Company’s ((TLC)) -3.1% drop.

Tomorrow we’ll see the minutes of the April RBA meeting that may provide more clue as to just how long the pause can last.

We’ll also see China’s March quarter GDP result, along with month of March data.

And more US banks will report, among others this week, before the Big Tech companies dominate the following week.

The banks are off the a good start, but somewhat overridden by other factors on Wall Street Friday night. Still, the S&P500 lost -0.2%. Our futures were up 12 points on Saturday morning.

Gasoline, Planes and NIMs

US retail sales fell -1.0% in March when -0.5% was forecast. On face value it appears Fed rate hikes have finally caught up with the US consumer. While this might encourage the Fed to rethink another rate hike, bad news is now bad on Wall Street if it points to recession.

However, the fall in retail sales was led by lower energy prices, particularly prices at the pump, given the fall in crude oil prices over the month. It’s likely this segment will reverse in April with prices having rebounded solidly.

And while goods inflation has indeed diminished, as evidenced in a lower headline CPI, services inflation has not, as evidenced in a higher core CPI. But wholesale inflation has indeed come down both at the headline and core, so it’s all very confusing.

Not so confusing was news Boeing has been forced to suspend deliveries of the 737 Max, due to yet another problem. While this time the problem is not a safety issue and planes have not been grounded, the words Boeing and fault together add up to Sell.

Boeing is one of more nominally expensive stocks on the Dow, albeit nowhere near the most expensive as it used to be thanks to the 737 Max, so a -5.6% drop represented quite a drag on the average.

The most expensive stock nominally is UnitedHealth, and it reported a mild beat Friday night before falling -2.7%, attributed to a solid rally this month prompting profit-taking.

The big Dow winner was JPMorgan, which quite simply knocked it out of the park with its result, leading to a 7.6% pop, but in nominal terms it’s one of the lower priced stocks.

JPMorgan reported a shock surge in net interest margin amidst concerns about deposit outflows and tightening lending conditions – CEO Jamie Dimond suggesting there is no evidence yet of the latter.

Citigroup and Wells Fargo also reported earnings beats, but while Citi jumped 4.8% Wells Fargo closed flat.

The results have gone some way to relieving banking sector fears, and this week we get results from Goldman Sachs (Dow), Morgan Stanley and Bank of America, but Wall Street’s fears lay firmly with the small regional banks, many of which report this week.

Countering the weak retail sales result was the first Michigan Uni consumer sentiment survey for April; the index rose to 63.5 from 62.0 in March. I’m not entirely sure what the survey period is in terms of dates, but given the survey also showed a big jump in one-year inflation expectations to 4.6% from 3.6% I’d guess sentiment reflected relief the banking crisis was near-term averted, and missed recent inflation data.

Otherwise impacting on Wall Street on Friday night was mixed Fedspeak. The new Chicago president saw inflation “moving in the right direction,” and implied the Fed risked going too far. The San Francisco president made a two-way bet, suggesting inflation argued for another hike but tighter credit conditions argued for a pause, while the Fed governor said the Fed still hasn’t made much progress in bringing inflation down to target.

Add it all up and Wall Street closed weaker on Friday night, but off its lows.

Commodities

Modest moves elsewhere but the standout here is gold. The US ten-year yield rose 7 points on Friday night and the two-year 13 points on the sum of all above, and the US dollar rose 0.5%.

The Aussie is down -1.2% at US$0.6708 having shot up over the week.

The SPI Overnight closed up 12 points on Saturday morning.

The Week Ahead

As earnings season ramps up in the US, releases are due for housing starts and existing home sales and the Empire State and Philly Fed indices.

The economic highlight for Australia next week will be the minutes of the April (pause) meeting. But locally, our own unofficial March quarter reporting season ramps up as well.

The emphasis next week is on resources, with all of BHP Group ((BHP)), Rio Tinto ((RIO)), Evolution Mining ((EVN)), Woodside Energy ((WDS)), Santos ((STO)) and Whitehaven Coal ((WHC)) reporting.

Bank of Queensland ((BOQ)) will officially report earnings.

China releases its March quarter GDP result on Tuesday, along with March industrial production, retail sales and fixed asset investment.

New Zealand reports its March quarter CPI on Thursday and at the end of the week, flash estimates of April PMIs will be released across the globe.

The Australian share market over the past thirty days…

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