24 January 2022 | Weekly Snapshot

Australian Share Market (ASX200) – down 2.95%, the second weekly decline in a row. Offshore leads were very weak with the US S&P 500 and Nasdaq indices experiencing the biggest weekly decline since the start of the pandemic almost 2 years ago. Every ASX sector was lower for the week although Energy (-0.17%), Consumer Staples (-1.39%) and Materials (-2.05%) fell the least. Info Tech (-4.41%) led the declines along with Healthcare (-4.35%), both down 4 weeks in a row as the de-rating of the higher P/E sectors continued. Telecommunication Services (-3.68%) was the next worst for the week. The surge of Omicron cases sunk consumer confidence readings last week. The weekly, more volatile ANZ/Roy Morgan Consumer Confidence index fell -7.6% to 97.9, the lowest level since October 2020 but the lowest January reading since 1992. The more reliable monthly Westpac Consumer Confidence Index for January also fell 2% from 104.3 to 102.2 but was not as bad as feared with some encouraging reports and anecdotal evidence that case numbers have already passed their peak. Chinese Q4 GDP beat expectations last week but still showed slowing growth. GDP growth was +4.0% vs consensus +3.6% but well down from the +4.9% in the prior quarter. Full-year 2021 GDP growth was +8.1% versus consensus of +8.0%. The Peoples’ Bank of China also cut another key market interest rate last week and looks increasing like monetary policy makers there have moved into a new easing cycle. The Australian December jobs data was also released with the unemployment rate unexpectedly dropping from 4.6% to 4.2%, which is the lowest unemployment rate since August 2008. The 14 year low unemployment rate prompted Westpac to bring forward their expectations for the first interest rate hike by the Reserve Bank of Australia to August this year.

US Share Market (S&P 500) – down 5.68%, with the Dow (-4.58%) and Nasdaq (-7.55%) in one of the weakest starts to a New Year since 2016. All sectors were lower for the week although the more defensive Utilities (-0.79%), Consumer Staples (-1.52%) and REITs (-2.87%) fell the least. Consumer Discretionary (-8.49%), Communication Services (-7.05%) and Info Tech (-6.94%) led the selloff that pushed the Nasdaq into correction territory having now fallen around 14% from the November high. A more hawkish outlook for near term monetary policy from the US Federal Reserve has dominated the narrative early in the new year. Initially, this prompted another rotation out of higher P/E, low interest rate beneficiaries or growth stocks, into lower P/E and higher dividend yielding value stocks. But last week it was a case of sell everything although the value factor did still outperform growth. During 2020 and 2021 US policy makers blasted the economy with both fiscal spending and monetary stimulus barrels, helping push stocks to new all-time highs on a regular basis. In early 2022, fiscal policy looks to be more constrained with the Whitehouse failing to agree on the additional $1.75 trillion social spending package that the market was expecting, while the US Federal Reserve is also looking like it will be reducing monetary stimulus sooner than expected. From a bottom up perspective the Q4 earnings season got underway last week and we are expecting another strong quarter of +20% earnings growth. The demand backdrop remains strong but investors will likely be focused on profit margins, pricing power, wage and other expense pressures, and forward guidance coming off what has been a phenomenal period of earnings growth for US companies.

Portfolio Movements

Woodside ( WPL) 4Q sales revenue jumps – Reverses write downs of key assets. Woodside provided a very strong 4th quarter production and operational update last week with revenue increasing +86% and total production increasing +2% on the previous quarter. Most interestingly, they reversed some prior impairments including the Pluto-Scarborough development, revaluating some key assets +US$582 million higher due to the additional value being generated at current oil prices. We haven’t seen an upward revaluation in this sector for a long time and may suggest the write down cycle for oil and gas assets of recent years has overshot on the downside. Woodside is also in the process of merging with BHP’s petroleum business, which will see WPL shareholders own 52% of the combined business. Woodside has forecast savings from the deal at more than US$400 million, with the deal creating one of the world’s top 10 largest producers.

BHP (BHP) provided Q2 production and operational update with share unification expected to take place by month’s end. BHP released a decent Q2 production update last week with Iron Ore production increasing by 4%, Nickel increasing by 21%, while Copper slid 3% and Met Coal was flat over the quarter. The shareholder meetings to vote on the unification of the UK and Australian listing, into a single ASX listing were also held with unification expected to completed by the end of the month. This is currently expected to take place on January 31st and will have as a significant impact on the main ASX indices as BHP returns to being the largest company by market capitalization on the ASX. It also ends 20 years of BHP’s dual listed company structure.

Microsoft (MSFT) to Acquire Activision Blizzard in US$68.7 billion deal. Microsoft announced last week that they will acquire gaming giant, Activision Blizzard, for US$95 per share, in an all-cash transaction valued at $68.7 billion. The transaction will see Microsoft become the world’s third-largest gaming company by revenue, behind Tencent and Sony. “Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms,” said Microsoft CEO, Satya Nadella. There are now three billion people actively playing games making gaming the largest and fastest-growing form of entertainment. The acquisition also bolsters Microsoft’s Game Pass portfolio with plans to launch Activision Blizzard games into Game Pass, which has reached a new milestone of over 25 million subscribers. With Activision Blizzard’s nearly 400 million monthly active players this acquisition will make Game Pass one of the most compelling and diverse line-ups of gaming content in the industry.