The Monday Report – 01 May 2023

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            [3] => ((ORG))
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            [9] => REA
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This story features COLES GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: COL
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

RBA Looms

The RBA paused in April to allow more data to flow to inform the next decision, the most prominent being the March quarter CPI numbers. While the annual CPI was lower, it was still elevated, and thus still pointing to another rate hike. Friday’s PPI numbers did nothing to help.

The producer price index rose more in the March quarter (1.0%) than it did in the December quarter (0.7%), largely due to electricity and gas prices. The annual rate did mercifully fall to 5.2% from 5.8% in cycling last year’s numbers, but again, these data are not enough to prevent another rate rise tomorrow.

The futures had said up 55 on Friday morning on Wall Street strength but the ASX200 managed only 37 points, perhaps considering a strong move up for Meta has little to do with us. The index fell almost back to square on the PPI result.

A late rally, likely reflecting end-of-month window-dressing, followed to the close. It has not been wasted considering the futures were up 54 points on Saturday morning.

Real estate was the best performing sector (+1.1%). With US regional banks having reported and quelled systemic fears (except for one), fears may be easing on the US commercial real estate front.

The banks (+0.6%) and materials (+0.5%) teamed up to counter falls in healthcare (-1.0%), which seems to have lost its appeal of late, and staples (-0.8%), following Coles’ ((COL)) quarterly sales report. Coles shares fell -1.4%.

Meta’s result, and the Nasdaq surge on Thursday night, did not much rouse technology (+0.5%) particularly given a 41.5% leap for Megaport ((MP1)). At first glance one would assume a takeover offer but no, it was all about an earnings upgrade.

Utilities were weak (-0.8%) on a -1.0% fall for AGL Energy ((AGL)) and only a slight dip for Origin Energy ((ORG)) following its quarterly.

It looks increasingly likely the RBA will hike again tomorrow and Wall Street is all but certain the Fed will hike again on Wednesday night.

As the local quarterly reporting season winds down in May, the US season reaches peak results this week.

There’s a lot to risk with a 54 point gain for the futures.

Fed Looms

As I write, the FDIC is supposedly auctioning off First Republic Bank to the highest bidder, having taken it into receivership over the weekend. JPMorgan (Dow) is among the front-runners, having several billion deposited with First Republic, but there are a couple of regionals reportedly in the mix as well.

On Friday night First Republic remained in limbo, falling another -43%. While what has transpired since was anticipated, it was not at all certain.

Not that Wall Street much cared.

The US personal consumption & expenditure measure of inflation rose only 0.1% in March, taking the annual rate down to 4.2% from 5.1%. That was the good news. The bad news is the core PCE rose by 0.3%, taking the annual rate down only to 4.6% from 4.7%.

Headline inflation may be coming down but take out energy and food, and core inflation remains sticky, drifting down very slowly.

The numbers will not deter the Fed from hiking this week, as expected. What it suggests for June and beyond is another matter.

Not helping hopes of a pause thereafter was the March quarter employment index, which rose 1.2% having risen 1.1% in December. Year on year compensation grew by 4.8%, down from 5.1% in December but that was the fastest rate since 1990.

There is a cohort of those believing the Fed would be mad not to pause, given another 25 point rate hike will do little to curb inflation but could do a lot to further fuel the banking crisis.

That said, with all the listed regionals now having reported, only one appears to be in trouble.

Again, Wall Street didn’t seem much to care on Friday night. We could point to end-of-month window-dressing, but don’t mention “Sell in May”.

The Dow closed the month of April up 2.5% — its best month since January. The S&P500 was up 1.5% while the Nasdaq barely scraped into positive territory, despite the late burst from Meta and Co.

Intel was a primary driver of the Dow on Friday night, rising 4% after having reported in Thursday night’s aftermarket. Amazon held back the Nasdaq, falling -4% on its report.

Commodities

Base metal prices came off their lows on Friday after a top decision-making body of China’s ruling Communist Party said it will maintain support for the economy, focusing on domestic demand.

China's PMI releases disappointed. As reported by NAB economists this morning:

"Manufacturing was much weaker than expected, dropping into contractionary territory at 49.2 versus expectations of a much milder fall. New orders at 48.8 were in contractionary territory for the first time since COVID restrictions ended in December. The non-manufacturing survey, while stronger than its manufacturing peer, also fell and undershot expectations at 56.4. Within this survey, services fell but construction activities grew strongly."

Note that the LME is closed tonight.

Data from the US Energy Information Agency showed US crude production fell in February to 12.5m barrels per day — its lowest since December. Fuel demand rose to nearly 20mbpd — its highest since November.

The Aussie is down -0.2% at US$0.6616.

The SPI Overnight closed up 54 points or 0.7% on Saturday morning.

The Week Ahead

Locally we have the RBA tomorrow and data for house prices, retail sales and trade across the week, ending with the RBA’s Statement on Monetary Policy.

For the US it’s the Fed on Wednesday night, followed by April employment numbers.

The ECB meets on Thursday night.

Today is May Day so the UK, Europe and China will be closed, and China will remain closed until Thursday.

Japan closes on Wednesday and will remain closed through Friday.

There is only a handful of quarterly reports to come in the local market this week, but earnings will take the stage.

National Bank ((NAB)), ANZ Bank ((ANZ)) and Macquarie Group ((MQG)) report this week, along with quarterly earnings reports from Amcor ((AMC)), News Corp ((NWS)), REA Group ((REA)) and Block ((SQ2)).

Transurban ((TCL)) will host an investor day today.

The Australian share market over the past thirty days…

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