The Monday Report – 17 July 2023

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This story features NETWEALTH GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: NWL
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

Highly Volatile

Uncertainty regarding the Australian and world economies was highlighted last week as the ASX200 put in its best weekly performance since November last.

The ASX200 had drifted down to 7100 in the first week of June and has since seen 7350, 7078, 7280 and 7000, before last week regaining 7300 once more. It just goes to show no one really knows what’s going on.

The feature of last week was lower than expected US inflation data, leading to cooling of Fed rate hike fears which suggested perhaps the same might be seen here. Most economists still expect at least one, if not two more RBA rate hikes, but hope is growing those forecasts may prove too hawkish.

The lower US inflation data set off quite a crunch in the US dollar — a big fall on the CPI and another big fall on the PPI – which is positive for some parts of the Australian market but not all.

On Friday materials enjoyed the spoils of both the resultant stronger Aussie and higher commodity prices (+1.4%) and ditto energy (+1.3%). A strong Aussie is not positive for offshore earners among the big healthcare names (-0.6%). Healthcare was the only sector to close in the red but for a small fall in staples (-0.1%).

A stronger Aussie is better for buying imported goods, and discretionary rose 0.7%. Not phased by currencies, the banks drove the index higher with a 0.7% gain.

Technology nevertheless won the day (+1.7%) in following the Nasdaq.

Aussie bond yields fell -5-6 points, which took the two-year to under 4% for the first time in a month, again on easing rate hike fears. Real estate rose 0.8%.

Funds platform Netwealth Group ((NWL)) jumped on Thursday after providing a positive quarterly update but the shares gave it all back on Friday (-5.4%) against the tide, as brokers were less enthusiastic. Macquarie pulled back to Neutral on valuation grounds. Netwealth was the worst index performer.

Wall Street was just slightly weak on Friday despite positive results from big banks. With the release of China’s June quarter GDP due today, with implications for resource stocks (bad is good), our futures were down all of -2 points on Saturday.

Cautious Sign?

The collapse of Silicon Valley Bank in March set off a US banking crisis felt mostly in the June quarter. Wall Street has thus been keen to learn just how the big banks fared through the turmoil.

As it was, JPMorgan, Wells Fargo and Citigroup all posted beats on revenue and earnings on Friday night and upgraded guidance. JPMorgan subsequently rose slightly, Wells fell slightly, and Citi lost -4%.

Hardly the sort of positive response investors would be looking for to kick of results season.

Which begs the question: given the unexpected rally Wall Street has enjoyed year to date, leading to warnings of elevated multiples and market overvaluation, what will companies need to do to inspire a further push towards the all-time high? Will solid earnings results simply provide a cue to take profits?

The banks have not been among those sectors trading on elevated multiples, given the aforementioned crisis, so more importantly it will come down to whether the Mega Techs can justify their valuations when they begin reporting next week.

We’ve only seen three. There are three more big banks to report, starting tonight, along with a host of regional banks this week.

UnitedHealth reported a strong result on Friday night and did not see profit-taking, instead rising 7%. But again, the company has been an underperformer this year, so 7% was more of a relief rally.

UnitedHealth currently has the highest share price among the Dow 30 stocks by a margin, and Friday night’s jump was worth a full 200 Dow points. Take that out, and the Dow average would have been lower along with the other indices.

Wall Street was nevertheless heartened by a big jump in consumer sentiment in the first two weeks of July, with the Michigan Uni index leaping to 77.5 from 69.0 at end-June, to mark its highest level since September 2021. The index has now regained half of what it lost in response to the pandemic.

This is perhaps why the US two-year yield jumped 14 points.

Despite mild weakness on Friday night, the S&P500 finished up a solid 2.5% for the week and the Nasdaq gained 3.3%.

As the earnings results roll in, proof of valuation will need to be confirmed.

Commodities

One threat to consumer and investor sentiment is the possibility of a bounce in headline inflation following June’s weaker than expected numbers. Oil prices have risen for three straight weeks.

Friday night was put down simply to traders taking profits.

Otherwise, a quieter session for commodities.

After its week-long surge, the Aussie finally saw a pullback as well, down -0.7% to US$0.6841.

The SPI Overnight closed down -2 points on Saturday morning.

The Week Ahead

Banks remain in focus this week as the US earnings season kicks into gear.

With confidence supposedly running high, June US retail sales data will be critical tomorrow night. The US will also see industrial production, housing starts, existing home sales, and the Empire State and Philadelphia Fed indices across the week.

China reports June quarter GDP today, along with month of June retail sales, industrial production and fixed asset investment numbers. Wherefore art thou stimulus?

New Zealand, the UK, eurozone and Japan all report June CPI numbers this week.

Locally, the minutes of the July RBA meeting are out today, and economists will be scouring for clues. The meeting, of course, pre-dated last week’s US inflation data.

On Thursday we’ll see June jobs numbers.

Whitehaven Coal ((WHC)) will today lead out in what is a busy week for resource company quarterly sales and production reports. Almost all the big names report this week.

Quarterly updates from companies in other sectors also begin to mount this week.

Sayona Mining ((SYA)) holds its AGM today.

The Australian share market over the past thirty days…

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