Were the RBA to hike interest rates another 50 basis points tomorrow as is currently expected, it would be the 4th monthly 50 basis point rate hike in a row, which would make it the sharpest rate of increases since 1994.
Australian Share Market (ASX200) – down 3.88% for the 2nd week in a row on weak offshore leads. All sectors were lower with the Materials sector leading the declines, down 10.26% as China announced new lockdowns adding to concerns there and BHP went ex a record dividend. The city of Chengdu, with 21m residents and home to some large manufactures went into lockdown and Shenzhen widened restrictions as China continues to pursue a zero covid policy. Post reporting season analysis continued to come through with FY2022 proving to be a good year for earnings and dividends, despite large parts of the economy stuck in rolling lockdowns during the first half. The highlights were the earnings per share with 33% of companies beating estimates and only 20% missing. From an outlook perspective though, changes were broadly negative with only 18% of companies seeing earnings upgrades and 39% seeing downgrades. The downwardly revised estimates sees the ASX 200 trading on a 14.4x P/E multiple (12m forward) which is not expensive with balance sheets remaining in very good shape. Retail sales unexpectedly rose a much stronger than expected 1.3% for the month of July, the biggest monthly increase in four months and well ahead of estimates for a 0.3% rise. This is consistent with what retailers were saying during the recent reporting season, that Australian households remain resilient in the face of rising interest rates and inflation with no noticeable impact form either yet. Spending patterns do seem to be shifting with discretionary categories like department stores, clothing, footwear, and accessories seeing the biggest increases I.e., the items that suffered the most during lockdowns. While big ticket household goods retailing that were in high demand during lockdowns fell again. Housing data provider, CoreLogic, released their monthly national home value index showing a 1.6% fall for the month of August, which was the steepest monthly drop since 1983. The ABS July new home loan commitments data also tumbled, falling 8.5% for the month, a much sharper decline than the 3.5% fall expected. National home loan commitments, excluding refinancing, fell by $2.62b to $28.35b which for perspective though is still well above pre pandemic levels.
US Share Market (S&P 500) – down 3.29%, with the Dow (-2.99%) and Nasdaq (-4.21%) also lower for the 3rd week in a row. The fallout from the hawkish tone struck by Federal Reserve chair Powell at the annual Jackson Hole Symposium continued with the S&P500 having its worst weekly post Jackson Hole performance since 1998. Despite being up around 4% earlier in the month, the S&P500 closed the month of August down 4.2% on a big intramonth reversal as the 2-month long rally off the June lows fizzled out. The US 10 yr. bond yield crept higher all week and closed the month of August at 3.19%, its highest monthly close since 2011. We have seen over recent months that US equities seem to struggle to hold their valuations when the US 10 yr. bond yield moves above 3%. All sectors were lower with Materials (-4.99%) leading the declines on China concerns, followed by Info Tech (-4.98%) on rising bond yields, and REITs (-3.94%) on rising borrowing costs. August consumer confidence rose for the first time in 3 months to a better than expected 103.2, up from July’s 95.7 with the “present situation” component improving for the first time since March. It was a big week for employment data which was stronger than expected. The July JOLTS job openings report unexpectedly rose to 11.2m vacant jobs and well above consensus for a decline to 10.3m as the US labour market remains very tight. The weekly initial jobless claims came in at 232k, below the 250k expected and the lowest since June. The non-farm payrolls report on Friday night was largely in line with expectations (+315k jobs added vs +300k consensus) although the unemployment rate unexpectedly rose from 3.5% to 3.7% as the labour force participation rate increased by 0.3% to 62.4%. There was nothing in the employment data last week that would shift the Federal Reserve’s renewed vigour to bring down inflation, with the market currently split over another 50 or 75 basis point rate hike when they meet later this month.
Woodside (WDS) 1st half NPAT increases by 414% – biggest interim dividend since 2014. Woodside released some very strong 1st half numbers last week, befitting form the high energy prices and a 1-month contribution from the merged BHP petroleum business that has catapulted the company into a top 10 global energy producer. From the 1st half last year, operating revenue is up 132%, EBIT is up 380%, NPAT is up 414%, free cash flow is up 688% and they are paying the biggest interim dividend since 2014. These are very strong numbers with the company very well positioned in the current environment. Woodside Energy CEO Meg O’Neill said the results reflect strong operational performance and higher realised prices, which more than doubled year on year to $96.4 per barrel of oil equivalent across the expanded portfolio.
Sony (SONY) to set up Playstation mobile division in a move beyond consoles. Sony has set up a dedicated PlayStation mobile gaming unit “PlayStation Studios Mobile Division” in a major push to diversify and grow gaming revenue beyond consoles. The new division will run independently of the console business with the company also saying they had acquired Berlin-based mobile game developer Savage Game Studios. Sony has dominated the console market for several years thanks to the PlayStation, but the opportunity outside of consoles is quite large with consoles accounting for about 27% of the US$196.8b games market, while mobile is more than half. “PlayStation Studios must continue to expand and diversify our offering beyond console, bringing incredible new games to more people than ever before,” said Hermen Hulst, head of PlayStation studios.
CVS Health (CVS) takes the lead in battle for Signify Health. CVS Health Corp has reportedly taken the lead in the battle among heavyweights for the home-healthcare company Signify Health. Signify is a provider of technology and services for home health care that has also attracted take over interest from United Health and Amazon in recent months. CVS is said to be in advanced talks with a bid of around US$8b, according to reports over the weekend. CVS Health plans to make a move toward merging with or acquiring a primary care firm in the coming months in pursuit of expanding its services, the company said last month. CVS is one of the largest pharmacy chains in the U.S. with nearly 10,000 locations and has 1,100 MinuteClinic locations providing customers with services for minor injuries and illnesses. The company also offers prescription drug plans through its Caremark arm and provides health insurance to more than 24 million people.
The Week Ahead
The RBA meeting tomorrow will be a highlight this week where another 50-basis point hike has firmed up as the expected outcome amongst economists. It would be the 4th 50 basis point hike in a row and take the cash rate to 2.35% and the highest since 2016. There is also a key speech on inflation by Governor Phil Lowe on Thursday. The other highlight will be our Q2 GDP figures on Wednesday. Quarterly economic growth is expected to have increased by 0.95% in Q2 from 0.80% in Q1, with the yearly growth rate also expected to rise to 3.5%, from the 3.3% in Q1.
Internationally, the data is a bit light this week, but the highlight is likely the European Central Bank’s interest rate decision on Thursday night where they are expected to hike rates between 50 and 75 basis points after recent remarks from members turned more hawkish. There are several Fed speakers this week but are unlikely to deviate much from the message delivered at Jackson Hole. China will be in focus this week with export and import data on Wednesday, loan growth on Thursday, and consumer and producer price indexes on Friday.
There is no corporate reporting for our portfolio stocks this week although a number of companies continue to go ex-dividend following the full year reporting season.
Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice
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