9 May 2022 | Weekly Snapshot

Did you know?

Following last year’s 23.7% annual increase, the total value of residential dwellings in Australia (eight capital cities index) rose to a record $9.96 trillion by the end of last year. During the 2 years of the pandemic (2020 and 2021) this house price index rose by 39.4%.

Market Movements

Australian Share Market (ASX200) – down 3.09% for the third week in a row on weak offshore leads and giving up some of the recent outperformance with a sharp selloff late in the week. All sectors were lower with Utilities (-0.30%), Consumer Staples (-1.23%) and Industrials (-1.36%) falling the least. Info Tech again leading the declines (-5.99%) for the fifth week in a row followed by Materials (-3.14%) down 3 weeks in a row and Health Care (-3.51%). The Reserve Bank of Australia raised the official cash rate to 0.35% from the record low 0.10% after the higher than expected first quarter inflation data forced them to end the emergency settings that had been in place for the last 2 years. It was the first rate hike from the RBA in over 10 years and they would have preferred to wait until after the election but felt compelled to act sooner. The RBA has taken a bit of a hit in terms of credibility with Governor Lowe admitting an error was made with their recent guidance from late last year that interest rates would not rise until at least 2024. Bank reporting dominated the week with results from ANZ, NAB and Macquarie. Overall the Banks are benefiting from a strong economy and low unemployment with business and consumer credit growth at high levels. Mortgage competition is increasing and Net Income Margins remain under pressure although should benefit from the rising interest rates with all the Banks increasing their variable mortgage rates last week. Macquarie reported a record result but was a bit cautious with their guidance with recent global macro and geopolitical developments potentially having a larger impact on what is now a very large global business. Local bond yields surged again with our 10 yr. government bond yield rising to 3.46%, the highest level since 2014, up from 3.12% at the start of the week.

US Share Market (S&P 500) – down 0.21%, with the Dow (-0.24%) and Nasdaq (-1.54%) all lower for the fourth week in a row after the Nasdaq posted its worst month in April since 2008. The Energy sector (+10.17%) led the gains followed by Utilities (+1.24%) and Telecoms (+1.06%). REITs (-3.82%) led the losses followed by Consumer Discretionary (-3.37%) and Consumer Staples (-1.34%). Jobs and wage data were very strong. The March JOLTS job openings report last week was up another 283,000 job openings to a new record 11.55 million positions. The US Bureau of Labor Statistics released their quarterly Employment Cost Index that came in much higher than expected, rising +1.4% and above consensus estimates of +1.1%. Total worker compensation was up 5.8% annualised and the highest rate since 1989. The FOMC hiked rates 50 basis points as was broadly expected with the committee saying it will begin the balance sheet reduction next month. The runoff is expected to start at $30 bill per month for Treasuries and $17.5 bill per month for MBS. The statement noted that members remain “highly attentive” to inflationary risks and in the press conference Chair Powell said there is support for 50bp rate hikes for the next couple of meetings, but that 75bp is not under active consideration and repeatedly stressed the Fed is aware of Americans’ struggling with inflation and is committed to bringing that down. The market was initially relieved to hear the Fed Chair dismiss the idea of a 75 basis point rate hike that had crept into estimates over recent weeks with a sharp rally on the day. But that quickly reversed as the 50 basis point rate hikes now forecast for the next 2 meetings is still quite aggressive at a time when US equity market valuations remain somewhat, but less so, stretched. The latest batch of US earnings last week was also putting increased pressure on more of the 2021 Tech, high-valuation groups, and pandemic winners as those policy response tailwinds subside along with the earnings momentum.

Portfolio Movements

Shell (SHEL) reports strong Q1 earnings – beats estimates, increases dividend and buyback. Shell posted record first quarter profits last week due to soaring oil and gas prices and a strong operational performance. Q1 EPS came in at $1.20 ex-items well ahead of estimates of $1.10 with Q1 revenue of $83.16 bill also ahead of the $81.46 bill expected. The better than expected underlying earnings for the quarter were $9.1 bill and almost triple the $3.2 billion reported in the year earlier period. The sector is benefiting from the high oil and gas prices which were already rising on surging demand as economies emerge from the pandemic and reduced supply due to ESG constraints with the Russia sanctions adding more fuel to the supply side issues. The dividend increased by 4% and the company announced the commencement of the second tranche of its $ 8.5 bill share buyback programme after completing the first tranche of the buyback this month. The maximum consideration for the purchase of ordinary shares under the second tranche is another $4.5 bill.

Amcor (AMC) reports strong Q3 results and upgrades full year guidance. Amcor, a global leader in the packaging industry, reported strong Q3 earnings with highlights from the first 9 months including net sales of US$10.63 billion, up 13%, Net Income of $696 million, up 2%, EPS of 45.6 cents per share, up 4%, adjusted EPS of 56.2 cents per share, up 11% on a comparable constant currency basis, and Adjusted EBIT of $1,196 million, up 6%. Amcor CEO Ron Delia was very upbeat following the results stating: “Amcor has consistently demonstrated the ability to execute exceptionally well, remain focused on our strategic priorities and deliver for our customers. The business has delivered another strong result with March quarter net sales growth accelerating to 5%, contributing to 15% Adjusted EPS growth in the quarter and 11% on a year to date basis. As we carry this momentum into the final quarter of the year, we are also raising our guidance for fiscal 2022 adjusted EPS growth to 9.5-11%.” The Amcor Board also declared a quarterly dividend of US12 cents per share, an increase from the US11.75 cents per share in the same quarter last year.

CVS Health (CVS) Q1 revenue up 11% – strong results see uplift in full year guidance. CVS Health, the US pharmacy chain giant, reported strong Q1 earnings last week as they continued to benefit from administering Covid vaccines and selling tests and reckon demand for both will lift sales throughout 2023. The company generated $76.83 billion in revenue for the period which was slight beat including a 9.2% sales increase in the retail segment as consumers stocked up on test kits. The quarterly profit of $2.32 billion or $1.74 a share was up from $2.22 billion, or $1.68 a share, in the year ago period. The company has won over new customers during the pandemic with executives expecting some of those new customers to stick around. CVS CFO Shawn Guertin had an interesting comment post the results: “Many like to model Covid going to zero for retail, and that’s a convenient modelling assumption, but I think a very highly unlikely outcome for 2023 as we move from pandemic to endemic,”

The Week Ahead

The domestic data this week is a bit light on with just NAB business confidence and retail sales both tomorrow and consumer inflation expectations on Thursday.

Internationally we have  China trade balance and loan growth today, US wholesale inventories and German ZEW tomorrow, China inflation and US CPI data Wednesday, UK GDP and US PPI Thursday and Eurozone industrial production Friday. The main focus will be the US April CPI  data on Wednesday with some recent hopes and expectations around peak inflation. The Headline CPI is expected to increase 0.2% for the month but due to higher base effects the annual inflation rate is expected to fall to 8.1% from last month’s 8.5%. Similarly, Core CPI is expected to increase 0.4% for the month with the annual rate dropping to 6.1% from 6.5%.

For corporate reporting it starts to slow down with just Westpac 1H earnings today, Sony FY earnings tomorrow, and CBA Q3 update on Thursday.

Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice

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Some numerical figures in this publication have been subject to rounding adjustments. Akambo Pty Ltd (including any of its directors, officers or employees) will not accept liability for any loss or damage as a result of any reliance on this information. The market commentary reflect Akambo Pty Ltd’s views and beliefs at the time of preparation, which are subject to change without notice.