In light of a weak year from many market indices globally, it might be surprising to know that the ASX 200 Accumulation Index (which factors in dividends paid) hit an all-time high last week, eclipsing the previous high from April of last year.
Australian Share Market (ASX 200) –up another 1.69% for the 3rd week in a row and the highest level since April last year with the ASX 200 Accumulation Index hitting a new all-time time last week. The Health Care sector (+4.95%) led the gains followed by Consumer Staples (+2.39%) and Info Tech (+2.00%) with Utilities (-1.67%) the only sector lower for the week. The New Year trend of improving sentiment indicators continued with the Westpac-MI Australian consumer confidence index rising from 80.3 in December to 84.1 in January and the largest monthly increase in confidence since April 2021. The report noted that no January meeting (or rate hike) by the Reserve Bank of Australia this month – having raised interest rates for the past 8 months in a row – probably contributed to the better sentiment. Commodities prices have also started the year up strongly with demand getting a boost from China reopening momentum and low inventories with the raft of Chinese stimulus measures announced last year during lockdowns now spurring demand as the lockdowns ease.
Copper prices hit a 6-month high of US$4.20 a pound, up from US$3.75 in December and Iron ore hit $US122 a ton, up from a low of $US80 a ton in November. The Australian Bureau of Statistics reported a surprise drop in employment last week with the economy losing 14.6K jobs last month vs. expectations for a 25K increase. The unemployment rate held steady at 3.5% after November’s unemployment rate was revised up to 3.5% from 3.4%. The softer data raised prospects for a possible pause from the RBA when they meet next month. Australian Government Bond yields were already under pressure from the drop in U.S. treasury yields the night before but fell further on the weaker than expected jobs data. Our 10 yr. yield hit 3.30%, testing a 5-month low, and down from 4.05% at the beginning of the year. While hopes for an RBA pause have increased, consensus is still for another 25-basis point hike at the next meeting, although our Q4 CPI data on Wednesday will be key.
U.S. Share Market (S&P 500) – down 0.66%, with the Dow (-2.70%) also lower as the New Year rally looked to run out of some steam heading into reporting season although the Nasdaq managed to eke out a 0.55% gain. Economic data was generally weak with the New York Fed’s January Empire manufacturing survey falling sharply to -32.9 and the lowest since mid-2020. The December Producer Price Index fell 0.5% for the month against consensus for a 0.1% decline and biggest monthly decline since April 2020. Annual PPI was down 1.2% to 6.2% and lower than 6.8% expected adding to the easing inflation theme of recent months. December Retail Sales fell more than expected, down 1.1% for the month vs. consensus down 0.8%, although the NAHB reported that home builder confidence rose more than expected, snapping a 13 month losing streak. US equities eased as the first Federal Reserve speakers for the year reiterated the “higher for longer” narrative while other data – the Philadelphia Fed manufacturing index and December housing starts – were weak but not as bad as expected.
Weekly Initial jobless claims fell more than expected to the lowest since September last year with Investors watching this for any signs of infection in the tight labour market but not seeing anything yet. Big tech layoffs received increased attention last week but an article in Reuters suggested these layoffs are small in comparison to how many were hired in recent years with the five biggest tech companies increasing employment by 45% in 2020 and another 20.5% in 2021. The Q4 reporting season ramped up last week with results to date showing revenue and earnings are weaker than expected but only 11% of the S&P 500 have reported so far. According to FactSet’s latest Earnings Insight report on the reports so far, the blended earnings decline for the quarter is currently -4.6%, which is lower than the -3.2% decline expected at the end of the quarter. The blended reported revenue growth rate of 3.7% so far is also below the 3.9% expected. This week will provide better insights with 93 S&P 500 companies reporting.
Santos (STO) revenue up 65% in 2022. Santos released their Q4 activities report last week with record revenue, production, and free cash flow for the calendar year. Sales revenue of US$1.9 billion in Q4, took 2022 sales revenue to a record US$7.8 billion, up 65% on the prior year. Record annual free cash flow of approximately US$3.6 billion was more than double that of 2021. Fourth quarter production of 25.6 million barrels of oil equivalent (mmboe) was a slight miss and lower than Q3 mainly due to reduced domestic gas volumes in Western Australia following unplanned maintenance. And Free cash flow of US$930 million in Q4 reduced gearing down to 18.7%, improving the balance sheet. Santos CEO Kevin Gallagher said “Given the strong customer demand for our product now and into the future, we will seek to backfill and sustain our core assets to deliver the critical fuels the world needs into the 2040s. But we will also seek to decarbonise these critical fuels, in-line with our emissions reduction targets, and produce clean fuels as customer demand evolves.
Linde (LIN) shareholders approve delisting from Frankfurt Stock Exchange. Linde plc announced last week that shareholders have approved the company’s proposed reorganisation and delisting from the Frankfurt Stock Exchange with around 93% voting in favour. Linde said the reorganisation and delisting process will be completed on or about the 1st of March. Existing Linde shareholders will receive one share of the new holding company, listed on the New York Stock Exchange, for each share of Linde plc they currently own. The new holding company will also be named “Linde plc” and will trade under the existing code “LIN” with no action required from Advisers or clients in relation to this corporate action.
Shell (SHEL) to acquire EV charging station company Volta for US$169 million. Shell announced last week they have executed a definitive merger agreement under which they will acquire Volta in an all-cash transaction. Volta currently operates 3,050 destination chargers across 31 US states and Europe, and was planning to install another 3,400 stalls with Shell commenting that the transaction will bring Volta’s dual charging and media network to Shell’s brand and seeks to unlock robust, long-term growth opportunities in electric vehicle charging. Volta is the second US EV charging company acquired by Shell since Greenlots was acquired in 2019 and renamed to Shell Recharge Solutions with the acquisition of Volta increasing Shell’s charging stalls to over 57,000.
The Week Ahead
Domestic economic data releases this week include NAB Business Confidence tomorrow with Wednesday’s Q4 Consumer Price Index the data highlight ahead of the next Reserve Bank of Australia meeting on the 7th of February. Headline CPI is expected to increase 1.6% over the quarter, down from the 1.8% increase in Q3. On an annual basis headline CPI is expected to increase to a new high of 7.5%, up from the 7.3% increase in Q3. The ASX is closed Thursday for Australia Day.
Internationally, U.S. Building Permits and Leading Indicators are tomorrow along with Eurozone Consumer Confidence, Markit Composite and Manufacturing PMI’s. U.S. Markit Manufacturing and Services PMI’s and Richmond Fed Index are Wednesday. As is U.K PPI. Friday sees U.S. Durable Goods, Wholesale Inventories, Building Permits and New Home Sales and the first read on Q4 GDP the highlight with the seasonally adjusted annual growth rate of 2% expected, down from 3.2% in Q3. Chinese markets are closed this week for the China New Year holidays.
Corporate reporting ramps up this week with Q2 activity report from South 32 (S32), Johnson & Johnson Q4 earnings tomorrow. Microsoft (MSFT) Q2, Freeport-McMoRan (FCX) Q4 and Woodside (WDS) Q4 results are on Wednesday, with Diageo (DGE) 1st half results on Thursday.
Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice
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