5 December 2022 | Weekly Snapshot

Did you know?

During World Cup matches when the US is playing, US equity trading volumes drop by an average 43%. In Chile they might as well close the equity market, with volumes falling on average 99% when their team is playing.

Market Movements

Australian Share Market (ASX200) – up 0.58% for the 2nd week in a row and up 5 out of the last 6 weeks to a new 7 month high. Offshore leads were also positive with a less hawkish than feared speech by US Federal Reserve Chair Jerome Powell. The Materials sector (+4.14%) led the gains followed by Info Tech (+2.23%) and Telecoms (+1.92%). The Energy sector (-3.15%) was the worst performer for the week followed by Consumer Discretionary (-1.09%) and Financials (-1.00%). The Materials sector got a boost as iron prices recovered somewhat as China’s central bank (the PBoC) cut the Reserve Requirement Ratio (RRR) by 25 basis points. Daily covid cases in China hit another record high prompting further lockdown measures, as protests against zero-Covid policies started to spread. Concerns around social unrest saw equities start the week lower before thoughts that recent protests will ultimately spur a faster reopening with China facing equities seeing strong gains by the end of the week. Our retail sales figures for October fell 0.2% last week, missing expectations for a 0.5% rise. It was the first time monthly retail sales have fallen this year. And the first time monthly retail sales have fallen out side of lockdowns since the pandemic began. It is only one month but could be the first sign of the lagged effects of the aggressive RBA rate hikes to date with the ABS’ head of retail statistics saying cost-of-living pressures were now weighing on consumer spending. For perspective though, retail sales remain strong at $35.02 billion per month, up 12% on the year ago period, and up 26% from February 2020 (pre pandemic). Aussie house prices fell for the 7th month in a row but falls look to have moderated in November according to CoreLogic. Their National Home Value Index fell another 1% for the month but moderated from October’s 1.2% fall. According to CoreLogic’s research director, “Three months ago, Sydney housing values were falling at the monthly rate of -2.3%. That has now reduced by a full percentage point to a decline of -1.3% in November. In July, Melbourne home values were down -1.5% over the month, with the monthly decline almost halving last month to -0.8%”.

US Share Market (S&P 500) – up 1.13% with the Dow (+0.24%), and Nasdaq (+2.09%) also higher for the week. US equities were off to a weak start but closed higher with the price action generating some bullish technical indicators. The S&P 500’s 14% rise off the October lows has seen that index rise above its 200-day moving average for the first time since April, and the Dow, up 20% off the lows, meets the technical definition of a bull market. Early focus was on the Thanksgiving holiday sales with consumers spending a record US$9.12 billion online shopping during Black Friday, up 2.3% on last year with Cyber Monday sales hitting a new record US$11.3 billion, up 5.8% on last year. On an inflation adjusted basis the numbers were less impressive, but retailers were driving demand trough discounting which spurred spending to levels that were higher than expected. A less hawkish than feared speech from the US Federal Reserve Chair sparked a rally in everything to close out November, with the S&P 500 posting its first back-to-back monthly gain since August last year. Chair Powell noted the time for slowing the pace of rate hikes could come this month, in line with recent market expectations. But unlike the speeches of the past few months, did not push back on the recent easing of financial conditions driven by the “peak inflation” narrative. Powell did say rates are likely to reach a “somewhat higher” level than officials estimated in September, when the median projection was for 4.6% next year, with those new projections for the terminal rate to be updated at the December FOMC meeting next week. The Fed’s preferred measure of inflation, the Personal Consumption Expenditure index, rose less than expected and the ISM manufacturing index fell into contraction territory for first time since May 2020 with the combination of weaker data, a potential peak in inflation, and a less hawkish Fed Chair seeing the 10 yr. treasury yield hitting a 3-month low. November US nonfarm payrolls on Friday night increasing by 263K, well ahead of the 200K expected with average hourly earnings up 0.6% for the month, double the forecast for a 0.3% rise.

Portfolio Movements

Woodside (WDS) provided a positive outlook at their Investor Day last week, noting the benefits of the transformational merger with BHP’s petroleum business. CEO Meg O’Neill highlighted the company’s compelling investment proposition as a safe, reliable, low cost and lower carbon supplier of energy to a world in need. Operating cash flow is forecast to remain at around $7 billion to $9 billion over the next five years, along with a strong balance sheet to fund growth including the projects at Sangomar in Senegal and Scarborough/Pluto Train 2 in Australia, which are on target for first production in 2023 and 2026 respectively. She also mentioned that implemented initiatives have delivered more than $200 million in post-merger synergies, on track to achieve net synergies of more than $400 million by 2024. Woodside had downgraded FY23 production guidance slightly earlier in the week with new production guidance for 180 – 190 mmboe, down from the recently upgraded estimates of 198 mmboe but with half of the downgrade coming from a change in conversion factors post the BHP Petroleum merger.

Amazon (AMZN) reports biggest “Turkey 5” holiday shopping weekend ever. Amazon announced last week that the Thanksgiving holiday shopping weekend was its biggest ever with customers purchasing a record number of products during the “Turkey 5”—the five days from Thanksgiving to Cyber Monday. The best-selling categories were Home, Fashion, Toys, Beauty, and Amazon Devices. The best-selling items on Amazon were Echo Dot, Fire TV Stick, and Apple AirPods. US consumers still seem to be spending strongly, but a shift in patterns was evident with discounts driving much of the demand. “This was a record-breaking holiday shopping weekend for Amazon. Customers shopped millions of deals and we have many more amazing deals to come,” said CEO of Amazon Stores Doug Herrington.

CSL (CSL) – US FDA approves world’s most expensive drug – CSL Behring’s hemophilia B gene therapy. The US FDA has just approved CSL Behring’s hemophilia B gene therapy, a one-off infusion, that comes in at US$3.5m per treatment, making it the most expensive drug ever approved. Hemophilia B is a rare genetic bleeding disorder in which affected individuals have insufficient levels of Factor IX, a clotting protein. The new gene therapy has been proven to cut the number of bleeding events caused by hemophilia over the course of a year by 54%, freeing 94% of patients from the time-consuming infusions of blood proteins, which is also a very expensive process. With experts believing that CSL Behring’s hemophilia B gene therapy may be well received, despite the cost.

The Week Ahead