30 May 2022 | Weekly Snapshot

Did you know?

According to analysis by the Financial Times, Central Banks are raising rates in the most widespread tightening for more than two decades. So far in 2022 there have been more than 60 rate hike announcements, the largest number since at least 2000.

Market Movements

Australian Share Market (ASX200) – up 0.52% for the 2nd weekly gain in a row but underperforming strong offshore leads. The Energy sector (+2.14%) led the gains followed by Materials (+1.78%) and Financials (1.31%). Info Tech (-3.43%) led the declines followed by Consumer Staples (-2.2%) and Healthcare (-1.48%). A fascinating election dominated the week and will see a change of government with both major parties losing support but the ruling LNP coalition seeing the biggest swing against it. A Labor government will be formed with Anthony Albanese sworn in as the next Prime Minister but are still needing one more of the three yet to be decided seats to form a majority government. The Freedom parties did manage to split off some of the conservative vote on the right which did lower the coalition’s primary vote, and also picked up votes in traditional working class Labor strongholds that were heavily impacted by lockdowns but overall having only a marginal impact. The big winners were the Climate 200 Independents who picked up a huge 5 lower house seats mostly in inner suburban traditional Liberal strongholds with a shift to the left amongst capital city inner suburban voters across the country. Inputs into this week’s first quarter GDP data due on Wednesday were released last week with total private new capital expenditure falling by 0.3% in the first quarter of 2022 and well below expectations for a +1.5% quarterly increase and will drag on the quarterly GDP figure. The overall Capex data however suggested businesses remain fairly positive with respect to their planned investment outlooks. The forecast for total private spend for FY22 is now nearly $143 billion, up 13% from FY21 with FY23 expected to be up around 9.5% on the current year. Australian retail turnover rose another 0.9% in April, reaching another record level and augers well for GDP growth.

US Share Market (S&P 500) – up 6.58%, with the Dow (+6.24%) and Nasdaq (+6.84%) all higher and finally breaking some historical losing streaks including the longest losing streak (7 weeks) since 2001 for the S&P 500 and the longest losing streak (8 weeks) since 1923 for the Dow. The tail end of the retail earnings steadied the ship last week after the Walmart and Target plunges the week prior with better than expected earnings from Macy’s, Williams-Sonoma, Dollar Tree and Dollar General. There were also some detractors but a lot of bad news had been priced in over recent weeks. Last week’s reports noted continued strength in luxury goods and a notable shift back to occasion based apparel and in store shopping fitting with the economic normalization theme seen elsewhere during the reporting season. Markets also found some support in the Federal Reserve’s FOMC meeting minutes released that confirmed the Fed is largely committed to 50 basis point rate increases for the next few meetings which is largely already now priced in. The market is more interested in the path beyond that with some comments in the minutes suggesting the Fed could take a less aggressive stance beyond the near term hikes. According to the minutes “total PCE price inflation was expected to be 4.3 percent in 2022. PCE price inflation was then expected to step down to 2.5 percent in 2023 and to 2.1 percent in 2024 as supply–demand imbalances in the economy were reduced by slowing aggregate demand and an anticipated easing of supply constraints.” Markets interpreted those comments in that if inflation is expected to step down next year, it is unlikely the Fed would be aggressively hiking rates into that later this year. But it all depends on the levels of inflation which they haven’t done a great job of accurately predicting of late. Inflation pressures do remain elevated with another record high in U.S. gasoline prices last week and natural gas also hit the highest price since 2008. There was some weakening in the high frequency US economic data last week also lending support to the case for a less aggressive Fed.

Portfolio Movements

Woolworths (WOW) to acquire 80% interest in, and delist MyDeal. Woolworths announced last week it has entered into a binding Scheme Implementation Agreement with MyDeal under which it is proposed they will acquire a controlling interest in, and will de-listed the company from the ASX. The all-cash consideration of $1.05 per share represents a significant premium of 62.8% to the last closing price of $0.65 per share. The deal values MyDeal at a $243 million enterprise value with the MyDeal Board recommending the transaction in the absence of a superior proposal. MyDeal is an online retail marketplace focused on home and lifestyle goods. MyDeal currently has more than 1,911 sellers (1,345 are considered Active Sellers) on its platform with over 6 million product SKUs listed across over 2,000 categories. It is small acquisition for the retail giant but is expected to enhance Woolworths’ marketplace capabilities, particularly in furniture, homewares and other bulky goods and will complement BIG W’s existing general merchandise offer.

Westpac (WBC) enters agreement with Mercer to merge BT Super and sell Advance Asset Management. Westpac and BT Funds Management have entered into an agreement to merge BT’s super funds with Mercer. The agreement does not include the super held on BT’s Panorama or Asgaurd platforms. BT’s personal and corporate super has funds under administration of about A$38 billion. Advance, a multi manager investment business providing specialist funds management services, has about A$44 billion under management. The transfer will result in a small loss due to costs. The net effect of both the BT super and Advance separation is expected to be an after tax gain of around $225 million and will increase Westpac’s common equity tier one capital ratio by about 8 basis points. This is a further step in the simplification of Westpac in line with their planned restructure and portfolio simplification plan with a continued move out of financial services to focus increasingly on their core strengths of Banking.

Shell (SHEL) – U.K. government to impose a temporary levy “windfall tax” on oil and gas producers. The U.K. said last week it would impose a temporary levy on oil and gas producers to help soften the pain of soaring energy prices on consumers, a windfall tax aimed at blunting a worsening cost of living crisis in the U.K where inflation has hit 9%. British officials said they will introduce an “energy profits levy” of 25% that will eventually phase out as oil and gas prices decline. The surcharge amounts to an additional tax on top of current rates, effective immediately and lasting potentially to the end of 2025. A Citigroup report estimated that Shell earns around 4% of its global profit in the U.K, mainly from their businesses in the North Sea. Britain can tax U.K. income but not international profits, the Citi research noted. Energy policy in Western countries isn’t going too well at the moment with “energy crisis” in several countries and the high prices dragging on consumers and businesses and feeding through into the high inflation.

The Week Ahead