27 March 2023 | Weekly Snapshot

Did you know?

The two largest stocks in the S&P 500 now make up 13% of the index, the highest index weight that any two stocks have made up since the late 1970’s. Those two companies being Apple and Microsoft.

Market Movements

Australian Share Market (ASX 200) – down 0.57% for the 7th week in row and hitting a new 4-month low last week. The Consumer Discretionary sector (+1.20%) led the gains followed by Telecommunications (+1.04%) and Energy (+0.77%). Financials (-1.89%) led the declines followed by Info Tech (-0.89%) and Utilities (-0.86%). Offshore leads were mostly positive with international equities up early in the week on the reduced systemic risks following the Swiss banking regulator forced takeover of Credit Suisse by UBS over the weekend. Although there was concern over the surprise restructuring / recapitalization part of the takeover that involved $17 billion of Credit Suisse’s Additional Tier 1 securities (hybrids) being “bailed in” and completely written off with 100% losses. It was the first “bail in” for a systemically important bank since the too big to fail regime was introduced following the GFC, and did prompt some broader discussions around hybrid securities, including our ASX listed hybrid securities with prices coming under pressure last week. The RBA’s March meeting minutes were released last week and showed members agreed to consider the case for a pause in April stating that policy is in restrictive territory and taking into account the lagged effect of rate hikes to date. They noted housing loan commitments had fallen significantly and that consumption remains uncertain with spending growth rates also slowing significantly although members agreed that further tightening is likely required with inflation still too high. The gold price has been a beneficiary of the recent volatility with the USD gold price testing the all-time highs around US$2,000 an ounce. But with the recent decline in the AUD/USD rate, the Aussie dollar gold price hit a new record high above $2900 an ounce, eclipsing the all-time high set in August 2020. The preliminary weekly national auction clearance rate jumped 2.6% over the weekend to 71%, continuing the recent trend of improving clearance rates the past month or so. It was the highest since the 73.3% recorded in April last year before the rate hikes started in May. The high clearance rate came on the back of increasing supply indicating broader strength with 2,292 auctions listed across capital cities.

U.S. Share Market (S&P 500) – up 1.39%, with the Dow (+1.18%) and Nasdaq (+1.66%) also higher. Bank jitters eased somewhat in the U.S although Eurozone Banks continued to come under pressure following the demise of Credit Suisse. The U.S Federal Reserve hiked interest rates another 25 basis points as expected and somewhat downplayed the mini banking crisis in the press conference saying the banking system was sound and noting deposit flows had stabilized due to the strong actions taken. It seemed like a dovish hike with Powell saying the FOMC did consider a pause, but the hike was supported by “strong consensus”. And also noted some members recognised the impact of the recent events causing financial and credit conditions to tighten which could do the job of some rate hikes. Economic data had taken a back seat to the banking sector headlines last week but was largely better than expected, particularly housing. Existing February home sales of 4,580k were well ahead of the 4,200k expected and were up 14.5% from last month’s 4,000k. New home sales rose 1.1% for the month last night to a 640K seasonally adjusted annual rate, the highest since April 2022 but still down 19% year on year although the median price rose to $438.2k from last month’s $426.5k. The weekly initial unemployment claims were again lower than expected as the labour market remains very tight, although some signs of easing are emerging. Both the Markit U.S Manufacturing and Services PMIs were better than expected with the Composite PMI rising to 53.3 from 50.1 last month and well ahead of consensus for a fall back into contraction territory of 49.4. It was the 2nd month in a row back in expansion for the Composite PMI after seven straight months in contraction (below 50). On a weaker note, U.S February durable goods orders fell 1.0% for the month, below the +1.0% increase expected with durable goods orders now down in three of last four months and defensive assets remained well bid with the with the 10 yr. treasury yield trading around the lowest levels since September last year and the gold price trading near its all-time high.

Portfolio Movements

Microsoft (MSFT) plans mobile games app store. According to the head of the Xbox business, Microsoft is preparing to launch a new app store for games on iPhones and Android smartphones to rival Apple and Google as soon as next year if its $75 billion acquisition of Activision Blizzard is cleared by regulators. Under the EU’s Digital Markets Act new rules requiring Apple and Google to open up their mobile platforms to app stores owned and operated by other companies are expected to come into force from March 2024. Microsoft has argued Apple’s App Store rules restrict its ability to offer cloud gaming through a single app. Apple has denied it blocks cloud gaming apps, but App Store rules require providers to list each game separately on the App Store.

Thermo Fisher Scientific (TMO) to compete for Baxter’s Biopharma unit. Scientific instruments maker Thermo Fisher Scientific is in the race to buy the biopharma solutions business of medical device maker Baxter according to reports last week. Baxter with a market value of $19 billion but total debt of $16.6 billion is looking at divestments to shore up their balance sheet. The biopharma solutions unit supports drug-makers in the formulation, development and commercialization of drugs typically given by infusion or injection, such as biologics and vaccines, and could sell for more than $4 billion. South Korea’s Celltrion and Private equity firms KKR and Carlyle Group are also reportedly interested although none were available for comment on the validity of the report.

Wesfarmers (WES) provides investor update on CEF division (Chemicals, Energy and Fertilisers). Wesfarmers provided an investor briefing on their CEF division last week providing a positive outlook following the divisions recent record first half earnings on strong operating performance and favourable commodity prices. The CEF division is the 3rd largest within Wesfarmers behind Bunnings and Kmart with earnings before tax up 48% on the first half of last year. The diverse division includes CSBP Ammonia, Ammonium Nitrate and Industrial Chemicals, CSBP Fertilisers, Australian Vinyls, Australian Gold Reagents, Queensland Nitrates, Kleenheat and Covalent Lithium.

The Week Ahead

Domestic economic data releases this week include Retail Sales tomorrow with the new monthly Inflation report on Wednesday and Private Sector Credit on Friday. These will be key ahead of the RBA’s meeting next week with market expectations currently split between a pause after 11 straight monthly hikes, and another 25-basis point hike.

International highlights include the German IFO business survey and Dallas Fed Index tonight. U.S Home Price Index, Consumer Confidence and Richmond Fed Index are tomorrow night. U.S Pending Home Sales are Wednesday night with Eurozone Economic, Industrial and Services Confidence on Thursday night along with the final estimate of US Q4 GDP. Friday sees China Manufacturing, Non-manufacturing, and Services PMI’s with Eurozone CPI on Friday night along with the data highlight of the week being the U.S Personal Consumption Expenditure figures.

There is no corporate reporting this week.