20 February 2023 | Weekly Snapshot

Did you know?

U.S equities are closed tonight for Presidents Day, which is also called Washington’s Birthday and has been a holiday in the United States since 1879. It was initially to honour Founding Father George Washington but has since changed to include all those who served as presidents of the United States.

Market Movements

Australian Share Market (ASX 200) – down 1.17% for the 2nd week in a row in what was a big week for large cap earnings reports. The Telecoms sector (+2.64%) led the gains on a better-than-expected result from Telstra. Consumer Discretionary (+1.24%) was the next best on a better-than-expected result from Wesfarmers, followed by Utilities (+1.14%). Financials (-4.33%) led the declines and dragged the market lower as Commonwealth Bank’s solid earnings result came with a warning on the outlook for net interest margins with the Banks index down 6.13%. Energy (-1.94%) and Materials (-0.63%) were the only other sectors lower. Offshore leads were also weak with a number of inflation reports from the U.S. showing consumer and producer prices had risen more than expected during the month, with global equities in February giving back some of January’s large gains. Commonwealth Bank reported a strong set of first half results and noted that many households are feeling the strain from rising interest rates and cost of living expenses. But despite this consumers remain resilient and the fundamentals of the economy remain solid, with low unemployment, strong exports, and returning migration. It was a slide in the presentation on the outlook for margins, suggesting they may have already peaked, that rattled Bank investors with all 4 majors being sold off post the result. Other large cap results were good with Telstra’s first half mobile income up 9.5% pushing those shares to a 12-month high, and Wesfarmers also beat expectations with solid results from Bunnings and Kmart with shares trading around 12-month highs. The economic highlight was the January labour force data that showed employment fell by 11,500 jobs, lower than the 20,000-increase expected. The unemployment rate rose from 3.5% to 3.7% and the highest since May last year. The Bureau of Statistics did mention January is the most seasonal time of the year, with people leaving and getting ready to start new jobs or returning from leave. Consumer sentiment, which had been improving, suffered a large fall following the latest Reserve Bank of Australia rate hike according to Westpac’s survey. Although business confidence jumped according to NAB’s survey that showed demand remaining resilient.

U.S. Share Market (S&P 500) – down 0.28% for the 2nd week in a row with the Dow also lower but the Nasdaq gained. The Q4 earnings season moved into its later stages with 82% of S&P 500 companies having now reported with Q4 earnings that in aggregate have been largely underwhelming. As of last week, the blended year on year earnings decline for the fourth quarter is -4.7% and will probably settle around there. It is worse than what was expected at the beginning of the year but has improved slightly over the past week. The blended year on year revenue growth rate for the fourth quarter is currently 5.1%, highlighting the issue with profit margins coming off such a strong year ago comparison period where revenue is higher but net income is now down. Despite all the rate hikes to date, the U.S economic data improved last week, following the easing of financial conditions over recent months. Retail sales for January were up 3.0%, well ahead of estimates for 1.7%, and recovering all of December’s 1.1% fall. The NAHB homebuilder confidence index, after snapping a 13-month losing streak last month, had the biggest monthly increase last week since 2013. The Empire State index surged 27.1 points and although is still negative at -5.8, was way ahead of estimates for -20.0, and Citigroup’s U.S Economic Surprise Index hit the highest since April last year. U.S inflation reports were key last week with both the Consumer and Producer Price Indices falling less than expected year on year due to rising more than expected over the month. Annualized headline CPI for January dropped 0.1% from 6.5% to 6.4%, higher than the consensus estimate for 6.2%. Headline PPI for January increased 0.7% for the month, ahead of estimates for a 0.4% increase, for a 6% annual increase that was well ahead of the 5.4% expected. The stronger economic and inflation data saw the USD and bond yields moving back up with bonds being sold off and although equities were lower, they remain quite resilient after the rally.

Portfolio Movements

CSL (CSL) reports first half profit of US$1.62 billion. CSL, one of the largest companies on the ASX, has reported first half NPATA of $1.82 billion that was ahead of the $1.72 billion consensus and up 10% on an underlying basis compared to last year. First half revenue of $7.18 billion was ahead of the $6.99 billion consensus, and EBIT of $2.41 billion was also ahead of the $2.32 billion expected. Full Year 2023 guidance was reaffirmed for NPATA in the range of approximately $2.7 billion to $2.8 billion, which is in line with current expectations. CSL CEO Paul Perreault said “CSL delivered a solid performance in the first half of the financial year”, with a significant improvement in plasma collections, adding “The integration of CSL Vifor is well advanced and we will focus on driving organic growth and efficiencies across the product portfolio and deliver on our synergy objectives.” And “We are looking forward to launching HEMGENIX® in the U.S, an exciting, ground-breaking, new therapy that will change people’s lives. The rest of our R&D pipeline is in great shape, and we look forward to bringing more innovative therapies to patients in the future.

Telstra (TLS) first half earnings up 11%. Telstra released first half earnings last week with underlying EBITDA for the six months of $3.9 billion, compared with $3.5 billion a year ago. Statutory net profit rose by 24% to $865 million on total income of $11.58 billion, up 6.4% from a year earlier. Operating expenses rose by 4.2% to $7.72 billion. First-half mobile income rose 9.5% to $5.13 billion as Covid restrictions eased and international tourism picked up although fixed line consumer and small business income was flat at A$2.26 billion. Telstra reiterated its full-year guidance for underlying EBITDA of between $7.8 billion and $8.0 billion and still sees total income of between $23 and $25 billion but said the actual figure would likely be at the lower end of the range due to lower-than-expected hardware sales and fixed-product revenues.

Wesfarmers (WES) beats first half estimates. Wesfarmers reported a decent beat last week with the retail operations performing strongly with underlying NPAT for the first half of $1.38 billion, up 14%. Revenue rose 27% to $22.56 billion, ahead of the $20.90 billion estimate. Underlying EBIT of $2.16 billion and the interim dividend of $0.88 were also ahead of expectations. Managing Director Rob Scott said, “The retail businesses benefited from their well-established value credentials and omnichannel offer as customer shopping behaviours began to normalize,” adding, “Wesfarmers Chemicals, Energy and Fertilizers continued strong operating performance enabled it to capitalize on favourable commodity price conditions,” and that, “solid sales and earnings were reported at Bunnings, and there was strong earnings results at Kmart. But sales and earnings at online store Catch were disappointing”. The company said sales in the first five weeks of 2023 in retail were broadly in line with the growth reported in the first half.

The Week Ahead

Domestic economic data releases this week include the Q4 Wage Price Index on Wednesday with wages expected to have increased 3.4% for the year, up from the 3.2% annual increase in Q3. We also see the first of the Q4 GDP components with Q4 Capital Expenditure on Thursday. It is another big week of reporting with 66 ASX 200 companies releasing results.

Internationally we have Eurozone Consumer Confidence and Markit Services, Manufacturing and Composite PMIs, and German ZEW tomorrow. U.S Markit Services and Manufacturing PMIs and Existing Home Sales on Wednesday. The highlight will be the release of the FOMC meeting minutes on Thursday with investors poring over those for further clues on the outlook for monetary policy. The second estimate of U.S Q4 GDP is due Friday with the Federal Reserve’s preferred measure of inflation, Personal Consumption Expenditure, on Friday night along with New Home Sales. U.S equities are closed tonight for President’s Day, and there are 61 S&P 500 companies reporting including 2 Dow 30 components.

Corporate reporting remains busy this week with BHP (BHP) first half tomorrow. Lloyds Bank (LLOY) full year, Woolworths (WOW) first half, and Santos (STO) full year on Wednesday, with Qube (QUB) first half and Ramsay (RHC) first half on Thursday.