22 August 2022 | Weekly Snapshot

Did you know?

The Aussie unemployment rate dropped to 3.4% last month – the lowest level since 1974

Market Movements

Australian Share Market (ASX200) – up 1.17% for the 5th week in a row and bucking weak offshore leads as reporting season moved into full swing. By week’s end around a quarter of ASX200 companies had reported results with the majority being best described as “in-line” with expectations. Global uncertainty, inflation and further interest rate hike expectations continue to cloud the outlook but similarly to the recent US Q2 reporting season we are seeing a still strong demand backdrop and some “not as bad as feared” results after earnings revisions had been lowered heading into reporting. The Materials sector (+3.38%) also up 5 weeks in a row led the gains followed Consumer Staples (+3.38%) and Energy (+2.81%). Utilities (-1.86%) led the declines followed by Financials (-0.72%) and Info Tech (-0.46%) as the only sectors lower. The inflation pulse ticked back up last week with commodities and energy prices, and bond yields all rising. This saw the value cohort of stocks outperforming the growth cohort that had led the recent 2 month old rally off the June lows. While much of the attention was on earnings season, wage and jobs data were also in focus. The quarterly wage price index was weaker than expected for the quarter resulting in real wages (the difference between wage inflation and consumer price inflation) shrinking by 3.5% over the past 12 months which was the largest decline on record although the data did pre-date the recently announced 5.2% rise in the minimum wage that took effect from July. Our unemployment rate unexpectedly fell again to 3.4% in July, from 3.5% last month to the lowest it has been since August 1974. The number of unemployed people unexpectedly decreased by 20,000 although the report noted the reference period coincided with the winter school holidays, worker absences associated with COVID and other illnesses, and further flooding events. The report also noted there were fewer unemployed people than there are job vacancies, indicating a continuation of acute labour shortages that are keeping business costs, but also retail spending elevated, and mortgage delinquencies low.

US Share Market (S&P 500) – down 1.21%, with the Dow (-0.16%) and Nasdaq (-2.62%) also lower, ending a 4 week winning streak as the 2 month old rally in US equities starts to look a bit tired in the short term particularly as the 10 yr. bond yield crept back up to a 1 month high of 3%. Catalysts for the equities rally have included oversold conditions and depressed positioning, falling bond yields, some not as bad a s feared Q2 results, a slight change in Fed rhetoric, and the peak inflation narrative. The 2 key themes of the US Q2 reporting season of “not as bad as feared” results and the “resilient consumer” were on display again last week as earnings reports from the retail sector came through. It was a big week for housing data with the near term impacts from the aggressive rate hikes continuing to be concentrated in this highly rates sensitive sector. Housing starts fell more than expected and the slowest in 17 months, building permits were ahead of consensus although still the slowest in nearly a year, existing home sales fell more than expected and the sixth-straight monthly decline, and the NAHB housing market index also fell more than expected and into contraction territory. Outside of housing the data was largely better than expected as per the Industrial production and capacity utilization reports, and the Philadelphia Fed Index unexpectedly rose to the highest since April. We could be starting to see a tricky situation developing for the for Federal Reserve in trying to balance a sharp slowdown in the housing sector, against a still buoyant broader demand backdrop and resilient consumer. The FOMC July minutes were released and had something for everyone. They placed a heightened emphasis on data to determine the pace of future interest rate increases rather than providing more explicit forward guidance as per previous meetings. They also mentioned it would likely be appropriate at some point to dial back the pace of tightening. But the minutes also noted that some participants believed policy would have to reach a “sufficiently restrictive” level to control inflation and remain there “for some time.”

Portfolio Movements

Transurban (TCL) full year profit up after first half loss – dividend guidance underwhelms. Transurban reported a full year net profit attributable to securityholders of $16 million, a decent turnaround from the $103 million loss at the half-year stage that was heavily impacted by last year’s lockdowns. The profit is down from the $3.30 billion last year which included proceeds from asset sales. Annual proportional toll revenue increased by 5.7% to $2.63 billion and while traffic numbers were broadly flat year-on-year from Covid related disruptions and then severe rainfall events in Queensland and NSW earlier this year, fourth quarter traffic reached a new high and exceeded pre-pandemic levels. The toll revenue increase on flat traffic numbers was boosted by inflation linked earnings. The company will pay a final distribution of 26 cents per security, up from the 21.5 cents in the 2nd half of 2021. But the distribution guidance for FY23 of 53 cents underwhelmed with investors hoping for closer to 60 cents per share.

Amcor (AMC) reports strong full year results. Amcor has reported strong full year results with net sales of $14,544 million, up 13% on last year with performance accelerating in the June quarter with organic sales growth of 6% and adjusted EBIT growth of 9% just for the quarter. For the full year strong execution resulted in 11% adjusted EPS growth, at the top end of their guidance range and generated over $1 billion in adjusted free cash flow which supported share repurchases and another increase in the dividend. “This is our third consecutive year of accelerating top line growth, and we expect to sustain this momentum including by stepping up investments in areas such as higher value-add priority segments. This gives us confidence the business will deliver another year of strong underlying EPS growth in the range of 7% to 12%. We also plan to continue returning capital to shareholders while actively exploring opportunities for value-creating acquisitions across our portfolio.” Amcor CEO Ron Delia said.

CSL (CSL) reports full year results – Forecasts return to growth in FY23. CSL reported full year results with net profit of US$2.255 bill, down 6% on last year, but near the upper end of the previous guidance range. The full year dividend increased 6% on last year. After serious covid related disruptions of recent years plasma collections are bouncing back and “is anticipated to continue as COVID recedes and underpin strong future sales growth in our core plasma therapies. The current higher cost of plasma is also expected to prevail into FY23,” said CEO Paul Perreault. Perreault added “CSL’s net profit after tax for FY23 is anticipated to be approximately $2.4 billion to $2.5 billion at constant currency, returning to strong sustainable growth. This excludes CSL Vifor earnings and costs associated with the acquisition.”

The Week Ahead

There are no major domestic data releases this week. Investors will instead be focused on corporate reporting with around 90 ASX companies releasing results during the week.

Internationally, we have PMI’s out of Japan, the UK, Eurozone and US tomorrow night, and Eurozone consumer confidence and US new home sales and durable orders Wednesday night. US pending home sales and the 2nd Q2 GDP estimate are Thursday night following the first GDP estimate that showed a surprise 0.9% contraction last month. Also Thursday night is German Q2 GDP and IFO sentiment indicators with that economy seemingly one of the hardest hit from the Russian sanctions. Friday night sees key US inflation data with the Personal Consumption Expenditure report. The highlight of the week will likely be the Jackson Hole Symposium held from Thursday to Saturday with US Federal Reserve chair Powell to deliver the keynote speech on the monetary policy outlook.

Corporate reporting this week includes full year results from VG1 tomorrow and Sonic Health on Wednesday. Woolworths, Qube and Flight Centre on Thursday. And Wesfarmers and Ramsay Healthcare on Friday.

Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice

The information presented in this publication is general information only, and is not intended to be financial product advice. It has not been prepared taking into account your investment objectives, financial situation or needs, and should not be used as the basis for making an investment decision. Before making any investment decision you need to consider (with your financial adviser) your particular investment needs, objectives and financial circumstances.

Some numerical figures in this publication have been subject to rounding adjustments. Akambo Pty Ltd (including any of its directors, officers or employees) will not accept liability for any loss or damage as a result of any reliance on this information. The market commentary reflect Akambo Pty Ltd’s views and beliefs at the time of preparation, which are subject to change without notice.