The U.S economy added a much larger than expected 517,000 jobs last month, helped by a large seasonal adjustment, taking the unemployment rate to 3.4% and the lowest since 1969.
Australian Share Market (ASX 200) – up another 0.86% for the 5th week in a row with the ASX 200 index closing at 7,558 points and the highest since April 2022. The Healthcare sector (+4.81%) led the gains followed by Info tech (+4.30%) and Consumer Staples (+2.90%) while Materials (-2.18%), Energy (-2.14%) and Utilities (-0.46%) were the only sectors lower. Last week also saw the ASX 200 close out a strong January, up 6.2% for the month and the best start to a year since 1986 and continuing last year’s trend of large monthly gains and losses. It was a quiet week domestically with strong offshore leads, improving sentiment and a less hawkish than expected U.S. Federal Reserve Chair driving the momentum ahead of our Reserve Bank of Australia meeting tomorrow and the ASX first half reporting season commencing this week. Faster China reopening momentum was also contributing with their Ministry of Culture noting trips / travel during the Lunar New Year holiday were back to almost 90% of pre-pandemic levels with strong demand for hotel stays and accommodation, restaurant dining and box office sales during the weeklong break.
The highlight of the week was the December Retail Sales figures that fell a much larger than expected 3.9% for the month. It was the first decline in a year and much weaker than the 0.2% decline expected. Weakness was largely attributed to high cost of living pressures and consumers bringing forward Christmas shopping into November to take advantage of heavy discounting by online retailers with the November retail sales stronger than expected. The data will likely make for a more considered interest rate decision at the RBA’s first meeting for 2023 tomorrow with soaring inflation the prior week, but a much weaker retail sales number although is only one month of data with retail sales still up a strong 7.5% for the year. The retail sales data saw expectations for another 25-basis point hike firm up as the expected outcome from the RBA meeting, with bets for a larger hike pared back.
U.S. Share Market (S&P 500) – up +1.62% with the Nasdaq (+3.31%) leading the weekly gains again, up for the 5th week in a row, while the Dow (-0.15%) eased back. U.S equities closed out a strong January with the S&P 500 up 6.2%, recovering all of December’s 5.7% decline. The Dow lagged, up 1.8% for January after outperforming last year, while the Nasdaq posted a large 10.7% gain for the month after tumbling 33% last year. It was a big factor rotation back into growth stocks in January with investors unsure on whether this is yet another bear market rally or the beginnings of something more sustainable. The closely watched Employment Cost Index (ECI) rose 1% for the quarter last week, below the 1.1% expected and the slowest rate of growth since Q4 last year. Annualized ECI was 5.1%, increasing for the ninth straight quarter but in line with expectations and the annual rate little changed from the last 2 quarters. It was a strong week for U.S employment data with another surprisingly strong JOLTS (Job Openings) report – the highest in five months – with Job Openings surging back to 11 million vacancies. The weekly initial unemployment claims fell again to a 9-month low, and U.S. Non-Farm payrolls came in at +517K, well ahead of the +185K consensus estimate. The Unemployment rate also unexpectedly fell from 3.5% to 3.4%, the lowest since 1969. The Federal Reserve hiked rates another 25 basis points as expected and leaned dovish in the statement and news conference sending equities higher.
With the recent easing of financial conditions and rallying risk assets, thoughts were that Chair Powell might come out hawkish but that wasn’t the case and talked up the soft landing with his base case being for a return to 2% inflation without a substantial drop in employment. As the market rallied again last week, Q4 earnings fell further. With 50% of S&P 500 companies having now reported, the blended growth rate for Q4 S&P 500 earnings currently stands at -5.3% annual decline, worsening from the -5% decline this time last week and well below the -3.2% decline expected at the end of the quarter.
Novo Nordisk (NOVO) reports another solid quarter. Novo Nordisk, the global leader in the development of diabetes and obesity drugs, reported another strong quarter last week with Q4 EPS of Danish Krone 6.02 vs consensus DKK5.87, and Revenue of DKK48.09B was also ahead of consensus of DKK47.27B. Sales of the company’s new obesity drug, Wegovy, grew nearly 300% in local currencies last year, despite having faced serious supply issues throughout the year with Novo’s CFO Karsten Munk Knudsen saying “Supply of Ozempic cannot keep up with demand in some markets,”. Novo expects both sales and operating profit growth in local currencies in 2023 to be in a range between 13% and 19% which would be a another strong year for the company.
Shell (SHEL) posts record Full Year profit in 2022 – Increases buy back and dividend. Shell reported a record, higher than expected annual profit of over £32bn for 2022, more than double the £15.7bn in 2021 and one of the largest profits ever reported by a British company, with a large £13.1bn profit contribution coming from the gas business as energy prices soared last year. The company said they plan to return £3.3bn to investors through stock repurchases by May this year and follows the £15bn returned to investors through buybacks last year. The dividend rose by 16%to $1.04 per share, equivalent to £6.2bn making Shell responsible for more than 6% of all dividends in the FTSE 100 last year. In total, Shell handed a whopping £21.2bn back to shareholders in 2022 with CEO Wael Sawan saying the results demonstrate the strength of its portfolio and it was well positioned to be the trusted partner through the energy transition.
Insurance Australia Group (IAG) provided Auckland flood and first half update ahead of earnings release next week. Insurance Australia Group provided a financial update last week following the Auckland floods and ahead of the earnings release next week with 1H 2023 Net Profit After Tax now expected to be $468 million which is below expectations on the lower expected insurance margin of 8.5% which is impacted by the higher reinsurance costs and the increase in natural perils costs. However, the company stated that top line revenue growth has been stronger than expected with IAG upgrading FY2023 GWP growth to around 10%, an increase from the previous guidance of ‘mid to high-single digit’. And IAG retained its goal to achieve a 15% to 17% insurance margin, stating they have a clear strategy which will support delivery of this over the medium term.
The Week Ahead
Domestic economic data releases this week include the AIG Construction, Manufacturing and Services Indexes tomorrow. With the highlight of the week being the first RBA meeting of the year where they are expected to increase the cash rate from 3.10% to 3.35%.
Internationally we have Eurozone retail Sales tonight, German CPI and Industrial Production and Japan Leading Index tomorrow, China Loan Growth and U.S Consumer Credit on Wednesday. China CPI and PPI and U.K GDP are Thursday, with the U.S University of Michigan Consumer Sentiment on Friday.
Corporate reporting remains busy this week with Macquarie Q3 update, Transurban first half and Linde Q4 earnings tomorrow. And Amcor first half, CVS Health Q4 and CME Group Q4 earnings on Wednesday.
Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice
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