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Monday Market Minutes: Small Mercies

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2023-04-16

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Even though Wall Street and gold prices ended the week with losses, the ASX 200 is slated to start with a small gain this morning with the ASX 200 futures pencilling in a 12-point rise at the close of trading on Friday.

The S&P/ASX 200 index ended 0.5% higher at 7,361.60 on Friday for a gain of nearly 2% for the week.

A worrisome report Friday from the Bank of Queensland didn’t hit sentiment nor did reports of a big placement by Genesis Minerals to try and keep its gold consolidations ambitions in WA alive with St Barbara.

Investors had an eye on the start of the US March quarter earnings season with the reports from JPMorgan, Citi and Wells Fargo didn’t disappoint, especially JPMorgan which revealed a 52% leap in quarterly earnings.

Weak retail sales for March surprised, but much of the fall was due to the drop in oil and petrol prices, which pushed down the value of sales in thqt sector.

This week the US earnings season really kicks in with dozens of S&P 500 companies reporting, including three banks, and several big techs like Tesla and Netflix.

Friday saw the Dow lose 143.22 points, or about 0.42%, to 33,886.47. The key S&P 500 ease 0.21% to 4,137.64 while the Nasdaq slid 0.35% to 12,123.47.

The Dow, however, notched its fourth-straight positive week, rising 1.2%. The S&P 500 and the Nasdaq, meanwhile, nabbed their fourth weekly gain in five. The broad-market index added 0.79% for the week, while the Nasdaq edged 0.29% higher.

US retail sales eased 1% last month, more than the 0.5% drop expected by economists in part because of the fall in petrol prices.

“Retail sales came in weaker than expected, but a lot of the miss had to do with lower gas prices, which all things being equal is a slight positive for spending,” wrote Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.

“Inflation has been coming down as gas prices have been coming down, but that can reverse in an instant, which would drive the headline numbers higher. What is more concerning is that core (which excludes food and gas prices) has been stubbornly high – and where we believe the risks to higher-rates-for-longer lie,” Zaccarelli added.

The weak retail sales detracted from the solid reports from the three big banks which clearly showed that America’s banking majors were not damaged by the problems sparked by the failure of Silicon Valley and Signature Banks.

Elsewhere, Eurozone shares gained 1.7%, Japanese shares rose 3.5% but Chinese shares fell 0.8%.

This week, market focus will be on the minutes of the Reserve Bank of Australia's April meeting, where it paused its rate-hike cycle. Analysts were split almost halfway between the RBA hiking rates by 25 bps and pausing.

But the focus on rates and inflation also dominated other markets, as Fed members talked tough about the need for higher rate rises after the US consumer and producer price data confirming the slowing pace of cost pressures in the US.

Atlanta Fed head, Raphael Bostic talked about the Fed pausing after one more interest rate rise at its May 2.3 meeting. The dominant view in the US is for the Fed to pause in May.

Bostic told Reuters that the Fed will need only one more rate hike. Recent data points "are consistent with us moving one more time," Bostic said. "We've got a lot of momentum suggesting that we're on the path to 2%."

In contrast, Federal Reserve Governor Christopher Waller said Friday that there is little progress on inflation and rates will need to move higher.

Inflation has "basically moved sideways with no apparent downward movement," Waller said. "Monetary policy needs to be tightened further. How much further will depend on incoming data on inflation, the real economy, and the extent of tightening credit conditions."

But the weak retail sales data offset his remarks and saw gold slide and bond yields rise for 10-year securities to 3.54% but fall slightly for the sensitive 2-year bond to 4.11%.

Locally, Bank of Queensland dipped as much as 3.9% on Friday after it said it would undertake a A$60 million ($40.72 million) integrated risk program and write down A$200 million of goodwill. The shares ended off 0.9% at Friday’s close. Attention now moves to the bank’s interim results report on Thursday.

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