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Episode details

Brendan Larsen
Good morning. It’s Monday first of August, and I’m Brendan from Milford Asset Management. Last week was full of market moving catalyst, with us and Australian reporting in full swing, as well as a raft of closely watched economic data. Starting with us reporting, after a few weeks of second quarter earnings 263 s&p 500 companies have reported earnings representing 70% of the index by weight. So far, earnings have been broadly better than expected, was 75% of companies beating estimates by four and a half percent on average, market heavyweight Amazon reported second quarter earnings, beating expectations with revenue growth of 7%. Amazon Web Services also Beat Street expectations, growing revenue 33% year on year versus expectations of 32%, noting impressive backlog growth of 65% to $100 billion dollars. Interestingly, management noted they’re not seeing similar overstocking pressures as other more traditional retailers and therefore won’t have to resort to discounting. This comment is in contrast to Walmart, who surprised the market last week by guiding down citing increasing levels of food and fuel inflation, having impacts on how their customers spend money. As a result, they noted that pressure on general merchandise is likely to persist in the second half as they’re forced to mark down to clear inventory. Alphabet reported earnings better than feared with revenue growth broadly in line with the market at 13%. year on year. While search ads were healthy and cloud showed evidence of sustained demand. There are some concerns about the outlook. Other revenues like play and hardware sort of slowdown over the quarter, and macro uncertainties are clearly having an impact on some spin budgets and cloud. Additionally, continued US dollar strength and cycling of tough prior period numbers will continue to weigh on results in coming quarters. On the macro side of things, the Federal Reserve’s hike interest rates by further 75 basis points for the second straight month, with chair Powell stating that a similar move was possible again at the next meeting. This move was in line with market expectations, especially given a huge inflation print of 9.1% two weeks ago. However, the big question now is how far the Fed will go and their tightening cycle to combat inflation. This question was made even tougher this week after us second quarter GDP contracted for a second consecutive quarter, meaning their economy is in a technical recession. And Australia second quarter CPI missed market expectations rising 6.1% year over year versus consensus forecast of 6.3%. Despite missing expectations, this reading was still the highest in 21 years, with price gains driven by fuel food and international holidays. The inflation print prompted a large market reaction, with participants reversing bets on a 75 basis point hike from a 30% chance prior to the report and Australian equity news Fortescue did well in the June quarter, producing 46.8 Mega tons of iron ore and shipping 49.5 Mega tons. Shipments for the full year of 189 Mega tons were record and exceeded the top end of guidance, if by 23 guidance of 187 to 189 Mega tonnes is broadly in line, but they expect further cost pressures to weigh on the business over the coming year. Flight Center upgraded the midpoint of FY 22 guidance by 12% Last week, with losses of 185 million expected for FY 22 versus previous guidance of 195 to $225 million dollars of losses. The improvement was driven by faster than expected demand recovery and higher ticket prices. The challenge for the business going forward is any reduction in corporate travel as economic conditions deteriorate. IFM investors into takeover talks without a citeria Last week AFTER ATLAS refused to open up the books for due diligence until IFM had made a firm offer for the company. I think noted however, that they reserve the right to restart talks with Atlas in the future. Looking ahead to this week, the key event on the calendar is the RBA on Tuesday, with the market pricing and 87% chance of a 50 basis point hike. We also have the Bank of England this week, where the market is pricing a 75% chance of a 50 basis point hike. Elsewhere. We’ll also be watching New Zealand employment and US non farm payrolls. Thanks for listening. We’ll see you again next week.

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