The Monday Report – 15 May 2023

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This story features LAKE RESOURCES N.L., and other companies.
For more info SHARE ANALYSIS: LKE

By Greg Peel

Doldrums

Day Three and the ASX200 remained becalmed. The pattern remained the same on Friday – selling in the morning and then buying in the afternoon to a flat close. Maybe the bulls like a sleep-in.

The pattern also remained the same among sectors, in that each day two or three move in one direction cancel out all sectors moving in the other. The only problem with this pattern is a lack of trend – sector moves have flipped and flopped.

On Friday it was Resources versus The Rest. Last week’s weak Chinese inflation data had industrial metal and oil prices falling, leading to a -1.0% fall in materials on Friday and -0.5% for energy, with utilities flat.

The banks were not the saviour in the wake of earnings reports (+0.2%), rather buyers moved back into safer healthcare (+1.2%), but also into the consumer sectors and real estate which were all up 0.6%.

The Aussie ten-year yield fell -6 points and the two-year -3 points.

Those falls were not a simple matter of following Wall Street, but came as it was revealed the RBA had internally discussed back in March everything from keeping the cash rate steady to raising to 4.80%, or four more hikes from where we are this month. Imagine that.

The discussion centred around just how fast the RBA needs to get inflation down, and noted that while CPI levels remain either in line with or more than the likes of the US, UK, Canada and New Zealand, our cash rate is 3.80% compared to 5.25%, 4.50%, 4.50% and 5.25% respectively, with all of us on a 3.5% unemployment rate, give or take.

The RBA has also decided our “neutral” rate – the rate at which the economy will find equilibrium – is now 3.8%. To force a slowdown and thus tackle inflation, the cash rate must be restrictive, ie higher than the neutral rate.

That said, the popular forecast among economists at present is a pause in the cash rate in June and July and then another hike in August, post the June quarter CPI data release.

The April jobs numbers are out on Thursday.

Back in the stock market, the fall in materials belied what appears to be a resurgence of positive views on lithium, both long term and shorter term. Lake Resources ((LKE)) jumped 13.0% on Friday and dragged others along with it.

GrainCorp ((GNC)) has also belied expectations of having seen peak harvests and jumped 5.0%, while News Corp’s ((NWS)) quarterly result was worth 4.7% here on Friday and 8.7% in the US, despite little contribution from REA Group ((REA)) for a change (+0.3%).

On the downside, QBE Insurance’ ((QBE)) AGM led that stock down a "disastrous" -3.6%.

Strap in for another action-packed session – our futures were up 7 points on Saturday morning.

Sentimental

The positive news out of Wall Street on Friday night came after the bell, when the weekly bank deposit data were released by the Fed. While outflows continued, the numbers were benign – we’re talking single-digit basis point declines – and while no one lost much, the bigger banks actually lost more than the regionals.

The news during the day-session was not otherwise a relief. The Michigan Uni consumer sentiment index for mid-May fell to 57.7 from 63.5 at end-April when economists had forecast 63, which is the lowest level since November.

Five year inflation expectations rose to 3.2% from 3.0% to the highest level since 2011. I don’t know how much we can read into where consumers think inflation will be in five years’ time.

The Dow fell -200 points to mid-afternoon and this time the Nasdaq did not provide any counter, with the Mega Techs falling as well.

But, as had been the case in Australia in the past few sessions, and in the US, Wall Street rallied back to a largely immaterial close.

Commentators point to the debt ceiling issue as a reason for consumers to be worried, particularly those working for the government who may not get paid, as was the case in 2011. The consumer discretionary sector was the worst performer in the S&P500, yet in general, Wall Street still backs a last minute debt ceiling reprieve.

The meeting between Biden and Congressional leaders set for Friday was postponed last week until early this week (no news yet as to when exactly) to allow both sides’ staff to continue to nut out a compromise.

This, suggest the pundits, is actually positive, as it means at least wheels are turning.

The US ten-year yield rose 7 points on Friday night and the two-year 9 points as debt ceiling concerns drive further selling, overarching recession concerns at this point.

Commodities

A quieter session for metal prices although the oils slipped again.

Despite talk of more RBA rate hikes, the Aussie is down -0.8% at US$0.6648, largely reflecting a gain in the US dollar.

The SPI Overnight closed up 7 points on Saturday morning.

The Week Ahead

Apropos of weak consumer sentiment, the next major US data point will be April retail sales on Tuesday night.

Economic highlights next week otherwise include numbers for industrial production, housing starts, existing home sales and the Empire State and Philly Fed indices.

The eurozone will report its April CPI.

The minutes of the May RBA meeting are due on Tuesday, ahead of April jobs numbers on Thursday.

Elders ((ELD)), United Malt Group ((UMG)), Incitec Pivot ((IPL)), Nufarm ((NUF)), Aristocrat Leisure ((ALL)) and Xero ((XRO)) all report earnings this week.

Quarterly earnings reports are due from James Hardie ((JHX)) and Life360 ((360)).

ANZ Bank ((ANZ)) and Macquarie Group ((MQG)) go ex-dividend today.

The Australian share market over the past thirty days…

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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