21 March 2022 | Weekly Snapshot

Australian Share Market (ASX200) – up 3.27% to a new 2-month high with the Australian stock market a notable outperformer calendar year to date relative to global peers. Offshore leads were positive with US indices rebounding strongly, China pledged further support to their economy and capital markets, and the war in Ukraine hasn’t escalated further and is looking contained to that region all contributing to higher stocks last week. Info Tech (+7.81%) led the gains followed by Financials (+6.07%) having another strong week and Health Care (+5.48%). Materials (-1.15%) led the declines as the recent commodities rally cooled and was the only sector lower, followed by Energy (+0.04%) and Utilities (-0.10%) that were effectively flat. Our unemployment rate fell to a 14 year low last week of 4% in February and slightly lower than the market consensus of 4.1%. A combined 77,400 jobs were added during the month and hours worked rebounded strongly after plummeting during January’s omicron surge induced shadow lockdowns. Unemployment is forecast to continue falling in coming months into the 3% range. An unemployment rate with a 3 handle hasn’t been seen in this country in 48 years. The participation rate of 66.4% was also at an all-time high. The strong jobs numbers are firming up rate hike expectations with one economist now suggesting an election rate hike could be announced soon and the RBA meeting in May was now “live”, while most economists are forecasting the first rate hike to be in the 2nd half of 2022.

US Share Market (S&P 500) – up 6.16%, with the Dow (+5.50%) and Nasdaq (8.18%) also sharply higher with the S&P 500 and Nasdaq posting the best weekly performances since November 2020. The S&P 500 has now recovered half of the 2022 year to date decline. Consumer Discretionary (+9.27%) led the gains followed by Info Tech (+7.87%) and Financials (+7.14%) with the growth cohort of stocks significantly outperforming. The Energy sector (-3.58%) led the declines and was the only sector lower followed by Utilities (+0.51) and REITs (+2.65%) that rose the least. The ongoing war in Ukraine continued to dominate headlines although the situation surrounding the conflict remained largely unchanged but hasn’t escalated into a broader conflict and looks largely contained to that region. The US Federal Reserve hiked interest rates by 25 basis points last week in the first hike of the new cycle and forecast seven rate increases in 2022 and said that ongoing increases will be appropriate. Their summary of projections showed rate hikes to 1.875% by years end. The 2023 median was for an additional three hikes to 2.375% then holding at that level in 2024. Chair Powell said he anticipates high inflation until mid-year before falling in the 2nd half of 2022 but also said if the Fed sees it appropriate to move faster to remove accommodation it will do so. Chair Powell also didn’t rule out a 50 basis point hike in coming meetings although did say that balance sheet shrinkage may be about equivalent to another rate hike in terms of tightening. Having now completed the tapering of asset purchases, balance sheet holdings reductions are to start at coming meetings with Chair Powell saying a runoff plan will be previewed in the March minutes.

Portfolio Movements

Accenture (ACN) the global professional services company with leading capabilities in digital, cloud and security, reported strong 2nd quarter earnings last week and upgraded full year guidance. Diluted earnings per share were $2.54, a 14% increase from $2.23 for the second quarter last year, which included $0.21 in gains on an investment. Excluding these gains, EPS increased 25% from adjusted EPS of $2.03. Operating income was $2.06 billion, a 25% increase over the same period last year, and the operating margin was 13.7%, consistent with the second quarter last year. Net income for the quarter was $1.66 billion, compared with $1.46 billion for the second quarter last year. New bookings for the quarter were a record $19.6 billion, with record bookings in both consulting and outsourcing of $10.9 billion and $8.7 billion, respectively. The company now expects full year 2022 diluted EPS to be in the range of $10.61 to $10.81, an increase of 21% to 23% over adjusted FY21 diluted EPS of $8.80. Julie Sweet, Accenture’s Chair & CEO, said, “Our outstanding second-quarter financial performance demonstrates continued strong, broad-based demand across all our markets, services and industries. We continue to take significant market share as clients increasingly turn to Accenture as the partner uniquely positioned to help them navigate today’s accelerating pace of change”.

Volkswagen (VOW3) reported their full year results last week and beat the recently downgraded earnings estimates. Eurozone equities have borne the brunt of analysts’ earnings downgrades since the war broke out. Full year net income of €15.43 bill and revenue of €250.20 bill both beat estimates. The board also increased the dividend to €7.50 per ordinary share. The company provided an outlook for 2022 with deliveries expected to increase between 5 and 10%, operating return on sales to reach between 7.0% and 8.5%. In the Automotive Division, the R&D ratio is expected to come in at around 7% and the ratio of capex to sales revenue at around 5.5% in 2022. “However, this guidance is subject to the further development of the war in Ukraine and in particular the impact on the Group’s supply chains and the global economy as a whole. At the present time, it is not yet possible to conclusively assess the specific effects” the company said. FactSet estimates 3.2% of the company’s revenues come from the Russian Federation.

National Australia Bank (NAB) shares highest since 2017. NAB’s share price hit a 4.5 year high last week following on from its recent and better than expected first quarter results in February. NAB’s net interest margin was faring better than that of its peers. And NAB’s lower funding costs are offsetting much of the competitive pressures and loan type mix impact that was affecting some of the other lenders. NAB’s 1Q FY 2022 cash net profit after tax was also well ahead of the run rate needed to meet its expectation for a first half profit of A$3.2 billion and highlighted the strong ex-Markets unit revenue growth of 5%. Mortgage, small business, and institutional balance sheet growth were also strong in the quarter with any Reserve Bank of Australia interest rate rises set to provide an additional boost to margins.

The Week Ahead