The Australian Open was first played in Melbourne in 1905 as the Australasian Championships. While Melbourne has hosted the event 63 times it has also been played in Sydney 17 times, Adelaide 14 times, Brisbane 8 times, Perth 3 times, and New Zealand twice.
Australian Share Market (ASX 200) – up another 0.56% for the 4th week in a row. The Info Tech sector (+2.63%) led the gains followed by Consumer Discretionary (+1.39%) and Consumer Staples (+1.18%). The Energy sector (-2.08%) led the declines with Health Care (-1.19%) the only other sector lower. The 2023 year to date gains have been broad based – getting a boost from improving sentiment, short covering, bargain hunting in last year’s most beaten down stocks, Chinese reopening momentum, some waning inflation readings globally and the peak interest rates narrative.
NAB’s business survey last week showed business conditions eased, but business confidence lifted, consistent with other recent improving sentiment indicators. Business confidence remains below average, but improvements were evident across most industries with inflation trends also improving with labour and purchase costs, and final prices all falling. But that was where the improving inflation trends stopped, with the Australian Bureau of Statistics reporting our Q4 Consumer Price Index rose more than expected to the fastest rate of increase since 1990. Annual headline inflation was 7.8% in Q4, above consensus for 7.6% and up sharply from Q3’s 7.3% annual rate. The trimmed mean inflation rate at 6.9% was the highest since the ABS first published data in 2003 and was well above consensus for 6.5% which was also the Reserve Bank of Australia’s year end projection. Price pressures were broad based with domestic and international holiday travel and accommodation big contributors as travel restrictions eased, pushing up services inflation to 5.5%, the highest since 2008. New dwelling purchases rose at a slower rate but rent growth was higher amid very low vacancy rates. Electricity up +8.6% was another big contributor as was energy generally.
The higher-than-expected inflation data pretty much confirmed another rate rise at the RBA’s first meeting of 2023 to be held next week on the 7th of February with the main debate likely being around either another 25 basis point hike to 3.35%, or a bigger 40 basis point increase to 3.50% to get them back to the round 25 basis point increments they prefer to work in.
U.S. Share Market (S&P 500) – up +2.47% with the Dow (+1.81%) also higher and the Nasdaq (+4.32%) leading the weekly gains again, up for the 4th week in a row as the New Year rally in last year’s most beaten down stocks continued. The Conference Board reported its Leading Economic Index fell another 1.0%, worse than expected with U.S. economic activity down for the 10th straight month amid reported widespread weakening. Despite the weakening LEI, the National Association for Business Economics (NABE) survey reported the likelihood the U.S. will into enter a recession this year had dropped to 56% from nearly two-thirds three months ago, consistent with other recently improving sentiment indicators.
Equity markets got a boost from the higher than expected first estimate of Q4 GDP growth of +2.90%, better than the +2.60% estimate. Inventories were a big contributor although other demand measures were softer. Durable goods orders increased 5.6% in December, more than double the +2.5% estimate and the highest since July 2020 while the weekly initial unemployment claims fell to the lowest since April last year. Core PCE inflation, the U.S Federal Reserve’s preferred measure, rose by 4.4% from a year ago, down from 4.7% last month and the lowest annual increase since October 2021 as we start to cycle some very high base effects in the year ago inflation numbers. By the end of the week 29% of S&P 500 companies had reported Q4 results with FactSet’s latest Earnings Insights report describing the results to date as “sub-par”. The number of companies reporting positive earnings surprises did increase last week, but in aggregate, the earnings surprises are 1.5% above estimates, which is lower than the 3.3% above estimates at the end of last week.
As a result, companies are reporting lower earnings for the fourth quarter relative to last week and relative to the end of the quarter. The blended year on year earnings decline for Q4 is currently -5.0%, down from the earnings decline of -4.9% last week and lower than the -3.2% Q4 earnings decline expected at the end of 2022.
Freeport McMoRan (FCX) reports strong Q4 – sees strong demand for copper – struggling to find workers. Excluding one-time items, Freeport posted a Q4 profit of $697 million last week, or 52 cents per share, ahead of estimates of 46 cents. Average realized copper prices of $3.77 per pound in Q4 were down from the $4.42 received a year earlier. Despite recent macroeconomic concerns, Freeport said it has not seen any signs of slowing demand for copper. “If we could produce more, our customers would want it,” said President Kathleen Quirk. She also mentioned “We could have in 2022 produced more if we were fully staffed. And I believe that is the case again this year,” and referred to the worker shortage a “strategic challenge”. Freeport currently has 1,300 job openings in the U.S or more than 10% of its U.S. workforce. Although is not seeing the same issues in other regions.
Diageo (DGE) beats forecasts – increases dividend – growth moderating. Premium drinks giant Diageo reported a strong first half last week, with EPS increasing by 19.7% to 100.9 pence and also increased the interim dividend by 5% to 30.83 pence per share. They also expect to complete the remaining £0.3 billion of current programme to return up to £4.5 billion of capital to shareholders. The comments on the outlook weighed on the share price saying they expect the operating environment to continue to be challenging. For North America they expect organic net sales growth to continue to normalise through H2, compared to the double-digit growth in the prior period. For Europe they also expect organic net sales growth to moderate in H2. In Asia Pacific / Latin America /Caribbean and Africa they expect continued growth through H2, but at a moderated pace relative to the strong growth in FY22.
South 32 (S32) delivers strong December quarter. South 32 delivered a strong quarterly update last week. Group copper equivalent production increased by 12% in the first half of FY23, as recent investments in copper and low-carbon aluminium capacity delivered strong growth. And first half FY23 Operating costs are now expected to be in-line or below FY23 guidance at the majority of operations. Worsley and Brazil Alumina operated above nameplate capacity in the quarter, and Australia Manganese achieved record half year production, and Illawarra Met Coal saw a 17% rise in production over the quarter. CEO Graham Kerr said “Looking forward, our capital management framework and disciplined approach to capital allocation is designed to reward shareholders as we grow our production and realise the benefits of improving market conditions. At the same time, we continue to reshape our portfolio toward metals critical for a low-carbon future, advancing construction work, studies and exploration at our high-quality development options.”
The Week Ahead
Domestic economic data releases this week include Private Sector Credit Growth and Retail Sales tomorrow, AIG manufacturing Index on Wednesday, Building Approvals Thursday, and AIG Construction Index and Housing Finance on Friday.
Internationally, it is a busy week with the first Central Bank meetings of the year in the U.S, Eurozone, and the U.K. Tomorrow we have Manufacturing and Non-Manufacturing PMIs from China as well Eurozone Q4 GDP. Wednesday sees U.S Employment Cost Index for Q4 , U.S Consumer Confidence, Eurozone CPI and Eurozone Unemployment. On Thursday is the U.S. JOLTS Job Openings reports with the U.S Federal Reserve meeting expected to see another 25 basis point rate hike, the European Central Bank meeting expected to another 50 basis point rate hike, and the Bank of England meeting expected to see another 50 basis point rate hike. On Friday we have China Caixin Services PMI and Eurozone PPI.
Corporate reporting ramps up further this week with full year results from Novo Nordisk (NOVO and Thermo Fisher Scientific (TMO) on Wednesday. Sony (SONY) Q3 and Shell (SHEL) full year results are Thursday, with Apple (AAPL) Q1, Google (GOOG) Q4 and Amazon (AMZN) Q4 on Friday.
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.