22 AUG 2022 – Monday Market Highlights – Transcript

Roland Houghton
Good morning. It’s Monday the 22nd of August and I’m rolling from Milford. Australian wage inflation data was released for the June quarter with wages growing 2.6%. For the year, slightly below 2.8% expected private wages grew 2.7% and public sector wages grew 2.4% for the year. This is quite a soft print considering record tightness and labor markets. However, digging into the detail, there was some snippets of strength and the private sector. Those who did receive a pay rise saw their wages increased 3.8%, which is the highest since June 2012. Also, only 14% of workers received a pay rise in the June quarter, whereas about 42% are expected to see a wage increase in the September quarter. This should therefore seen acceleration and wage prices because of this, but also because of minimum wage increases. Australian employment data was also released, which like the wage data was weaker than the market expected. total employment fell by 41,000, with full time falling by a decent 87,000 partially offset by an increase in part time workers. This was a strange survey period as the Australian Bureau of Statistics highlighted more sampling variance unusual due to heightened annual leave. Despite this decline in total and people employed, the unemployment rate fell to 3.4%. One of the tightest readings on record. This was driven by a decline in the participation rate as fewer Australians looked for work. Going across the ditch, the Reserve Bank of New Zealand raised interest rates by 50 basis points to 3% in line with market expectations. They also indicated the official cash rate may have to reach 4.1% to get inflation under control higher than the 3.95% they previously highlighted. And the UK inflation in July increased 2.6% month on month taking the annual inflation rate to 10.1%. In Germany, the Producer Price Index was released which also showed no slowing in the inflationary pressures, with the index increasing 5.3% month on month and a whopping 37% for the year. This generally leads consumer inflation, as it’s the price as manufacturers sell their goods for which naturally flows through to the consumer. Natural gas prices continue to grind back to 14 year highs as the energy crisis in Europe continues to deteriorate. Natural gas prices are up 141% for the year and 17% for the month. We also had Russia announced their key gas pipeline to Europe Nord Stream one will be taken offline for unscheduled maintenance for three days increasing pressures on Europe. Turning to equity news, we’re in the middle of Australian reporting season and hence it was a very busy week, but I’ll just focus on a few key names. Car Sales released their full year results on Monday. Coming in line with consensus and the guidance they gave it a capital raise. The focus on the call was on guidance where they provide a qualitative commentary expecting good revenue and EBIT da growth. This historically has translated into high single digit or low double digit percentages. BHP otherwise known as the Big Australian release very strong full year results beating market expectations across most key metrics. The biggest surprise was the strength of the cash flows with free cash flow of us $24.3 billion. Now it was somewhat boosted by 3 billion of deferred tax but nonetheless, it puts their balance sheet in a very healthy position. And it also allowed them to raise the final dividend where they would look to return us $8.9 billion to shareholders. Seek also released a strong result coming roughly in line with market expectations. But the big surprise came from the guidance which was well ahead, seek guidance revenue and EBIT da are about 9% and 3% ahead of consensus respectively. But this included heightened optics, which will fall out in a couple years. And so backing that out EBIT da was actually 15% ahead. Despite the strong results and guidance, some of CO E in the ribs comments around the uncertainty in the macro landscape. And some risks to the downside should things deteriorate. So seek for 6% On the day, table and Webster the online furniture retailer it releases solid result but again guidance was the focus and they highlighted higher margins and hence profitability the market expected which saw the share price rally 30% On the day, timberland Webster was quite heavily short sold leading to this result. So it was a classic short squeeze. Finally, clean away released the results that were roughly in line with consensus but the guidance was a bit soft as they continue to deal with a number of issues such as flooding and labor. Nonetheless, the focus was on the acquisition and capital raise were Cleanaway announced they’re raising $350 million plus a $50 million dollar share purchase plan to fund the acquisition of Grl which is a leading composting facility. They raise more money than they needed to so they could fund a future developments. Look into the week ahead. It’s very busy on both the equity and economic front. The key focus economically will be on Jackson Hole on Friday evening our time. This is an economic conference with Federal Reserve Chair Jerome Powell will present and the market will be looking for guidance on what the Fed is expecting to do with interest rates over the coming months earlier in the week. Also in the US we have the core PCE See index, which is like the CPI index, but it’s the Feds preferred measure of inflation. It is expected to increase point 3% month on month taking annual core inflation to 4.7%. Domestically reporting season continues to ramp up and this will keep the team busy as we analyze how businesses have performed over the last six to 12 months, and more importantly, how they expect to navigate a complicated economic backdrop. Thanks for listening. We’ll see you next week.