Weekly Market Update – 16 May 2022

Stocks continue their losses, volatility remains high 

It was a roller coaster for financial markets last week, with global equities continuing their falls whilst volatility dominated markets. 

Both the S&P500 and the Nasdaq Composite Index logged their sixth consecutive week of declines, whilst the Dow Jones logged its seventh consecutive week. 

That is the longest stretch of declines the market has experienced since 2001. 

Before Friday’s remarkably strong trading session which saw global indexes jump 2-4%, the Nasdaq Composite index sat at 18-month-lows after suffering a near 30% decline since the start of this year. 

Additionally, the S&P 500 was down nearly 18% from its peak and sat in correction territory though it sat slightly above the -20% performance threshold that defines a ‘bear market’. 

Volatility continues to remain elevated within markets, with the VIX index, a common gauge of fear within the market approaching levels of 35 which continues to reflect investor uncertainty. 

Though, context is important here and the VIX sits well-below levels seen historically with the index currently sitting at half of what it was in the sell-down March of 2020. 

US CPI Data 

Following March’s soaring inflation figure, all eyes were cast upon US CPI data, to dictate how global markets move going forward. 

US consumer prices increased 8.3% on an annualised basis, which came in above consensus estimates and continues to remain elevated near 40-year highs, emphasising the importance of the Federal Reserve to respond. 

Despite the figure remaining elevated, it marked the first time in eight months that US consumer prices fell, albeit small, from an 8.5% annualised CPI figure which was recorded in March. 

Core inflation, which excludes volatile components such as food and energy prices, rose 0.6% from March and came in higher than the 0.4% figure that economists had forecast. 

These elevated levels of persistent inflationary pressures will likely encourage the Federal Reserve to continue tightening monetary policy at an aggressive pace and comments from Fed Chairman Jerome Powell following April’s CPI data confirmed this 

Powell acknowledged that getting these high levels of inflation under control could create a short-term hit to the US’s economy and that he couldn’t promise a ‘soft-landing’. 

Additionally, he reiterated his view that a further 0.50bps point increase would likely be appropriate in upcoming coming meetings though said the central bank could consider larger hikes if economic data necessitate such steps.  

Several economists now believe that the COVID-19 fuelled inflation surge, which saw a combination of extreme consumer demand and severe supply-chain bottlenecks has tapered off and will likely moderate in coming months.  

Though this may be true, we believe there are several wild cards at play that can materially impact the outcome of inflation going forward. 

China’s COVID related lockdowns continue to impact supply chains globally, add the ongoing unstable Russia/Ukraine situation and the potential further impact it can have on energy prices, and you can see how it proves challenging to forecast inflation in the months to come. 

Declining Aussie dollar 

Just last month, the Australian Dollar was trading at 75 US cents. 

Just last week the AUD traded close to 68 US cents which is a significant move in currency markets within such a short time period. 

Despite the hawkish move from the RBA earlier this month, the flight safety continues to drive our local currency lower. 

Global market sentiment is poor and surging widespread inflation continues to dampen risk sentiment and drive investors out of the AUD and into safe-haven currencies such as the US dollar and the Japanese yen in hopes of limiting their exposure to losses in the event of a market downturn. 

Additionally, China’s ongoing COVID-19 outbreak continues to weigh on demand for Australian commodities, namely iron ore, which has fallen -9% over the last week as virus restrictions and a worsening property crisis were expected to cut demand which places further downwards pressure on our local dollar. 

Though there is considerable speculation on where the AUD goes from here, April’s job data being released in the upcoming week will be pivotal to dictate the path ahead. 

Data out this Wednesday on job numbers is expected to add 30,000 jobs which will push the overall unemployment rate to 3.9%, the lowest recorded since 1974. 

Should the job data be in line with consensus expectations, it may ignite further hawkish RBA policy expectations which would likely boost the Australian currency, though only time will tell on this front. 

ASX Weekly Wrap

The ASX200 largely followed in line with the broader market and closed -1.81% for the week. 

The ASX was in a risk-off mode last week after U.S inflation figures spooked investors which resulted in the ASX falling below 7000 points for the first time in three and a half months. 

Despite the fall, Friday’s considerably strong trading session saw the index close at 7075 points and marked the second-biggest daily gain for the ASX this year. 

In terms of how the broader sectors faired, it was to no surprise that defensive exposure through the likes of the healthcare and consumer staples sector faired the best, gaining 2.59% and falling by -1.27% respectively. 

Unsurprisingly, Technology stocks again continued their freefall with the sector dropping by -9.3% at one point throughout the course of trading, though Friday’s strong session saw it close down -4.66%. 

Both the safer mid-cap and large-cap space outperformed the falling market, dropping -1.09% and -1.44% respectively whilst small caps plunged, dropping -3.82%. 

In terms of our Prime Growth Equity SMA, the strongest performer within the portfolio was Newscorp CDI (NWS) which was a beneficiary of Friday’s session adding 5.82% whilst the mainstay in portfolios CSL Limited (CSL) notched a healthy 3.15% gain. 

Our exposure to the material sector by way of Northern Star Resources (NST) and OZ Minerals (OZL) were the largest detractors in terms of performance last week, dropping -8.57% and -6.01% respectively. 

In other stock-specific news, Link Administration Holdings (LNK) fell 15.1% on no-news before entering a trading halt and announcing a takeover offer from Canadian company Dye & Durham Ltd.  

Should the deal go ahead, holders of LNK will receive $5.50 per share, though investors remained concerned about Dye & Durham’s ability to complete the takeover which is reflected in the 20% discount to the takeover bid LNK is currently trading at. 

Media favourite Magellan Financial Group (MFG) confirmed its new CEO, which would be Future Fund’s ex-Chief Investment Officer David George following the indefinite medical leave of absence of MFG’s previous CEO, Hamish Douglass. 

Outside of specific stocks, the much-anticipated launch of the first ASX-listed bitcoin and Ethereum exchange-traded funds came to market, albeit at a difficult time with the broader cryptocurrency market down significantly due to the recent devaluation of an algorithmic stable coin. 

Looking ahead

Monday 16th May 2022 – Friday 20th May 2022

  • Monday: CN Retail Sales (APR) 
  • Tuesday: AU RBA Meeting Minutes (MAY), UK Unemployment Rate (MAR), US Retail Sales (APR) 
  • Wednesday: UK Inflation Rate (APR), US Building Permits (APR) 
  • Thursday: AU Unemployment Rate (APR)
  • Friday: UK Consumer Confidence (MAY), UK Retail Sales (APR)

Friday 13th May, 5pm values

 IndexChange%
All Ordinaries 7307-161-2.2%
S&P / ASX 2007075-131-1.8%
Property Trust Index1457-38-2.5%
Utilities Index8100-123-1.5%
Financials Index6535-79-1.2%
Materials Index16,677-676-3.9%

Friday 13th May, closing values

 IndexChange%
U.S. S&P 5004023.89-99-2.4%
London’s FTSE7418300.4%
Japan’s Nikkei26427-577-2.1%
Hang Seng19898-104-0.5%
China’s Shanghai3084822.7%

Key dividends

Monday 16th May 2022 – Friday 20th May 2022

  • Monday: Div Ex-Date – Macquarie Group Limited (MQG), Div Pay-Date – Bank of Queensland Limited Capital Notes (BOQPE), Bank of Queensland Limited Capital Notes 2 (BOQPF), Qualitas Real Estate Income Fund (QRI) 
  • Tuesday: Div Pay-Date – BetaShares Western Asset Australian Bond (BNDS), VanEck Australian Subordinated Debt ETF (SUBD) 
  • Wednesday: N/A
  • Thursday: Div Ex-Date – Pendal Group Ltd (PDL), Virgin Money UK CDI (VUK), Westpac Banking Corp (WBC) 
  • Friday: Div Ex-Date –  Macquarie Bank Capital Notes 3 (MBLPD) Div Pay-Date – Cromwell Property Group (CMW) 

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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