The government bond bull market began in 1981 with the 10 year US treasury yield peaking at 15%. Over the next four decades prices consistently rose, with the yield falling as low 0.5% in 2020.
Australian Share Market (ASX200) – up 1.5% to a 2-month high and having now recovered almost all of the January decline. The Utilities sector (+5.67%) led the gains followed by Materials (+5.53%) and Energy (+5.13%) with inflation beneficiaries and companies with strong near term cash flows outperforming again. Healthcare (-2.53%) led the decliners followed by Industrials (-1.17%) and Telecoms (-0.89%).
The AUD hit a 4 month high last week of 75 US cents, is around the highest levels in 9 months and is exhibiting certain safe haven qualities as a number of issues have arisen for the global economy in early 2022. The currency has been buoyed by the recent strength for commodity prices that will be assisting the government’s debt position and providing positive flow on effects throughout the domestic economy. There is also less of an inflation problem here compared to the USD, and we are a world away from the conflict impacting the Euro. The recent outperformance of the ASX200 index is also notable which is now flat over the calendar year to date compared to the S&P500 down 4.68%, the Nasdaq down 9.4%, the DAX down 9.35% and the MSCI ACWI down 5.48% over the same period.
US Share Market (S&P 500) – up 1.79%, with the Dow (+0.31%) and Nasdaq (+1.98%) also higher again after the prior week’s big rally with similar sector performance. Energy (+7.42%) led the gains followed by Materials (+4.10%) and Utilities (+3.45%). Healthcare (-0.23%) was the only sector lower with REIT’s (+0.39%) and Consumer Discretionary (+1.07%) rising the least. With the Russia / Ukraine conflict still bubbling away but at this stage not escalating into anything worse, attention last week was focused back on inflation and rising bond yields with some hawkish remarks from US Federal Reserve Chair Powell saying there is an obvious need to move expeditiously toward neutral policy settings, then to more restrictive levels if that is required. He also added that an extended period of high inflation could push longer-term expectations uncomfortably higher. Bond yields surged on the comments and went higher all week with the US 10 yr. closing at 2.5%, the highest since late 2018 and well up from 2.15% earlier in the week leading some bond market observers to suggest the four decade old bond bull market may have finally run its course.
Freeport McMoRan (FCX) share price hit a new 11 year high as copper prices remain buoyant. Freeport is one of the world’s largest publicly traded copper producers, is headquartered in Phoenix, Arizona and operates large, long life, geographically diverse assets with significant reserves of copper, gold and molybdenum. Copper, due to its properties of high ductility, malleability, thermal and electrical conductivity, and resistance to corrosion, is a major industrial metal ranking third after iron and aluminum in terms of quantities consumed globally. Its increased use in electric vehicles, renewables and electrical network upgrades resulting from the planned energy transition are further boosting demand. Freeport’s portfolio of assets includes the Grasberg minerals district in Indonesia, one of the world’s largest copper and gold deposits, and significant mining operations in North America and South America including the large-scale Morenci minerals district in Arizona and the Cerro Verde operation in Peru.
ANZ (ANZ) becomes the first Aussie bank to create a cryptocurrency stable coin pegged the AUD. ANZ Bank has created a stable coin pegged to the Australian dollar, reducing the risk of buying digital assets for one of its clients. ANZ expects demand for its Australian dollar stable coin – which it calls A$DC – to soar, will initially be targeted to institutional clients and will encourage more customers towards cryptocurrencies and crypto assets. A stable coin is a type of digital asset designed to maintain a stable value relative to another asset, in this case the Australian dollar. They are often used as a gateway for accessing other cryptocurrencies. Stable coins interact with blockchain technology which removes intermediaries and can settle transactions in close to real time. The move will boost ANZ’s credentials as major banks race to develop new forms of money, and will be closely watched by rivals and regulators.
Nike (NKE) reported Q3 results last week that beat estimates with diluted earnings per share for the quarter of US$0.87 vs. consensus of US$0.71. Third quarter revenues increased 8% on a currency neutral basis, led by NIKE Direct growth of 17%. NIKE Brand Digital business fuelled the growth, increasing by 22% and driven by double-digit growth in North America, APLA and EMEA, partially offset by declines in Greater China. Revenues for the NIKE Brand were $10.3 billion, up 8% compared to prior year on a currency neutral basis, led by 13% growth in EMEA. Further contributing to NIKE Direct growth was the steady normalization of traffic in owned physical retail, with NIKE owned stores up 14%. Matt Friend, Executive Vice President and CFO said. “Marketplace demand continues to significantly exceed available inventory supply, with a healthy pull market across our geographies.” Dividends were also up 12 percent from the prior year.
The Week Ahead
Domestic data this week includes retail sales and the federal budget release tomorrow, private sector credit on Wednesday and the AIG manufacturing index on Friday. Internationally we have US wholesale inventories tonight, JOLTS job openings and German CPI on Wednesday, Chinese manufacturing, UK GDP, Eurozone unemployment rate and US personal consumption expenditure on Thursday, and Eurozone manufacturing PMI’s and US non-farm payrolls Friday.
Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice
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