The 0% monthly increase in last week’s July inflation report was the first month that inflation in the US had not increased since May 2020.
Australian Share Market (ASX200) – up 0.24% for the 4th week in a row on further positive offshore leads and anticipation of a not as bad as feared domestic full year reporting season that got underway with the ASX200 closing back about 7000 points for the first time since early June. The more cyclical sectors like Energy (+4.58%) and Materials (+1.64%) led the gains as a still strong global demand backdrop lifted energy and industrial metals prices. Telecoms were the next best up +0.54%. Info tech (-2.93%) led the declines after some strong gains over recent weeks as bond yields rose with Healthcare (-2.02%) and Industrials (-0.88%) the next worst. Sentiment indicators were mixed with Westpac’s consumer sentiment index falling again to the lowest levels since the depths of the pandemic and global financial crisis of 2008 although is hard to see how things could be considered to be that bad. Interest rates and inflation continue to weigh on confidence, particularly for mortgage holders and consumers were increasingly bearish on the 12 month economic outlook. NAB business confidence and conditions on the other hand rebounded strongly in July indicating demand remains resilient in the face of any economic headwinds as the sub-indexes for sales, profitability and employment all strengthened. The domestic earning season got underway with key results from large cap Banks, Insurers and Telco’s with results largely in line with expectations. The readthrough from the Bank results is that the underlying domestic economy remains very strong with only minimal impacts so far from the rising interest rates, and raising hopes for what could be a not as bad as feared ASX reporting season over the next few weeks.
US Share Market (S&P 500) – up 3.26%, with the Dow (+2.92%) and Nasdaq (+3.26%) also sharply higher on improving inflation data. US equities had been improving on the not as bad as feared Q2 reporting season, but got another leg up last week as inflation data also started to come in not as bad as feared. It was the 4th weekly gain for the S&P500 with the Nasdaq back above 13,000 for the first time since late April. Although growth stocks had led the rally off the lows in recent weeks, it was the value cohort that outperformed last week with the Energy (+7.14%), Financials (+5.45%) and Materials (+5.14%) leading the gains. The peak inflation narrative gained further traction last week with the New York Federal Reserve survey showing consumer inflation expectations had fallen on further expected easing of gasoline and food price growth. The survey showed one-year inflation expectations were down 0.6% for the month to 6.2%, and three-year inflation expectations were down 0.4% for the month to 3.6%. The highlight of the week was the July Consumer Price Index data which registered a 0% increase for the month, well below the 0.2% monthly gain expected. Annualised headline CPI fell to 8.5% from June’s 9.1% muti decade high and also below the 8.7% expected. The lower inflation readings provided hope the Federal Reserve could ease off some of their more aggressive rate hiking intentions. The Q2 earnings have turned out to be not as bad as feared as revenue has remained strong, but there is pressure on profit margins from the higher input prices with caution still warranted were the Fed rate hikes to cause a revenue slowdown in the months ahead.
NAB (NAB) Q3 trading update – earnings up, impairments down. NAB provided a Q3 trading update with unaudited cash earnings of $1.8 bill for the quarter putting them on track to beat the 2nd half consensus estimate of $3.57 bill although NIM was slightly lower. The ratio of 90+ days past due and gross impaired assets to gross loans and acceptances declined 5 bps to 0.70%. This mainly reflects continued improvement across the Australian home loan portfolio, along with a continued low level of impaired assets in the business lending portfolio. According to NAB CEO Ross McEwan: “Our performance this quarter is pleasing, highlighting the ongoing execution of our strategy including completing the acquisition of Citigroup’s Australian consumer business (Citi acquisition). Cash earnings in 3Q22 rose 3% compared with the 1H22 quarterly average, and lending and deposit momentum continued (up 2% and 4% respectively over the June quarter excluding the Citi acquisition)”
Macquarie (MQG) to buy Suez UK waste management business from Veolia for A$3.7 bill. French waste management giant Veolia has confirmed it will offload its Suez waste management business in Britain to Macquarie Group for $3.7 bill, with Macquarie Asset Management’s new €9 billion European infrastructure fund to take full control of Suez Recycling and Recovery UK Group. Although there is rival consortium that could exercise its right to match the bid and spoil the party and Macquarie has refused to comment on the deal until the consortium confirm they will not be going ahead. Suez employs 5700 people and handles 12 million tonnes of waste annually. Veolia has been forced to sell the business by Britain’s regulators and would see Macquarie paying almost 17 times Suez’s 2021 earnings. Macquarie is significant player in global waste processing and recycling which is seen as part of the net-zero transition story and plays into the “circular economy”.
Commonwealth Bank (CBA) reports full year cash earnings of $9.60 billion. CBA, our biggest bank by market value and the country’s largest mortgage lender, posted a 6% rise in full year net profit driven partly by volume growth across its core home lending and business banking units, and a revision in pandemic-related provisions. Cash earnings rose 11% to A$9.60 billion and the final dividend of $2.10 a share has increased from $2.00 last year. This looks like another strong operational result with volume growth up and troublesome and impaired assets decreasing to A$6.4 billion, from A$7.5 billion in fiscal 2021. But looks like CBA’s Net Interest Margin (a measure of the difference between what a bank pays to get deposits and funds, and what it charges to lend money) of 1.90% is down 18 basis points on the previous year which CBA is attributing partly to lower home loan margins, but said this was partly offset by increased deposit earnings.
The Week Ahead
The domestic economic data highlight this week is our employment data on Thursday where the unemployment rate is expected to hold at the 48 year low of 3.5%.
Internationally, we have Japan GDP and China retails sales and industrial output today, US housing data tomorrow including NAHB housing market index, Building permits and housing starts, also US capacity utilization and industrial and manufacturing production. UK inflation, Eurozone GDP, and US retails sales Wednesday night and Eurozone inflation data Thursday night are the main highlights.
Corporate reporting this week includes Westpac Q3 update today, BHP and VG1 full year earnings tomorrow, CSL full year earnings Wednesday, and Amcor and Transurban full year earnings Thursday.
Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice
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