Weekly Market Update – 4 April 2022

Global equity markets continue their gains, Oil drops 

Global equity markets notched their third straight week of gains adding +0.39% as represented by the MSCI World Index in AUD terms. 
 
Stocks worldwide began the week on a bullish note, with several of the major global indices notching 2-3% gains by mid-week which at the highest point, marked a total recovery from the losses experienced from the commencement of Russia’s invasion of Ukraine in late February. 
 
However, these gains were eventually eroded away as concerns following the Russian-Ukrainian war spurred selling globally towards the tail-end of the week. 
 
In terms of commodities, Brent and US crude oil benchmarks suffered their biggest weekly falls, following US President Joe Biden’s announcement to release emergency US oil supplies from the nation’s strategic petroleum reserve for a period of six months. 

The announcement intends to place downwards pressure on petrol prices and curb inflation which has been exacerbated by the war in Ukraine. 
 
As a result, both Brent and US crude oil benchmarks slipped 13% following the news. 

In market-specific news, Elon Musk’s Tesla Inc (TLSA) announced via Twitter its intention to put forward a stock split at the company’s annual meeting later this year which follows the company’s previous stock split in August of 2020.

The tweet resulted in the EV maker’s shares closing 8% higher following the announcement, adding around AU$112 billion or more than National Australia Bank Ltd’s (NAB) entire market cap in a single day despite there being no change to the stock’s fundamental values.  

Inverted Yield Curves – what does this mean/tell us? 

Across headlines this week the inversion of the U.S yield curve dominated discussions with market participants and financial media reporting on the phenomenon. 

Though, to understand why this matters, we need to first know what a conventional yield curve looks like
 
Typically, the yield curve slopes upwards due to investors expecting a higher level of compensation for the longer duration they are prepared to wait for in terms of repayment. 

In plain English, an investor may expect to receive a 1 per cent yield for a one-year bond whereas the same investor may demand a higher 2 or 2.5 per cent yield for a 5-year or 10-year bond. This increased yield is usually demanded as additional risk and uncertainty are taken on board when investing in longer duration assets. 
 
So, what is the significance of an inverted yield curve? 
 
Historically, an inverted yield curve has been viewed as an indicator of a pending economic recession. 

This is because an inversion suggests that market sentiment on the long-term outlook is poor which triggers yields on short-term bonds to move higher than those paid for long-term bonds. 

Every U.S recession since the 1950s has been preceded by an inversion of the ten and two-yield curve. However, not all inversions have preceded a recession. 

Source: BondAdviser 

For background, the 2 and 10-year notes are closely monitored as they tend to reflect investor confidence, with the 2-year note symbolising the current short-term economic position, whilst the 10-year is used to indicate the longer-term economic situation. 

As seen above, the inversion occurred last week, with the U.S 2-year note falling below the U.S 10-year note momentarily in addition to the U.S 30-year note falling below the U/S 5-year note. 

Though this may appear frightening at a surface level, it is important to reflect on past events to understand what happens next when yield curves invert. 

Past inversions have shown there is a considerable time lag. In fact, on average there is a 16-month delay from the initial inversion to the next recession. 
 
Since 1978, there have been seven yield curve inversions with most of the global indices rising five out of seven times after the initial inversion on a 3-month, 6-month, and 12-month basis. 
 
In August of 2019, the same yield curve inverted which at the time preceded the outbreak of the COVID-19 pandemic and triggered a sell-off of risk assets and a recession. 

Did these same bond market investors predict the COVID-19 pandemic to occur? The answer is no
 
To summarise, an inverted curve does not necessarily indicate that the world is ending or that a recession is imminent, but it indicates that the bond market expects the likelihood of economic slowdown to be increasing. 

US Job Reports 

It was an anticipated job report following February’s strong data which further solidified the health of the U.S economy.
 
March’s job data continued to show the tightening of America’s labour market, with another 431,000 jobs added on a seasonally adjusted basis as coronavirus caseloads and health restrictions continue to decline and roll off across several US states. 

This now marks the 15th straight month of consecutive job gains, with the first quarter of 2022 adding almost 1.7 million jobs. 

The number fell slightly short of expectations, as consensus estimates projected a gain of 490,000 jobs in March. 

March’s gain now brings the U.S unemployment rate to a new 2-year low of 3.6%, which is down from 3.8% a month earlier and compares to forecasts of an unemployment rate of 3.7%. 
 
The gains were primarily driven by an increase in hiring across leisure and hospitality as well as professional and business services with employment in several sectors now sitting above pre-pandemic levels. 

The data continues to highlight the tightening of the U.S labour market which may likely result in the Fed becoming more confident in pinning down inflation by accelerating rate hikes and quantitative tightening monetary measures. 

ASX Weekly Wrap

The ASX200 index finished the week higher, notching a 1.2% gain after a robust rise in March that drove the index to close 6.4% up and marked the best month for the ASX in the past sixteen. 

Materials were the best performers adding 3.65% last week with the uptick being led by gains in BHP Group Ltd (BHP) and Mineral Resources Limited (MIR) as pricing on iron ore, coal and lithium commodities continue to climb. 

Energy fared the worst, falling -1.27% for the week after Oil prices fell following the US’s release of a record-breaking level of crude oil stockpiles to alleviate fears spurring from shortages after Russia’s invasion of Ukraine. 

In terms of the PRIME Australian Growth SMA, our biggest weight BHP Group Ltd (BHP) continued to climb ground, gaining 4.34% for the week and a tad over 11% in the month of March alone as the mining giant continues to benefit from the broad-based run-up in commodities prices driven by the supply disruptions. 

The worst performer was Waypoint REIT Ltd (WPR) which fell by -2.89% for the week as the share traded ex-dividend which typically sees shares falling by the value of the dividend paid out. 

In other market news, Crown Resorts Ltd (CWN) was given the approval from an independent expert for US private equity Blackstone to acquire Crown Resorts at a consideration of $13.10 per share with the scheme being deemed fair and reasonable given the considerable uncertainty surrounding Crown’s continuing inquest and potential fines. 

Wesfarmers Limited (WES) completed its acquisition of Australian Pharmaceutical Industries Ltd (API) at $1.55 per share which includes a $0.05 per share dividend paid to API shareholders.  

The deal was valued at just over $1 billion with API owning Priceline and Priceline Pharmacy which is thought to complement Wesfarmer’s existing suite of retail giants including Bunnings, Kmart, and Target. 
 
Gambling and entertainment provider Tabcorp Holdings Limited (TAH) announced the demerger of its lotteries and Keno business into a standalone business, The Lottery Company which is set to float on the ASX late next month. 
 
Lastly, VGI Partner Global Investments Limited (VGI) shares jumped 26% after the investment manager announced that it had entered into a merger agreement with Regal Funds Management which would total funds under management of A$5.6 billion between the duo alongside VGI announcing that it had recommenced an on-market buy-back up to 10% of VGI’s share capital. 

Looking ahead

Monday 4th April 2022 – Friday 8th April 2022

  • Monday: AU Retail Sales MoM Final FEB 
  • Tuesday: AU RBA Interest Rate Decision, US Balance of Trade (FEB)  
  • Wednesday: xAU RBA Chart Pack, ISM Non-Manufacturing PMI MAR 
  • Thursday: AU Balance of Trade FEB, US FOMC Minutes 
  • Friday: AU RBA Financial Stability Review 

Friday 1st April, 5pm values

 IndexChange%
All Ordinaries 7,786 961.2%
S&P / ASX 2007,493 871.2%
Property Trust Index1,622 60.4%
Utilities Index7,574 811.1%
Financials Index6,732 250.4%
Materials Index18,976 6673.6%

Friday 1st April, closing values

 IndexChange%
U.S. S&P 5004,54520.0%
London’s FTSE7,537 540.7%
Japan’s Nikkei27,665 -485-1.7%
Hang Seng22,0396343.0%
China’s Shanghai3,282702.2%

Key dividends

Monday 4th April 2022 – Friday 8th April 2022

  • Monday: Div Pay-Date – Integral Diagnostics Ltd (IDX) 
  • Tuesday: Div Pay-Date – Healius Ltd (HLS), SSR Mining Inc CD 
  • Wednesday: Div Pay Date – CSL Limited (CSL), Cleanaway Waste Management Ltd (CWY), Lifestyle Communities Limited (LIC) 
  • Thursday: Div Ex-Date – ARB Corporation Limited (ARB), Div Pay-Date – Costa Group Holdings Ltd (CGC), Iluka Resources Limited (ILU), NAB Capital Notes 2 (NABPD), South32 Ltd (S32), SEEK Limited (SEK), 
  • Friday: Div Pay-Date – InvoCare Limited (IVC), Metrics Income Opportunities Trust (MOT), Metrics Master Income Trust (MXT), Qube Holdings Ltd (QUB), Regis Healthcare Ltd (REG), Reliance Worldwide Corporation Ltd (RWC), Spark New Zealand Ltd (SPK), WiseTech Global Ltd (WTC) 

Contact

Mark Johnson – Chairman of Investment Committee(03) 8825 4738
Guy Silbert – Investment Manager(03) 8825 4750

If you would like to discuss your situation, please speak to your adviser or email clientservices@primefinancial.com.au

Mark JohnsonT: (03) 8825 4738Michelle BromleyT: (03) 8825 4751
Livio Caiolfa T: (03) 8825 4748Nicole LewisT: (03) 8825 4734
Marcus AingerT: (02) 9134 6292Nicholas MillerT: (03) 8825 4722
Dylan CresswellT: (03) 8825 4707Gina McIntoshT: (07) 3557 2557
Jarrod Rodda T: (03) 8825 4729

The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (www.primefinancial.com.au/fsg) for contact information and information about remuneration and associations with product issuers. This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article, and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.

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