8 August 2022 | Weekly Snapshot

Did you know?

At their monetary price committee meeting last week the Bank of England increased their consumer price index (CPI) forecast to hit 13% later this year.

Market Movements

Australian Share Market (ASX200) – up 1.01% for the 3rd week in a row to a new 2 month high on improving risk sentiment and mostly positive offshore leads. The Nasdaq was up 2.15% last week to a new 3 month high further boosting our Info Tech sector which led the gains, up 3.25% and the 5th weekly gain in a row. Other than that, there were defensive undertones with Healthcare (+2.87%), Utilities (+2.08) and Consumer Staples (+1.81%) the next best. Energy was the only sector lower (-3.02%) as the oil price declined to a 6-month low. Equity markets continued to be buoyed by what investors have interpreted (rightly or wrongly) as a softening in tone from Central Banks following several months of aggressive rate hikes including from our own Reserve Bank of Australia who hiked the cash rate for the 4th month in a row last week by another 50 basis points to 1.85% as expected. The RBA tweaked the forward commentary noting that they still expect to tighten policy further but are not on a pre-set path and will instead be data dependant. The RBA noted that Inflation is now expected to hit 7.75% later this year before declining back towards target at around 3% in 2024. The economy is expected to increase strongly in 2022 with GDP growth of 3.25% this year before weakening to 1.75% in 2023 and 2024. The global growth outlook was downgraded due to inflation, tightening monetary policy, Russia’s invasion, and China Covid restrictions. A key source of uncertainty remains the behaviour of household spending with the RBA noting falling consumer confidence and housing prices, and pressure from higher rates and inflation. However, they continued to cite support from large savings buffers, the tight labour market, and resilient consumption. With the domestic full year earnings season set to commence this week, investors were also likely encouraged by the ongoing US Q2 reporting season where “better than feared” earnings results emerged as a key theme with some positive read throughs to our reporting season.

US Share Market (S&P 500) – up 0.36%, while the Dow was slightly lower (-0.13%) and Nasdaq (+2.15%) rallied further to a new 3 month high as the 10 yr. treasury yield fell as low as 2.50% boosting longer duration equities. There were several Federal Reserve speakers out last week attempting to downplay Fed chair Powell’s “less hawkish than expected” comments from the prior week’s FOMC meeting suggesting financial markets could have gotten ahead of themselves regarding any potential change in the Federal Reserve’s policy stance. There was further relief on the inflation front with the oil price dropping 5% for the week to a new 6 month low on weaker demand and a surprise inventory build. US gasoline prices fell for the 50th straight day in a row last week (down 20% from the June highs) with the peak inflation narrative making a comeback last week following several months of higher-than-expected inflation readings. It was a strong week for economic data with the US economy demonstrating resilience in the face of the sharply higher interest rates. The July ISM services PMI was a big beat rising 1.4 points to 56.7 and well ahead of the expected 1.8-point decline to 53.5. Job openings fell to 10.7 million in June from 11.3 million in May but are still at historically high levels. July nonfarm payrolls increased by 528k on Friday night, much better than the 250k gain expected and well above June’s upwardly revised 398k level. The report showed widespread job growth led by gains in leisure, hospitality, healthcare, and professional/business services. The increase saw nonfarm employment return to pre-pandemic levels (Feb 2020) for the first time. The unemployment rate unexpectedly fell to 3.5% from 3.6% and average hourly earnings were much stronger than expected up 0.5% for the month versus estimates for a 0.3% monthly gain as employee wages increased. The strong employment and wage data saw the 10 yr. treasury yield close at a 2-week high of 2.84%.

Portfolio Movements

Thermo Fisher Scientific (TMO) raises full year revenue guidance. TMO reported strong Q2 results last week with 13% core organic revenue growth and upgraded FY guidance. Second quarter adjusted EPS was a better than expected $5.51 with the company raising their full year guidance to $22.93 and above the $22.72 estimates. The company launched a range of innovative new products with highlights including the Thermo Scientific Direct Mass Technology which advances the capability to analyse the characteristics of biotherapeutics, and the Thermo Scientific AccelerOme Automated Sample Preparation Platform which significantly simplifies workflows for proteomic researchers by eliminating a range of previously manual steps. “We delivered another quarter of outstanding financial performance,” said CEO Marc Casper, “Our proven growth strategy and PPI Business System enabled us to deliver exceptional results across our business and we continue to see the benefit of our strategic investments to enhance our unique customer value proposition. The integration of our clinical research business is going very well, the business is performing at a high level and the outlook for long-term synergies is very compelling.”

Diageo (DGE) full year profit rises on strong sales growth – increases dividend. Diageo reported a rise in pre-tax profit for fiscal 2022 last week on strong sales growth with revenue of GBP15.45 billion up from the GBP12.73 billion a year earlier. The company reported organic net sales growth of 21.4% and ahead of the consensus forecast for a 17.4% increase. Organic sales in the key North American market grew 14%, beating market consensus of 11%. Spirits sales rose 17%, reflecting the continuing recovery on the beverage consumption outside home, while levels of consumption at home was resilient. The liquor maker which owns Johnnie Walker whisky and Tanqueray gin also raised its dividend with a final dividend of 46.82 pence a share up from the a final dividend of 44.59 last year. The company reiterated their medium-term guidance for organic net sales growth of 5% to 7% a year and organic operating profit growth of 6% to 9% a year saying they expect to benefit from operating leverage and ongoing “premiumization” of their brands.

CVS Health (CVS) posts strong Q2 – raises outlook. CVS reported better than expected Q2 results last week with revenue of US$80.6 billion and ahead of analyst expectations for US$76.4 billion with performance boosted by new business and an extended cold and flu season which helped offset a decrease in Covid-19 vaccinations over the period. Retail sales were lifted by higher prices and increased prescription volume and at-home Covid-19 testing kits. Same-store sales were up 8% compared with the year-ago quarter. The Q2 sales growth came even as demand for Covid-19 vaccines started to fall. The company also raised its full-year EPS guidance to between $7.23 and $7.43, up from its previous guidance of between $6.93 and $7.13. On an adjusted basis, the company now expects full-year earnings of between $8.40 and $8.60, up from between $8.20 and $8.40. Full-year revenue is now expected to be between $307 billion and $312 billion, $2 billion higher than its prior projected range.

The Week Ahead