18 April 2022 | Weekly Snapshot

Did you know?

12 US States set new all-time record low unemployment rates in March. Nebraska and Utah had the lowest jobless rates in March at 2% each. The next lowest were in Indiana at 2.2% and Montana at 2.3%. The rates in these states set new series lows as did the rates in another eight states. The all state series employment rates begin in 1976.

Market Movements

Australian Share Market (ASX200) – up 0.61% for the shortened week and the highest weekly close since August last year with the index just 100 points off the all time high set during that month. The Utilities sector (+1.73%) led the gains followed by Materials (+1.60%) and Energy (+1.20%). The REIT sector (-0.94%) led the declines followed by Info Tech (-0.55%) and Healthcare (-0.47%) as the high P/E cohorts remain out of favour for now. Prime Minister Morrison called a Federal election for the 21st May. The betting agencies had Labor well ahead at the start of the week at $1.50 to win vs. $2.90 for the Coalition. A few gaffes from the opposition leaded saw the odds narrow to $1.70 to $2.08 by the end of the week. The NAB Business Confidence survey for March was out and showed Australian business confidence and business conditions surging back to levels seen in early 2021, pre the arrival of the delta variant. The conditions index climbed to +18 in March from +9 in February while confidence strengthened to +16 from +13. Retail saw the biggest improvement in conditions while confidence rose sharply in transport, construction, and recreation services. Cost growth rose to a record high but firms were able to pass on most of that with prices also rising at the fastest pace on record. The record increase for costs and prices has reinforced expectations of a strong CPI print for Q1 due later this month. On the other hand the Australian Westpac Consumer Sentiment index fell last week from 96.6 in March to 95.8 in April and to its lowest level since September 2020. Confidence was affected by multiple factors including the Russian / Ukraine war, the East Coast flooding and rising cost pressures. The looming RBA rate hikes had a notable influence on sentiment among homeowners, whose assessment of family finances were down sharply from a year ago although the Government’s cash handouts and the cut to fuel excise in last month’s budget appeared to have a positive impact on consumer sentiment with a rebound in consumers’ 12 month economic outlook.

US Share Market (S&P 500) – down 2.13%, with the Dow (-0.78%) and Nasdaq (-2.63%) also lower for the second week in a row. The Materials sector (+0.69%) led the gains followed by Industrials (+0.43%) and Energy (+0.32%). Info Tech (-3.82%) led the declines followed by Communication Services (-3.00%) and Healthcare (-2.93%). The March US Producer Price and Consumer Price Indexes come in hotter than expected during the week. Headline March PPI was up 1.4% for the month and well above consensus for a 1.1% monthly rise. The PPI is now up 11.2% over the year and the highest annual reading on record although PPI data only goes back to 2010. The release noted more than half of the monthly headline increase for final goods is traceable to higher energy prices although foods was also up 2.4% for the month. The headline March CPI for rose by 8.5% from a year ago, above the 8.4% expected and was the fastest annual gain since December 1981. Surging food, energy and shelter costs accounted for much of the increase while real worker earnings fell by another 0.8% during the month as the cost of living outpaced otherwise strong pay gains. Core inflation rose 0.3% for the month which was lower than the 0.5% estimate prompting some commentators to suggest inflation could be peaking. The US first quarter reporting got underway last week with the big US Banks reporting which could be summarised as a bit underwhelming. This quarter was supposed to be a return to normal for US banks but the Russia / Ukraine conflict produced a few curveballs by upending stock trading and commodities markets while the deal making that had powered investment banking returns started to slow. There were also concerns the US Federal Reserves quickening pace of expected rate hikes could slow loan growth more than expected.

Portfolio Movements

Woodside (WPL) and BHP (BHP) Petroleum merger gets tick of approval. Australian oil producer Woodside Petroleum agreed US$28 billion merger with BHP Group’s petroleum arm was in the best interest of its shareholders, audit firm KPMG said in an independent expert report. KPMG said its assessment found the merged group would have an underlying value of between US$37.24 billion and US$42.30 billion. Completion of the merger is on track and is targeted for 1st June 2022, subject to conditions including approval by Woodside shareholders. Woodside unanimously recommended its shareholders vote in favour of the merger. Woodside shareholders will vote on the merger on 19th of May. BHP is expected to receive 914.8M newly issued Woodside shares at completion and will determine a fully franked in specie dividend of the Woodside shares to BHP shareholders. BHP shareholders are expected to be entitled to one Woodside share for every 5.5340 BHP shares they hold on record date 26th May. The implied value of BHP Petroleum is US$23.4B, given Woodside’s last close. At this valuation, the in specie dividend would be $4.62 with $1.98 of franking credits being distributed per BHP share ($10 billion of franking credits in total). Woodside will retain its primary listing on the ASX and is seeking a standard listing on the LSE and a sponsored Level III ADR program on the NYSE from completion of the merger.

Citigroup (C) profit falls 44% partly offset by a 6% decline in shares outstanding. Citigroup reported last week that net income for the first quarter 2022 was $4.3 billion, or $2.02 per diluted share, on revenues of $19.2 billion. This compared to net income of $7.9 billion, or $3.62 per diluted share, on revenues of $19.7 billion for the first quarter 2021. Net income decreased 46% from the prior year period, driven by higher cost of credit, higher expenses, and the lower revenues. Results for the quarter included the Asia Consumer divestiture-related impacts of approximately $677 million. All of which was partly offset by a 6% decline in shares outstanding after $4 billion was returned to shareholders during the quarter. “We continue to see the health and resilience of the U.S. consumer through our cost of credit and their payment rates. We had good engagement in key drivers such as cards loan growth and vigorous purchase sales growth, so we like where this business is headed. While geopolitics dampened performance in Wealth Management, we are hiring bankers, enhancing our client offerings and continuing to add clients in both the Private Bank and in Citigold.” Citi CEO Jane Fraser said. Citigroup’s book value per share of $92.03 and tangible book value per share of $79.03 increased 4% and 5%, respectively, largely driven by accumulated net income and lower shares outstanding.

LVMH (MC) off to a good start to the year. LVMH Moët Hennessy Louis Vuitton, the world’s leading high quality products group, recorded revenue of 18 billion euros in the first quarter of 2022, up 29% compared to the same period in 2021 and beating consensus estimates of 17 billion euros. Organic revenue growth across the group was 23%. LVMH had a good start to the year against a backdrop of continued disruption from the ongoing pandemic and the events in Ukraine during the quarter. All business groups achieved double-digit revenue growth, except for Wines & Spirits which continued to see supply constraints. The United States and Europe also achieved double-digit revenue growth; Asia continued to grow over the quarter despite the lockdowns in China in March. The Wines & Spirits business group recorded organic revenue growth of 2% in the first quarter of 2022 compared to the same period of 2021. The Fashion & Leather Goods business group recorded organic revenue growth of 30%, Perfumes & Cosmetics organic revenue growth was 17% while Watches & Jewellery business group recorded organic revenue growth of 19%.

The Week Ahead

Not a lot of domestic data this shortened week other than the RBA minutes released today.

Internationally we have US NAHB Housing Market Index and Housing Starts tonight, Eurozone Industrial Production tomorrow, US existing home sales and Eurozone final Y/Y CPI Thursday, and Japan CPI, Eurozone and US Markit Services and Manufacturing PMI’s and UK Retail Sales on Friday.

For corporate reporting we have JNJ Q1 earnings tonight, BHP and EVN Q3 updates and FCX Q1 earnings on Thursday and OZL Q1 update and SAP Q1 earnings Friday.

Almost 70 S&P500 companies will report Q1 results this week. Financials continue to dominate reporting and be closely watched after a few results last week raised some concerns about a potential shift in credit quality and slowdown in the economy from the Fed rate hikes. Reopening themes will be in focus with major airlines reporting along with streaming services and some medical names that were big covid beneficiaries over the last few years. A number of resources companies are also scheduled to report. According to FactSet the blended growth rate for Q1 S&P earnings currently stands at 5.1%, up from 4.5% at the start of earnings season last week.