16 May 2022 | Weekly Snapshot

Did you know?

The last hung Federal Parliament occurred after the election on 21 September 1940 when Labor and the Coalition of the United Australia Party and the Country Party emerged with 36 seats each in the House of Representatives.

Market Movements

Australian Share Market (ASX200) – down 1.81% for the fourth week in a row on further weak offshore leads but managed to regain some lost ground Friday. Healthcare was the only sector up (+2.59%) reversing entirely the previous weeks falls with Consumer Discretionary (-0.95%) and Telecommunications (-0.77%) falling the least. Info Tech again lead the declines (-6.66%) for the sixth week in a row followed by Materials (-3.89%), down 4 weeks in a row. Bank reporting again kept the focus on financials during the week with CBA and WBC reporting weaker results than last year reflecting mortgage competition which is keeping pressure on Net Income Margins. The benefit from the RBA raising rates is yet to be felt. Local bond yields saw some reprieve with 10 yr. government bonds falling to 3.38%, from last weeks highs. The Australian dollar was -2% for the week, hitting lows of 0.68 before recovering slightly to 0.69 This was influenced by ongoing pullbacks in commodity prices, reflected in ongoing weakness in the materials sector.

US Share Market (S&P 500) – down 2.41%, with the Dow (-2.14%) and Nasdaq (-3.15%) all lower for the sixth week in a row, something that hasn’t happened since 2011. Like Australia, a rally on Friday managed to take some pressure off a negative week in equities. The Energy sector (+1.39%) led the gains followed by Consumer Staples (+0.49%) Utilities (+0.39%) and Healthcare (+0.35%). Consumer Discretionary led the losses (-2.80%) edging out Information technology for a change (-2.08) and Communication Services (-1.83%). Hopes that inflation had peaked were dealt a blow when the US April Consumer Price Index came in higher than expected with the now customary sell off led by the higher P/E Nasdaq. Headline April CPI rose 0.3% for the month following March’s 1.2% monthly rise and was up 8.3% over the year (from 8.5% last month) versus expectations of a 8.1% annual increase. Core Inflation (ex food and energy) was up 0.6% for the month, well above consensus for a 0.4% increase and accelerating from March’s 0.3% monthly rise. Core inflation was up 6.2% over the year and above the 6.0% level expected. Whilst it was important to see a reversal of the headline inflation figures (8.5% to 8.3%) there wasn’t enough to calm market nerves around when and how quickly inflation can to be contained.

Portfolio Movements

Sony reports strong Q4 results in gaming, music and movie divisions – announces US$1.5 billion share buyback. Sony reported operating profit for the quarter ended March 31 more than doubled, rising to Yen138.6 billion (US$1.06 billion), compared with Yen66.4 billion in the same period a year ago. This was slightly below analysts’ estimates for Yen148.46 billion. Sony said it had suffered supply chain issues for its key PlayStation 5 game console with the company selling 11.5 million units of its flagship PlayStation 5 for full financial year versus 7.8 million in the previous year. Fourth quarter net income rose 67% to Yen111.1 billion yen compared with Yen66.7 billion, for the same period last year, on the back of strong results from the company’s games, music and movie businesses. Diluted earnings per share for the three-month period stood at Yen88.98, up from Yen53.30 a year earlier and was ahead of the consensus of Yen78.64. The company announced plans to buy back 200 billion Japanese yen (US$1.54 billion) of shares over the next year.

Commonwealth Bank reports Q3 profit of A$2.3 bill. CBA, the country’s largest bank by market value and the largest mortgage lender, reported an unaudited net profit after tax of A$2.3 billion for the quarter, a 4.2% fall from the A$2.4 billion reported a year earlier. Cash earnings totalled A$2.4 billion and is flat versus the average of the previous two quarters. CBA said that income was down 1.0% in the third quarter, but 3.0% volume growth and higher non-interest income helped to offset “continued margin pressure from elevated swap rates, mix effects and competition.” CBA said that home loan arrears remained low in the quarter, spurred partly by the quality of the originations, low interest rates and strong property markets. Total credit provisions were slightly lower partly due to the strong economy with CBA adding it was “continuing to maintain a cautious approach to managing potential risks, including higher interest rates, inflationary pressures, and supply chain disruptions.”

Westpac profit slides 5% but looks like a better than expected result. Westpac reported first half profit down 5% compared to the same time last year. Net profit totalled A3.28 billion while Cash earnings fell by 12% year on year to A$3.10 billion. But when compared to the second half of 2021, cash earnings were up 71%. Westpac declared an interim dividend of A$0.61 per share compared to A$0.58 last year. Consensus forecasts have cash earnings around A$2.8 billion, with an interim dividend of A$0.59 per share, ahead of those estimates. “Cash earnings were higher over the previous half, including a material reduction in notable items. The decline in cash earnings over the year was mostly due to competitive pressures on net interest margins and returning to an impairment charge after having benefits last year,” said Chief Executive Peter King. Westpac’s net interest margin was 1.91% down from 2.06% at the same time last year. Westpac said it was partly due to lower spreads on mortgages and business lending.

The Week Ahead

The domestic data this week will focus on Employment, Unemployment and the Participation Rate on Thursday, the Wage Price Index on Wednesday and finishes with the Federal Election on Saturday (don’t forget to vote). The RBA will also release minutes of their recent meeting which will be closely followed given potential insights around further rate rises.

Internationally we have Chinese retail sales and industrial production figures out today, followed by the same figures tomorrow from the US plus May housing data. This week will also see inflation updates from the UK, Canada, Japan and the EU. Friday sees the release of consumer confidence data in Europe and a potential monetary policy rate decision from China.

BHP and WPL both have their AGMs on Thursday.