19 June 2023 | Weekly Snapshot

Did you know?

The Nasdaq rose another 3.25% last week, up 8 weeks in a row and the longest winning streak since early 2019 when it rose 10 weeks in a row. These lengthy winning streaks are quite rare with the previous 10-week winning streak prior to 2019 being back in 1999.

Market Movements

Australian Share Market (ASX 200) – up 1.81% and snapping a 3-week losing streak. Gains were broad based with the Info Tech (+4.8%), Financials (+3.38%) and Materials (+3.08%) leading with Health Care (-5.86%) the only sector lower. Offshore leads were positive again with the S&P 500 up 5 weeks in a row, the longest streak since late 2021 with the Nasdaq up 8 weeks in a row, the longest streak since early 2019. Equities were boosted by U.S inflation falling more than expected and the Federal Reserve hitting pause on rate hikes after hiking for the past 10 consecutive meetings. One criticism of the current U.S equities rally had been its narrow leadership coming from a small group of large cap tech stocks with the rally broadening out into wider gains last week. The Westpac MI Consumer Sentiment rose 0.2% in June, stabilising after the prior months large fall as the RBA resumed interest rate hikes after the one month pause. Consumer Sentiment remains historically low with the report noting that the past 12 months the Index has held around levels not seen on a sustained basis since the recession of the late 1980s/early 1990s with inflation continuing to weigh heavily, as unemployment expectations rose sharply. There were no signs of unemployment concerns last week though as headline employment surged by 75.9K jobs in May, well ahead expectations for a 17.5K jobs increase. It was a strong jobs report with the participation rate rising and the unemployment rate unexpectedly falling back to 3.6% from 3.7% last month. Total employed people in the economy also reached 14 million for the first time, compared with around 13 million pre pandemic with the strong jobs data raising the odds of another rate hike when the RBA meets next month. Prospects of another rate hike also saw our yield curve invert for first time since 2008 as the gap between our 10 yr. and 3 yr. government bond yields fell to minus 2 basis points last week with short end yields rising above long end yields on the strong employment data.

U.S. Share Market (S&P 500) – up 2.58%, with the Dow (+1.25%) and the Nasdaq (+3.25%) also higher with the S&P 500 and Nasdaq the highest since April last year. Sentiment continued to improve with Bank of America’s latest Global Fund Manager Survey noting cash levels at a 19-month low although investors were still underweight stocks, but 64% now expect a soft landing for the global economy vs 26% in the hard landing camp. The consumer price inflation rate eased further than expected last week with headline CPI for May rising 0.1% for the month, below expectations for a 0.2% rise. Annual inflation was 4.0%, below the 4.2% expected and a big step down from last month’s 4.9% and the lowest since March 2021. Core CPI (ex-food and energy) remained sticky, up another 0.4% for the month, and up 5.3% for the year both in line with expectations. The U.S Federal Reserve left interest rates unchanged at their meeting last week, the first pause since March last year that has seen rates rise from 0.25% then to the current 5.25%. It was a “hawkish pause” with the June meeting also providing the quarterly updated Statement of Economic Projections (SEP) that showed a larger than expected 50 basis point increase in the 2023 year end rates projection signalling 2 more rate hikes, with median projections for rates in 2024 and 2025 also raised. The Fed was keen to signal that interest rates have not yet peaked and maintain a tightening bias, cognisant of the possibility for inflation to pick back up were markets start pricing in the peak and therefor policy easing going forward. The European Central Bank hiked rates another 25 basis points last week, diverging with the U.S Federal Reserve and sending the USD lower, further supporting risk assets. Economic data was ok with U.S retail sales up 0.3% for the month ahead of expectation for 0.2% monthly decline. And June’s NY Fed Empire manufacturing index jumped to +6.6 and well ahead of the -15.5 expected and last month’s slump to -31.8 although manufacturing data in general remains weak with the Philadelphia Fed manufacturing index falling further to –13.7 from -10.4 last month.

Portfolio Movements

CSL (CSL) updates market on FX impacts – reaffirms FY2023 profit guidance, downgrades FY 2024. CSL updated the market last week ahead of their 2023 fiscal year results with the company now expecting a foreign-exchange headwind of $230 million-$250 million. That was up from $175 million signalled at their first-half result in February. The update noted “Constant currency profit guidance for FY 2023 remains unchanged, albeit now skewed to the top end of the range,”. CSL also provided preliminary forecast for its net profit for FY 2024 of between $2.88 billion and $3.01 billion assuming no change in exchange rates. That would represent 13-18% growth on the 2023 fiscal year but was below estimates.

Insurance Australia Group (IAG) provided an upbeat investor day presentation last week with IAG shares hitting a new 3 year high with the company seemingly on track to hit its financial targets for the first time in a while. IAG has had a rough time since the bushfires in 2019/2020, then the business interruption claims from the government’s lockdowns of 2020 and 2021, then the east coast floods of 2022. Management’s reaffirmation of guidance for 10% gross written premium growth in FY 2023 was ahead of market expectations and well ahead of the 5.7% GWP growth in FY 2022, driven by rate increases across almost all the insurer’s portfolios.

Shell (SHEL) to boost dividends, maintain oil output as energy transition plans pared back. At a conference last week Shell announced a new financial framework that will increase its overall shareholder distribution to 30% to 40% of cash flow from operations, up from 20% to 30% previously. Concerns had grown that Shell was shifting away from oil and gas at a time of strong profits to focus on its growing renewables and low-carbon businesses where returns remain poor having scrapped several projects recently including offshore wind, hydrogen and biofuels, due to weak return forecasts. Shell also scrapped its previous target to cut oil output by 20% by 2030 after largely reaching the goal this year and said it will now keep its oil production steady to 2030, and will grow its natural gas business to defend its position as the world’s biggest liquefied natural gas player.

The Week Ahead

Domestic economic highlights this week include the RBA minutes from the June meeting tomorrow, and the Westpac Leading Index on Wednesday.

International highlights include the U.S NAHB Housing Market Index tonight and U.S Housing Starts tomorrow night. U.K CPI is Wednesday with the Bank of England interest rates decision on Thursday with the U.S Q1 Current Account, Existing Home Sales and Leading Indicators and Eurozone Consumer Confidence on Thursday night. Friday sees Japan CPI and U.K Retail Sales with Markit Manufacturing, Services and Composite PMIs for the Eurozone and U.S on Friday night.

Corporate reporting is quiet again this week with just an AGM for Sony tomorrow.