25 April 2022 | Weekly Snapshot

Did you know?

There are currently 263 interest rate hikes this year from Central Banks around the world now priced in by global markets according to Bank of America analysis.

Market Movements

Australian Share Market (ASX200) – down 0.67% after trading up to the all time high set in August last year earlier in the week. The Healthcare sector led the gains (+3.92%) following the takeover offer for Ramsay Health Care. Industrials (+2.62%) were the next best followed by Utilities (+2.36%) up 6 weeks in a row. The large Materials sector fell heavily (-5.25%) with a number of quarterly production reports during the week highlighting staff absenteeism issues due to covid and also some site access issues from the heavy rainfalls this year. The ongoing lockdowns in China, as they continue to pursue a zero covid policy, is weighing on the economic growth outlook there and the US Federal Reserve Chair Powell hinting at a 50 basis point rate hike next month was also putting pressure on commodities prices later in the week. Info Tech (-5.03%) was also weaker and Energy (-0.62%) was the only other sector lower. The release of the RBA April meeting minutes was the highlight and suggested the timing of the first rate hike has been brought forward by expectations of a further increase inflation and a pickup in wages growth. The Q1 CPI report due tomorrow is expected to show annual trimmed mean inflation at 3.4% with second round effects of higher fuel and food prices resulting in a further lift in inflation over coming quarters. The RBA highlighted the resilience of the domestic economy in the face of external shocks, noting macro settings and higher commodity prices are supporting the outlook. The market is now expecting a June rate hike with the RBA to wait until after the May election. Election polls have tightened after the first 2 weeks of campaigning. The Labor lead narrowed to 53%-47% on a two-party preferred basis and Morrison widened the gap as preferred PM 44%-37% but a significant lift in support for minor parties is increasing the chances of a hung parliament.

US Share Market (S&P 500) – down 2.75%, with the Dow (-1.86%) and Nasdaq (-3.83%) also lower for the third week in a row as the March relief rally from the short term oversold levels continues to fizzle out. REITs (+1.31%) and Consumer Staples (+0.39%) were the only sectors higher while Industrials (-1.56%) fell the least. Communication Services (-7.74%) led the declines with Netflix’s unexpected negative subscriber growth and 37% share price decline a notable detractor. Energy (-4.56%) and Materials (3.72%) were the next worst. Increasingly hawkish central bank commentary by the US Federal Reserve and the European Central Bank contributed to the equity market declines and sent bond yields higher with the 10 yr US treasury yield hitting a new post pandemic high of 2.94%. The US Q1 earnings season got underway with some largely underwhelming results from the big US Banks. With around 20% of S&P500 companies having reported, earnings have been coming in a bit better than expected with the blended earnings growth rate now at 6.6% year-on-year and up from the 4.7% expected at the beginning of the season although is on track for the lowest earnings growth rate since Q4 of 2020. The key themes to date include economic normalization with the pickup in spending on services, covid beneficiaries continue to come under pressure as those tailwinds subside, still solid demand and continued input price pressures, surprising US dollar strength, weaker guidance, strong corporate and consumer balance sheets and supply chain pressures that are expected to persist for the next few quarters. There is also the hit to earnings from companies shutting down and writing off their Russian operations and while the conflict in Eastern Europe continues it seems to be getting less attention in recent weeks.

Portfolio Movements

Freeport McMoRan (FCX) doubles quarterly net income with gold and copper production up strongly in Q1. FCX announced last week they had produced 1,009 million pounds of copper in Q1, up 11% compared to Q1 2021. They also produced 415 thousand ounces of gold, a 40% increase over Q1 2021. The average cash costs for FCX’s copper mines were $1.33 per pound of copper in Q1 2022, 4% below the first-quarter 2021 average of $1.39 per pound. FCX reported that its Q1 2022 net income was $1.5 billion, which is 114% higher than Q1 2021. The CEO Richard Adkerson said, “The strong operational and financial results we are reporting today reflect our long-term, ongoing focus on solid execution of our plans and the achievements of our committed global team. As a premier global leader in producing copper responsibly, with large-scale, long-lived reserves and an attractive portfolio of organic growth opportunities, we are strongly positioned to benefit from increasing global copper demand for infrastructure development and accelerating clean energy investments.” Despite the better than expected first quarter profit, the company downgraded sales saying copper production should fall 1% this year and the next due to “changes in geology and other conditions” expected to slow down its planned expansion at Indonesia’s Grasberg copper mine from 2023 to 2025.

Johnson & Johnson (JNJ) Q1 earnings down but better than expected result. J&J reported better than expected first quarter earnings last week even though earnings were down compared to the first quarter of tlast year. The company’s earnings totalled $5.15 billion, or $1.93 per share compared with $6.20 billion or $2.32 per share for last year’s Q1. Excluding special items J&J reported adjusted earnings of $7.13 billion or $2.67 per share for the period, above analysts expectations of $2.61 per share. The company’s revenue for the quarter rose 5.0% to $23.43 billion from $22.32 billion last year although that looked to be below the $23.62 billion expected. FY 2022 guidance was lowered to EPS in the range of $10.15-10.35 ex-items vs prior guidance of $10.40-10.60 per share. Sales guidance weas reaffirmed at $97.3 billion – $98.3 billion. The company suspended covid vaccine sales guidance with no impact to adjusted operational EPS guidance saying there is a global supply surplus and demand is uncertain. They also increased the quarterly dividend by 6.6% to $1.13 from $1.06.

Ramsay Health Care (RHC) receives takeover offer at $88 per share from a consortium led by private equity firm KKR. Ramsay has confirmed last week that it has received a conditional, non-binding, indicative proposal from a consortium of financial investors led by KKR to acquire 100% of the shares in Ramsay by way of a scheme of arrangement. The Indicative Proposal is subject to a number of conditions. Under the Proposal, Ramsay shareholders would receive $88.00 per share cash, less any ordinary or special dividends paid to shareholders after the date of the Indicative Proposal. Ramsay shareholders would also have the option to receive part of the consideration in unlisted scrip in the Consortium holding entity. Having reviewed the Proposal and sought further information from the Consortium in relation to its sources of funding, structure and the regulatory approvals required to complete any transaction, the Ramsay Board has determined it appropriate to provide the Consortium with due diligence on a non-exclusive basis to explore whether the Consortium can put forward a binding proposal that is in the best interests of Ramsay’s shareholders.

The Week Ahead

The domestic data highlight this week is tomorrow’s Q1 inflation reading which is is expected to show annual trimmed mean inflation at 3.4%, the first time it has been above the RBA’s 2-3% target since 2010. Headline inflation is expected to increase 4.6% due to the impacts from fuel prices, the Ukraine war, higher food prices, supply chain disruptions, and elevated housing construction costs. The market is currently expecting the RBA to hike interest rates in June after the federal Election. A higher than expected inflation print tomorrow could pressure them to act at the next meeting in May. We also have private sector credit growth on Friday.

Internationally we have US durable goods tonight, US new home sales tomorrow, US pending home sales and Eurozone business, consumer and economic confidence on Thursday, and China manufacturing PMI, Eurozone GDP, Eurozone CPI and US personal consumption expenditure on Friday where annual core consumer price inflation is expected to ease back to 5.3% from 5.4% prior.

For corporate reporting it is a big week. We have WPL Q1 today, MSFT Q3, GOOG Q1, LLOY Q1 and CME Q1 tomorrow night, FMG Q3 Thursday and LIN Q1 Thursday night and AAPL Q2, AMZN Q1 and HON Q1 Friday night. Note that the market will see a flood of earnings this week as some 175 S&P 500 constituents report

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

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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.