ASX Weekly Report for 29 Jan to 2 Feb 2024
Share market sentiment was largely driven by events in the US last week.
Earnings reports showed that tech companies by and large were performing better than expected and along with positive economic data showed that the US is likely headed for a soft landing as opposed to a recession. Meta (Facebook) in particular announced a very strong result and a maiden dividend.
The US Fed also met last week and the quick take-away was that rate rises are over but rate cuts won’t happen as fast as the market has been factoring in.
A US jobs report showed that hiring in December was twice market expectations and that the previous two months’ numbers had been revised upwards - very string signs. GDP data also showed that the US was one of the world’s fastest-growing major economies. In real terms it grew 3.1% last year (an annualised growth rate in the December quarter of 3.3% that was above the market expectation of around 2%).
The Dow Jones rose 1.59%, the Nasdaq gained 0.72% and the S&P500 lifted 1.32%. Shares in Europe and China were mostly flat while Japan gained 1.28% and Hong Kong rose 1.63%.
In a sign that shows how difficult the global environment is to navigate, the eurozone economy narrowly avoided a technical recession in the second half of 2023 and stagnated in the last three months of calendar 2023 according to official data. The powerhouse German economy is struggling and it is largely the Southern European states that helped the trading block avoid recession.
Crude oil fell sharply after markets digested a potential ceasefire between Israel and Hamas and US jobs data saw odds of an immediate rate cut pushed further back in to 2024. Weak conditions in China was also seen as lowering demand.
In Australia the S&P/ASX200 rose 1.91% and the All Ordinaries Index gained 1.88%.
Inflation numbers released in Australia surprised the market to the downside with the latest data showing that the December quarter rose only 4.1% (year on year) compared to the September quarter that rose 5.5% (yoy).
The monthly inflation number – which can much more volatile – also dropped to 3.1% for December compared to 4.3% for November.
The RBA Board meets this coming week to consider further changes to the cash rate but market analysts are giving no chance to the possibility of a rate rise. Rate cut forecasts are however being brought forward from late 2024 to July 2024 with 0.25% cut fully priced in and two rate cuts priced in by September (keep in mind the RBA Board now only meets every six weeks not monthly). $Ritchie Bros Auctioneers(RBA.US$
On the back of the low inflation numbers the S&P/ASX200 hit a record high, more than 50 points higher than the previous record closing high reached in August 2021.
In addition to the positive economic outlook Australian earnings season has begun with companies reporting on their results to December 31.
The best performing sectors were Real Estate (+5.92%) as markets factored in lower interest rates and better conditions for office rentals. Energy was next rising 3.80% followed by IT (+2.99%), Consumer Staples (+2.64%) and Health Care (+2.33%).
Financials rose 1.42% as analysts began factoring in lower mortgage defaults and lower corporate bad debts.
The worst performing sector was Utilities which only rose 0.80%.
The Australian dollar had a volatile week rising to $US0.6624 before falling to as low as $USD0.6507 and closing at $US0.6517 largely on the back of our inflation numbers and the fact that US interest rates will remain higher for a bit longer than previously thought.
In other news the giant China Evergrande Property Group was ordered to liquidate by a Hong Kong Court. Evergrande is said to be China's largest property developer so the impact is likely to be significant. $CHINA EVERGRANDE GROUP(EGRNF.US$
Back home, cloud connectivity provider Megaport surged 37.86% to $13.00 on the back of revenue increasing by 5%. The stock has previously been amongst the most shorted stocks on the ASX. $Megaport Ltd(MP1.AU$
Uranium stocks have been performing very well on the back of rising prices and last week the world’s largest producer, Kazakhstan’s Kazatomprom, announced it was trimming its production outlook for the year. Boss Energy soared rising 9.50% to $6.11, Deep Yellow rose 20.43%, Nexgen gained 11.30% and Paladin rose 11.79%. $Boss Energy Ltd(BOE.AU$ $Deep Yellow Ltd(DYL.AU$ $NexGen Energy Ltd(NXG.AU$ $Paladin Energy Ltd(PDN.AU$
In the REIT sector Goodman Group rose 8.27%, Scentre gained 6.90%, Stockland lifted 4.85%, Mirvac rose 3.35% and Charter Hall gained 6.68%. $Goodman Group(GMG.AU$ $Scentre Group(SCG.AU$ $Stockland Corp Ltd(SGP.AU$ $Mirvac Group(MGR.AU$
Retail Sales data in Australia fell by more than market expectations in December. The fall of 2.7% was well below the market forecast of 1.7%. The fall was largest in discretionary spending according to the ABS report.
Three more senior executives have departed Fortescue group with the CFO of the Energy division leaving after less than five months. This takes to more than 12 prominent members leaving in the space of the past 12 months. The rising number of executives fleeing would normally be a sign of a company in turmoil but Fortescue shares hit another record high last week. Back in September, ratings agency Moody’s noted that the high number of senior departures was ‘negative’ for the credit rating of Fortescue but it seems investors are backing the high profile Executive Chairman Andrew Forrest. The stock rose 2.62% to $29.73. $Fortescue Ltd(FMG.AU$
This week we are watching the RBA meeting on Tuesday, Trade Data (Monday) and a raft of company earnings reports.
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