31 October 2022 | Weekly Snapshot

Did you know?

With the Dow Jones Industrial Index up 14.3% for the month to date, it is on track for its best month since 1976 and its best October in history, with one trading session left to go.

Market Movements

Australian Share Market (ASX200) – up 1.63% on valuation support and positive offshore leads. The Utilities sector (+5.56%) led the gains followed by Industrials (+3.87%) and Consumer Discretionary (+3.00%). The Materials sector (-0.86%) led the declines with iron ore prices falling sharply during the week. China linked assets fell as the 20th National Congress of the Chinese Communist Party wrapped last weekend with Investors seemingly concerned with President Xi’s moves to further consolidate power, adding to concerns around China’s ongoing zero Covid policy. There wasn’t a lot of new news or drastic changes from the Budget last week with the Treasurer setting a fairly downbeat tone for the economy. The budget doesn’t appear to add extra inflationary pressures, but the increased deficit spending won’t take pressure off the RBA either, although the budget forecasts that power prices will rise by 20% this year and 30% next year would be inflationary. ANZ released their full year earnings with cash profit up 5% to $6.55 billion with the interest rate hikes contributing half of its revenue growth and strong growth across all the businesses in retail, New Zealand, commercial banking and institutional. There were no real signs of a deterioration in credit quality which boosted market confidence that the economy is still chugging along. The highlight for the week was our Q3 inflation data. Headline CPI came in at 7.3% for the year and much higher than the 7.0% expected and up from 6.1% in Q2. Headline CPI rose 1.8% over the quarter and was also higher than the 1.6% increase expected and matching Q2’s 1.8% rise with inflation increasingly broad based. Food was a big contributor to headline due to rising input costs and crop damage from recent flooding. Gas and other fuels rose by the most since 2012. Underlying inflation was also much higher than expected due to housing-related categories including rents. The higher-than-expected inflation reading will likely see the RBA discussing another 25 or 50 basis point hike at the Melbourne Cup Day meeting tomorrow.

US Share Market (S&P 500) – up 3.95%, with the Dow (+5.72%) and Nasdaq (+2.24%) also higher with noticeable outperformance from the Dow in what could be an interesting change in leadership as disappointing big tech earnings limited the Nasdaq gains. While the Nasdaq has led the market rallies this year, this current bounce is being led by the Dow. Big tech, due their size, were expected to be the biggest drag on Q3 earnings but these have probably turned out to be a bigger drag than first expected. Last week took us halfway through the US Q3 reporting season with the blended earnings growth rate for Q3 currently standing at 2.2% from the 52% of companies that have reported, with companies reporting earnings that are in aggregate 2.2% above expectations. These are low numbers but are coming off a high base in Q3 of 2021. Economic data was largely softer than expected during the week. The Flash manufacturing PMI for October fell more than expected to 49.9 (slight contraction) and the lowest in 28 months. US consumer confidence fell more than expected to 102.5, missing estimates for 105.3 with the Conference Board suggesting both recession and inflation concerns picked up again after receding for the past 3 months. The Richmond Fed index also fell more than expected to -10, missing estimates for 1.0, led by declines in the shipments and new orders indexes. Lower bond yields and the falling USD also likely provided some support for risk assets last week with the 10yr US treasury yield easing back from the recent 15 year high and the USD index fell to the lowest level in 6 weeks. The initial US Q3 GDP estimate on the other hand came in at a 2.6% annualized rate for the quarter, well ahead of consensus for 2.0% gain and a big improvement from Q2’s 0.6% annualized surprise decline. The GDP gain came despite the housing sector contracting at 26% annual rate in Q3, subtracting most from GDP since 2007, with the highly interest rate sensitive housing sector clearly feeling the pinch from the higher interest rates.

Portfolio Movements

Shell (SHEL) Q3 earnings double – beats estimates. Shell reported Q3 earnings of $9.5b last week, beating estimates for $9b and more than double the $4.13b it recorded in Q3 last year, but down on the record $11.5b in Q2. Shell will increase shareholder returns due to the bumper profit with a 15% increase in the dividend and buy back a further $4bnof shares. The additional buyback lifts total share purchases for the year to $18.5b, taking announced shareholder distributions for 2022 to around $26b. “We are delivering robust results at a time of ongoing volatility in global energy markets,” CEO Ben van Beurden said. “We continue to strengthen Shell’s portfolio through disciplined investment and transform the company for a low-carbon future.”

Macquarie (MQG) beats 1st half estimates. Macquarie had a decent 1st half result with a $2.3b interim profit that beat earnings and dividends estimates. EPS of $6.03 was 15% lower than the previous six months, but up 7% compared with the corresponding period, and beat EPS estimates of $5.70. They declared a $3 interim dividend that was also higher than expected. Macquarie Group chief executive Shemara Wikramanayake said the firm had set itself well to take advantage of further dislocations in global markets having bolstered its balance sheet and stockpiled $30 billion of dry powder to snap up attractive assets.

Apple (AAPL) bucks tech earnings misses – lifts market higher. Apple, the world’s most valuable company, was the safe port last week beating Q4 revenue and profit estimates after market on Friday morning. EPS of $1.29 was slightly ahead consensus of $1.27. Operating income of $24.9b was better than the $24.5b expected. Revenue rose 8% year on year to $90.1b, exceeding expectations of $88.9b for a new September quarter record with a gross margin of 42.3% in line with estimates. While not big beats there was a sense of relief with customer demand and loyalty holding up well and Apple’s services ecosystem as strong as ever and setting new records with Apple’s 7.5% share price gain lifting the entire market.

The Week Ahead