Energy giant Saudi Aramco has topped tech giant Apple as the world’s most valuable company. Saudi Aramco’s market capitalization last week rose to US$2.43 trillion while the iPhone makers’ market cap fell to $2.37 trillion. Some have questioned the comparison given Saudi Aramco is largely state owned with a free float of less than 2%, whereas 84% of Apple shares are held by the investing public. Saudi Aramco also only trades on the small Saudi stock exchange, the Tadawul, so might not be comparing apples with apples.
Australian Share Market (ASX200) – up 1% and snapping a four week losing streak despite further weak offshore leads. The Q1 Wage Price Index data, a key component of the RBA’s assessment of inflation, came in a bit lower than expected last week rising 0.7% for the quarter and just shy of the 0.8% expected. On a year-on-year basis wages growth increased to 2.4% up from 2.3% in the previous quarter and also a bit below expectations for 2.5%. The RBA is currently forecasting wage growth to gradually accelerate to 2.7% in the June quarter and to 3% by the end of the year and will need to see continued strength in the labour market to get there which we saw on Thursday with Australia’s unemployment rate falling to 3.9% in April which was a new 48 year low. With the strong jobs data interest rate markets are now pricing in a 40 basis point rate hike from the Reserve Bank of Australia at their meeting next month with several more rate hikes to come and the cash rate expected to be around 2.75% by year’s end compared to the current 0.40%. The Info Tech sector (+5.04%) led the gains snapping a 6 week losing streak. The Materials sector (+3.65%) was the next best led by the big mining stocks with talk of possible easing of covid restrictions in China following extended lockdowns in the major cities of Shanghai and Beijing. Industrials (+3.05%) were also higher. Consumer Staples (-3.45%) led the declines down 4 weeks in a row followed by Energy (-0.8%) also weaker for the 5th week in a row after some large gains earlier in the year, and Healthcare (-0.74%) also eased back a little.
US Share Market (S&P 500) – down 3.05%, with the Dow (-2.90%) and Nasdaq (-3.82%) all lower again last week. The S&P500 posted its seventh weekly decline in a row, its longest stint since 2001, with the Dow on an eight week losing streak, the first time since 1923. These historically significant falls suggest US equities are probably somewhat oversold at least in the short term. The S&P500 briefly dipped into bear market territory (down over 20% from the all-time high in January) on Friday night before recovering late in the session. Earnings focus shifted to the big US retailers last week with disappointing results from Target and Walmart. Target’s share price fell 25% and its largest one day decline since 1987. Revenue and foot traffic are still strong but It was the crimped profit margins and warning on costs, inventory and changing consumer spending patterns that spooked the market. Both retailers saw inventories increase by more than 30% in the first quarter reflecting price increases from suppliers but also consumers pulling back on discretionary purchases and big increases in freight and transportation costs, highlighting the risks for some companies that are unable to quickly pass on the higher inflation. A number of Federal Reserve members reconfirmed their commitment to bringing inflation down and that 50 basis point hikes at the next two meetings are appropriate. Economic data was mixed with retail sales very strong but regional manufacturing surveys seeing large falls and housing data was also weaker than expected. The Energy sector (+1.09%) led the gains followed by Healthcare (+0.90%) and Utilities (+0.36%) as the only sectors higher. As per above the Consumer stocks lead the declines with Staples (-8.63%) and Discretionary (-7.44%) followed by Info Tech (-3.77%).
Woodside (WPL) shareholders approve BHP Petroleum merger. Woodside shareholders overwhelmingly voted (98.66%) to approve the scrip-based deal with BHP at last week’s shareholder meeting which will propel Woodside into the ranks of the world’s top 10 independent oil and gas producers. The merger is expected to occur on 1st June with the new Woodside shares to be issued to BHP shareholders commencing trading on the ASX on 2nd June. Trading of Woodside ADRs on the NYSE is expected to commence on 2nd June and trading of Woodside shares on the LSE is expected to commence on 6th June.
BHP Group shareholders will hold approximately 48% of the issued capital in the post-merger WPL with BHP shareholders to receive to one WPL share for every 5.5340 BHP shares held.
Fortescue Metals (FMG) – Andrew Forrest back in the top job. In a statement to the ASX last week Fortescue announced that Andrew Forrest would take “interim” responsibility for the iron ore division until a new leader was found, with Forrest also leaving open the possibility that he would continue as executive chairman beyond the appointment of a new iron ore boss. Andrew Forrest said his elevation to executive chairman of Fortescue Metals Group was appropriate given the extraordinary decarbonisation challenge facing the world, and he planned to keep the job until the company became a clean energy super-power. Some investors have suggested that Fortescue may eventually need to spin off the more speculative Fortescue Future Industries (FFI) from the established iron ore mining company with Forrest stating that was not the reason for the restructure.
Goodman Group (GMG) upgrades guidance. Goodman Group upgraded its earnings growth forecast to 23% due to ongoing strength in development, property management and rental income boosting profits to around $1.5 billion. The March quarter saw assets under management reach $68 billion with occupancy averaging 98.7% and work in progress of $13 billion across 89 projects. Rising rents have also been flowing through to profits with GMG keen to point out their low leverage at 7.2% and $2 billion in liquidity with the balance sheet well placed to deal with rising interest rates. GMG acknowledged the period of rapid margin expansion is likely now over and as pandemic tailwinds for the stock start to fade, some questions around valuation have emerged.
The Week Ahead
The domestic data this week is a bit light on again with just first quarter capital expenditure on Thursday, and April retail sales on Friday.
Internationally we have Eurozone and US Markit manufacturing and services PMI’s tomorrow night, US new homes sales and durable orders Wednesday night, FOMC minutes and US second estimates of Q1 GDP Thursday night, and US pending home sales, personal consumption expenditure and wholesale inventories Friday night.
Corporate events have also slowed down with just annual general meetings for Shell on Tuesday night and Amazon Thursday night.
Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice
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