14 February 2022 | Weekly Snapshot

Did you know?

2022 is the Chinese New Year of the Tiger which is associated with impressive stock market gains. Over the past 5 decades the average return during the year of the Tiger is over 20%.

Market Movements

Australian Share Market (ASX200) – up 1.36% for the 2nd week in a row, despite weak off shore leads. Financials (+4.01%) led the gains with Banks (+5.02%) the main contributor on some strong results from Macquarie, CBA and NAB. Materials (+3.29%) and Info Tech (+1.81%) were the next best performers. Health Care (-3.09%) led the declines followed by Consumer Staples (-2.33%) and Telecoms (-1.24%). Our first half earnings season got underway with analysts expecting profits to make a new record high and up around 10% on the current record high, which was set during the same first half reporting season 2 years ago before the onset of the pandemic. The national security committee of cabinet agreed last week to end “fortress Australia” and open up the borders to all double-vaccinated foreign visitors and visa holders from February 21. Prime Minister Scott Morrison said the decision, “a significant step towards returning life to normal”, was taken following health advice that the worst was over in terms of the omicron outbreak. Business groups, long suffering tourism and travel operators and individuals were overjoyed at the decision with travel related stocks up significantly on the week. The Australian NAB business confidence index rebounded to +3 in January after plunging to -12 in December, signalling that firms expect the omicron outbreak effects to be short-lived. However, business conditions dropped to +3 from +8 with firms weighed down by impact of omicron on consumer behaviour and staff shortages. Activity sub-indexes and employment were lower with businesses feeling the impact of supply chain constraints and labour shortages while forward orders were unchanged at high levels.

US Share Market (S&P 500) – down 1.82%, with the Dow (-1.00%) and Nasdaq (-2.18%) also lower and snapping a 2 week winning streak. Inflation and the path of monetary policy again dominated the narrative. The Energy sector (+1.75%) led the gains with Materials (+1.14%) the only other sector highest. Financials (-0.02%) also outperformed. Communication Services (-3.86%) led the declines followed by Info Tech (-2.91%) and REITs (-2.87%). A big US January Jobs beat saw bonds sold off across the curve that continued all week. January’s headline payrolls growth of +467k was well ahead of consensus for a +155k gain and there were also some big revisions for prior month’s numbers. Annualized average hourly earnings were also up +5.7% from last month and also above the +5.2% consensus. Then came the US January Consumer Price Index which was much hotter than expected with the headline CPI up +0.6% month on month and well above the +0.4% expected. The annualized figure was up +0.5% for the month to +7.5% also above the +7.3% consensus and the highest since February 1982. The market rightly saw the report having big implications for the US Federal reserve with the report raising the odds of a 0.5% rate hike when they next meet in March. Bond yields surged on the report with the US 10 yr. Treasury yield rallying a full 10 basis to a new pandemic high of 2.03%. The Q4 US reporting season continued to outperform. With 70% of S&P500 companies having now reported the blended earnings growth rate has increased to +30.4% and well up from +21.7% expected at the beginning of the season.

Portfolio Movements

CME Group (CME) achieves record trading volume in 2021 with 2022 off to a strong start. CME Group, the expanded Chicago Mutual Exchange and the world’s leading derivatives marketplace, reported Q4 earnings and record trading volumes for 2021 . Q4 revenue of US$1.15 bill was slightly below the US$1.17 estimates while Q4 EPS of US$1.66 was slightly above $1.64. “We achieved record trading volume in 2021, driven by client demand for tools to hedge against continued economic uncertainty across markets,” said CME Group Chairman and CEO Terry Duffy. He also added “We are pleased 2022 is off to a strong start with our highest January average daily volume on record of 24.6M contracts, led by strong equity index and interest rate volumes, including numerous SOFR futures and options records, and 10% year-over-year growth in overall open interest. CME are well placed for the current market conditions that are seeing big gyrations and rotations both within and across asset classes with the stock making a new all-time high post the results.

Commonwealth Bank (CBA) – Australia’s largest bank reported a 21% rise in net profit to A$5.87 bill in the six months through December, up from A$4.88 bill a year earlier, and has also announced a A$2 billion on-market share buyback. Cash earnings rose by 23% to A$4.75 billion. The company declared an interim dividend of A$1.75 a share, up from A$1.50 last year. The bank’s Common Equity Tier 1 capital ratio was 11.8%, down 130 basis points from June. The result beat estimates with EPS of A$2.73 vs consensus of A$2.475 and Net Interest Income of A$9.75 bill vs consensus of A$9.63 bill. All sectors contributed to earnings growth with Retail banking service A$2.33B, vs year-ago A$2.16B, Business and private banking A$1.49B,vs year-ago A$1.37B, Institutional banking and markets A$587M, vs year-ago A$426M, New Zealand A$679M, vs year-ago A$536M, Corporate Centre (A$340M) vs year-ago (A$618M). “Higher cash profits were a result of continued volume growth across the business in home lending, business lending and deposits, flat operating costs and significantly lower loan impairment expense due to the improving economic outlook,” said CEO Matt Comyn.

Insurance Australia Group (IAG) reported first half earnings – profit was down, gross written premiums were up and guidance was improved. The Australian general insurer reported a profit of A$173 million for the six months through December, compared to a A$460 million loss a year earlier. Cash earnings of A$176 million were slightly ahead of estimates of A$170.3 million. The underlying insurance margin was 15.1%, down from 15.9% a year ago. While gross written premium of A$6.57 bill increased by 6.2% from a year earlier. The company declared an interim dividend of A$0.06 cents a share, down from a payout of A$0.07 a year earlier but was in line with expectations. They also upgraded FY22 guidance to ‘mid-single digit’ vs the prior guidance of “low-single digit’ growth and aligns with IAG’s aspirational goal to achieve a 15% to 17% insurance margin over the medium term. The report seemed to steady the ship for IAG who have had a rough few years with the stock up 4% on the day.

The Week Ahead

Domestic data is light again this week with just the monthly employment report on Thursday although a very busy week of corporate earnings including BHP tomorrow, CSL, GMG and EVN Wednesday and WPL, WES, TCL and TLS on Thursday.

Internationally, inflation data will be in focus again with either CPI or PPI due out of India, China, Japan, the US, The UK and the EU this week as well as EU Q4 GDP and employment data on Tuesday and US retails sales and industrial production Wednesday being the main events. There are no corporate earnings due for our international companies this week.

Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice

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Some numerical figures in this publication have been subject to rounding adjustments. Akambo Pty Ltd (including any of its directors, officers or employees) will not accept liability for any loss or damage as a result of any reliance on this information. The market commentary reflect Akambo Pty Ltd’s views and beliefs at the time of preparation, which are subject to change without notice.