11 April 2022 | Weekly Snapshot

Australian Share Market (ASX200) – down 0.21% and snapping a 3 week winning streak. There has been a defensive undertone for equities markets recently with the Utilities sector (+3.22%) leading the gains last week and up for 4 weeks in a row. Consumer Staples (+1.72%) was the next best and is up for 5 weeks in a row followed by the Energy sector (+1.70%) and building on some impressive calendar year to date gains of around 30%. Consumer Discretionary (-2.89%) led the declines followed by Info Tech (-2.60%) and Materials (-0.80%) easing back after the prior week’s big move. The Reserve Bank of Australia met last week and left interest rates unchanged as expected although the statements and commentary are leaning more hawkish each month. The RBA dropped its more recent references to being prepared to be patient on rate hikes and the statement formed a stronger view on inflation, noting inflation has picked up more quickly than they had expected and also left out recent commentary around it being too early to conclude inflation is sustainably within the 2-3% target. They retained their bullish assessment of employment and the economy with the commentary seen paving the way for a June lift off once the Federal election in late May is over, we have seen the Q1 CPI report due later this month and the wage price index data also due in May. While global geopolitical risks remain elevated over the situation in Ukraine there has been a welcome de-escalation over the past week with significant Russian troop withdrawals from areas around the capital Kyiv and near Chernihiv in the country’s north with Russian forces seemingly shifting focus back to the south and east of Ukraine particularly the Donbas region where the conflict began.

US Share Market (S&P 500) – down 1.27%, with the Dow (-0.28%) and Nasdaq (-3.86%) also lower after strong rebounds over prior weeks. The defensive rotation saw the Healthcare sector (+3.44%) lead the gains followed by Energy (+3.21%) and Consumer Staples (+2.73%). Info Tech led the declines (-4.03%) followed by Consumer Discretionary (-3.28%) and Communication Services (-2.72%). There was significant steepening of the yield curve which undid some of the recent yield curve inversions of the prior weeks. The 10 yr. US treasury yield jumped 30 basis points for the week from 2.42% to 2.72%. The highlight of the week was the release of the Federal Reserves’ March FOMC meeting minutes which outlined the highly anticipated plans for the Fed’s balance sheet runoff. Participants said a $95 billion a month cap for asset runoff was likely appropriate and that it could be a phased-in roll off over three months or longer and start as early as next month’s meeting. The $95 billion would likely be made up of $60 billion a month in Treasuries and $35 billion in MBS. By balance sheet runoff they mean not reinvesting the proceeds from assets that are maturing. The minutes also said it may be appropriate to pursue MBS sales after the balance sheet runoff well established and said a number of participants wanted to go with a 50 bp rate hike last month, but didn’t due to the uncertain geopolitical backdrop. With the US unemployment rate at just 3.8% the Fed’s focus has now switched to price stability and trying to get inflation down.

Portfolio Movements

Oz Minerals (OZL) announced the decision to increase the hoisting shaft capacity under construction at Prominent Hill from 6Mtpa to 6.5Mtpa. Project optimisation works identified the opportunity to increase the hoisting shaft capacity by ~8% as the period of sustained higher commodity prices encourages mining companies to invest in increasing production. Work is underway to assess whether underground mining rates can be increased to fully utilise the increased 6.5Mtpa hoisting shaft capacity. An update to this assessment, including any operating cost benefit, is expected in H2 2022. “Construction of the hoisting shaft at Prominent Hill extends the mine life, lowers operating cost, reduces operational risk and lowers emissions intensity compared to the current trucking operation. It also enables generational province potential with further mine life extensions possible as circa 67 million tonnes of resources remains outside the shaft expansion mine plan with the resource also remaining open at depth.” The company said.

Amazon (AMZN) books first rocket launches for broadband satellites project. Amazon will compete directly with Space Ex and the UK government-owned OneWeb to set up a constellation of broadband-providing satellites, the company announced last night. The plan is called Project Kuiper and will involve Amazon buying the largest batch of commercial launches in history, securing space on 83 rockets over the next five years to launch 3,236 satellites. “We still have lots of work ahead, but the team has continued to hit milestone after milestone across every aspect of our satellite system,” Dave Limp, the Amazon senior vice-president for devices and services, said. As competition among space-based internet companies has grown, so too has competition for room on the rockets required to take their satellites to orbit. Project Kuiper’s first launches won’t be until the fourth quarter of this year, when it plans to launch two prototype satellites.

Shell (SHEL) has announced that it will write off between US$4 and US$5 billion in the value of its assets after pulling out of Russia. Shell had previously estimated that Russia write-downs would reach $3.4 billion. The company said it would no longer purchase Russian crude oil and would shut its service stations, aviation fuels and lubricants operations in Russia. “For the first quarter 2022 results, the post-tax impact from impairment of non-current assets and additional charges (e.g. write-downs of receivable, expected credit losses, and onerous contracts) relating to Russia activities are expected to be $4 to $5 billion,” Shell said in a statement last week. As part of the update Shell also said its cashflow is expected to be hit by “very significant working capital outflows as price increases impacting inventory have led to a cash outflow of around $7 billion.”

The Week Ahead