The Monday Report – 08 May 2023

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

By Greg Peel

Technically Speaking

The ASX200 dropped -25 points from the open on Friday, in line with the futures, but after twenty minutes went into rally mode. Nothing too exuberant, rather a steady grind through to the close that had the index safely back above support at 7200.

It was a collective effort, with most sectors closing in the green. The one standout was real estate (+2.0%), as investors likely took heart from lower bond yields during the week, driven by falls in the US. US yields reversed sharply on Friday night, but beforehand, Goodman Group ((GMG)) rose 3.0% and Stockland ((SGP)) 2.3%.

Materials (+0.6%), utilities (+0.5%) and staples (+0.5%) were next best on a mixed bag, while energy rose 0.3% on some stability in oil prices, which shot up on Friday night.

After a bit of a shocker for National Bank ((NAB)) on Thursday, ANZ Bank ((ANZ)) turned the tables with its earnings result on Friday and rose 1.5%. Macquarie Group ((MQG)) didn’t quite fare as well, falling -0.2%, but the bank sector rose 0.3%.

Communication services, discretionary and technology all fell -0.2-0.3%, not taking any solace from a strong result overnight for Apple, and its possible impact on Wall Street.

Materials’ gain lent a lot to gold miners, as the USD gold price continued to surge. It fell back to earth on Friday night. Lithium miners also found support, despite the Rio Tinto ((RIO)) CEO declaring at the company’s AGM he saw no point in buying lithium assets in a hot market.

Rio Tinto finalised the acquisition of the Rincon project, near Orocobre’s (now Allkem ((AKE))) flagship Olaroz lithium operations, in Argentina last year.

In economic news, lending to housing rose 4.9% in March following 13 consecutive months of decline. Owner-occupiers (+5.5%) outpaced investors (+3.7%). Economists put the bump down to raging immigration meeting a shortage of housing, but note the April RBA hike to 3.85% may put a dampener on things again.

The RBA’s Statement on Monetary Policy released on Friday showed the board now expects the core CPI to fall to 6.0% by June, down from February’s forecast of 6.2%, and 4.0% by year-end, down from 4.3%.

At the same time, the RBA has cut its GDP growth expectation to 1.7% by June from 2.3%, and 1.2% by year-end, down from 1.6%.

Thereafter, the board sees the economy rebounding by 2.1% to mid-2025, up from 1.7%.

Happy days.

When Good is Good

Having reported in Thursday night’s aftermarket, Apple (Dow, S&P, Nasdaq) rose 4.7% on Friday night. That in itself was enough to change the tone on Wall Street following the Fed rate hike, but what really got investors fired up was the April non-farm payrolls report.

The jobs report was not much expected to move the dial for the Fed but when it came in at 253,000 additions, when 180,000 was forecast, it was a bit of a shock. The March and February numbers were nonetheless revised down a net -149,000 but when March came in at 165,000, it seemed a downward trend was finally apparent, and all those layoffs we keep hearing about were starting to bite.

Clearly not. There are still over 4 million jobs on offer in the US. The unemployment rate fell to 3.4% from 3.5%, to the lowest level since 1968.

More concerning for the Fed was a 0.5% monthly increase in wages, to 4.4% annual, compared with a 3% rate prevalent pre-pandemic.

If this were last year, and the Fed was still in 75 point hiking mode, these numbers would have seriously spooked Wall Street. But recent months have seen a shift from worrying about rates to worrying about recession, brought on by rates, so such a strong jobs numbers is a relief for those fearing a hard landing.

If the Fed does not start cutting in the second half as forecast by the market, but not the Fed itself, then it means at least a soft landing, and Wall Street likes that idea.

And so the stock market shot up from the open.

As did bond yields. Having crashed for two sessions post Fed hike, the US ten-year jumped back 8 points and the two-year 19 points.

Most notable in the stock market were moves in US regional banks. I noted in Friday’s Report that PacWest Bancorp had been hit by short-selling, falling -50%, as was Western Alliance, down -40%. On Friday night the shorters were caught out, with PacWest jumping 80% (having fallen -97%) and Western Alliance rose 50%.

JPMorgan also upgraded recommendations on some regionals on Friday night (as well it might).

I had also noted on Friday that crypto exchange Coinbase had reported in the aftermarket and was up 8%, and ditto Uber rival Lyft, down -15%. On Friday night Coinbase closed up 18% and Lyft down -17%, although Lyft has a new CEO, so likely a rebasing of expectations in order to look good next quarter.

Wall Street will now look ahead to the April CPI report on Wednesday night.

Commodities

Bit of a step back for gold.

Oil prices had been sinking all last week on US recession fears, brought about by a hawkish Fed, but while the Fed will feel justified post jobs report, the easing of recession fears turned the oils around.

Despite the bounce-back in bond yields the US dollar dipped slightly, yet the Aussie leapt 0.9% to US$0.6757, which will prove a negative double-whammy for AUD gold and gold miners today. Presumably the SoMP is to blame.

The SPI Overnight closed up 64 points or 0.9% on Saturday morning.

The Week Ahead

US CPI on Wednesday and PPI on Thursday, along with consumer sentiment on Friday.

China will report trade and inflation numbers.

Big night in the UK on Thursday, as Charles shows off his new hat, with March quarter GDP and trade and industrial production numbers out as the Bank of England meets.

Locally the big night is tomorrow night, as the budget is brought down. There have been plenty of “leaks”, one of which is the increased tax on LNG producers, so no surprises there presumably, but there’s plenty more to learn.

Philip Lowe will be watching closely.

We’ll see building approvals today and the Westpac consumer confidence survey tomorrow.

Westpac ((WBC)) reports earnings today and Commonwealth Bank ((CBA)) provides a quarterly update tomorrow.

Also reporting this week will be Coronado Resources ((CRN)), CSR ((CSR)), GrainCorp ((GNC)) and Orica ((ORI)).

There will also be a handful of AGMs this week.

The Australian share market over the past thirty days…

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