The Monday Report – 26 June 2023

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            [1] => ((STO))
            [2] => ((LYC))
            [3] => ((MTS))
            [4] => ((CKF))
            [5] => ((CSR))
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            [2] => LYC
            [3] => MTS
            [4] => CKF
            [5] => CSR
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This story features WOODSIDE ENERGY GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: WDS
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

And Again

The scorecard for the ASX200 at the end of last week: On Wednesday the index was above 7300, having stormed up through 7200 resistance earlier in the week. On Thursday the futures suggested -3 points and the index fell -119. On Friday the futures were down -1 and the index fell -96.

On Saturday morning the futures were down -4. Just saying.

We fell back through 7200 last week in a heartbeat and that level seems to have lost significance.

There was no obvious trigger for the selling on Thursday – perhaps a large offshore order – and Friday again surprised in its magnitude, but Thursday seems to have set loose investor fear.

What we do know is Wall Street came off last week, but not wildly, and on Thursday night oil prices took a tumble, resulting in the energy sector being creamed -4.0% on Friday. Woodside Energy ((WDS)) and Santos ((STO)) both made the top five index losers.

The iron ore price fell back, which makes a -1.2% fall for materials seem mild under the circumstances. We might note Lynas Rare Earths ((LYC)) gained a mere 0.3% on Friday, and still made the top five winners.

The Aussie two-year bond yield rose 7 points to 4.20%, and real estate was slapped -2.8%. Note that the two-year is now above the RBA cash rate, suggesting another rate rise.

The banks were leaders on the way up early last week, and led on the way down thereafter, falling another -1.5% on Friday. What changed?

Technology, discretionary and industrials all fell around -1%, but there was this time a more defensive bent, with healthcare down only -0.6%, communication services -0.4%, staples flat and utilities up 0.1%.

Friday night saw more falls in commodity prices, although gold was steadier. The Aussie is down a full -1.1%.

It is difficult to know whether there will be any response to the weekend’s goings on in Russia. Is it a positive sign? Too many unknowns I would think.

The index closed at 7100 on Friday. Another round number to offer support.

Or not.

All Good Things

Wall Street closed the week lower and in so doing brought to an end a five-week winning streak for the S&P500 and eight for the Nasdaq. It was the biggest weekly fall since March, when SVB went under. The Nasdaq’s run had been the longest since March 2019.

Aside from an inevitability that the AI frenzy must soon cool off, a succession of central bank rate hikes in the past couple of weeks has rather flustered markets. Canada, Australia, the UK, Norway, Switzerland and Turkey all hiked, and the Fed has signalled two more to come.

On lingering covid fallout and then the war, markets have been talking global recession for the past year and a half. The US, most likely; Europe definitely; and Australia – slowing but not receding.

More recently market fears have been easing, such that the US may even avoid a recession, and Europe has managed supply shocks so well it may avoid one as well, but now, given central bank determination, global recession fears are clearly back on the table.

On Friday night an estimate of the eurozone’s composite PMI for June – manufacturing plus services – came in at 50.3, down from 52.8 in May, and below forecasts of 52.5.

US estimates came in at 46.3 for manufacturing, down from 48.4, and 54.1 for services, down from 54.9. US bond yields fell on Friday night. The gap between the two-year yield and the Fed rate suggested by two more hikes is growing wider, implying recession fears.

Australia is no longer considered immune either. With two more RBA hikes expected, recession calls are growing louder.

China is a predominant problem. The failure of Beijing to address the economic slowdown with anything meaningful is not helping the global view.

Not everyone’s a pessimist. Aside from the “healthy pullback” nature of last week on Wall Street, Treasury Secretary Janet Yellen struck an upbeat tone Friday night when she said during an interview that recession risks in the US have faded, “because look at the resilience of the labour market, and inflation is coming down”.

Bitcoin hit a one-year high.

Commodities

Global PMIs are not supporting commodity prices, and nor is China.

The Aussie is down -1.1% at US$0.6683. Its recent fall has been as swift as its earlier rise.

The SPI Overnight closed down -4 points on Saturday morning.

The Week Ahead

China will release its June PMIs this Friday.

The US will see May PCE inflation on Friday night.

The US will also see numbers for durable goods orders, new home sales, and two measures of consumer confidence. The March quarter GDP result will also be revised.

In Australia, the financial year ends on Friday.

We’ll see May retail sales and private sector credit numbers, and on Wednesday, May CPI.

Metcash ((MTS)) reports earnings today, and Collins Foods ((CKF)) tomorrow.

CSR ((CSR)) holds its AGM tomorrow.

On Thursday, pretty much every REIT/other fund, property developer and property fund goes ex quarterly dividends, as does a toll road company.

The Australian share market over the past thirty days…

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