The Australian stock market posted its best week in four months on the back of strong gains in technology shares and a rebound in the materials sector.
This is significant because it came accompanied by record inflation prints at New Zealand, the UK and Europe, with the last-named implementing a bazooka, larger-than-expected rates hike.
However, the dollar index coming off from above-109 levels to 106.5 may have let markets breathe easier.
The ASX200, ASX300, and Ordinaries ended the week with solid gains of 2.81%%, 2.91%, and 3.15% respectively.
Table of Contents
Last Week In Stocks
ASX Materials Index (ASX:XMJ)
The ASX Materials Index (ASX:XMJ) rallied this week by 2.42% after iron ore prices clawed back above $100 on falling steel inventories in China, and Brazilian miner Vale SA’s move to cut its 2022 iron ore production forecast.
Chinese steel inventories are down to a near six-month low.
Clouding all this is, however, that China’s steelmakers are close to forming an iron ore purchasing cartel.
Sector majors BHP (ASX:BHP), Mineral Resources (ASX:MIN), South32 (ASX:S32), Rio Tinto (ASX:RIO), and Fortescue Metals (ASX:FMG) gained 1.38%, 5.91%, 0.86%, 1.70%, and 7.41% respectively.
UBS analysts downgraded Rio Tinto’s earning outlook following its production report on concerns of weaker iron ore prices and higher costs.
Meanwhile, BHP’s production report forecast a volatile year ahead.
New energy miners IGO (ASX:IGO), Lynas Rare Earths (ASX:LYC), and Allkem (ASX:AKE) closed higher by 1.85%, 0.97%, and 3.01% while Pilbara Minerals (ASX:PLS) shot up 4.13%.
These companies got a lift after Elon Musk’s Tesla reported better earnings than anticipated as the EV maker has supply agreements with many Australian lithium miners.
Gold producers Newcrest Mining (ASX:NCM), Evolution Mining (ASX:EVN), and Northern Star Resources (ASX:NST) also kept pace with the rest of the sector by rising 2.26%, 1.30%, and 4.86% respectively.
RBC Capital Markets analyst Alex Barkley said Newcrest’s June quarter result was strong, with gold production 2% above the bank’s expectations.
ASX Energy Index (ASX:XEJ)
The ASX Energy Index (ASX:XEJ) fell a marginal 0.16% for the week.
Though heavyweights Woodside Energy (ASX:WDS), and Santos (ASX:STO) closed lower by 0.80% and 1.40%, Beach Energy (ASX:BPT) shot higher by 6.87% after it reported a jump in production and revenue for the June quarter.
Coal majors New Hope Corporation (ASX:NHC), Stanmore Resources (ASX:SMR), Coronado Global (ASX:CRN), and Yan Coal (ASX:YAL) corrected by 1.61%, 2.25%, 14.74% and 5.34% respectively; however, Whitehaven Coal (ASX:WHC) gained 1.99% after announcing a record $3 billion profit on the back of high coal prices, which surged following Russia’s invasion of Ukraine.
The ASX Industrials Index (ASX: XNJ) was down a mere 0.036% for the week. Industrial commodities makers Brickworks (ASX:BKW), ADBRI (ASX:ABC), and Boral (ASX:BLD) moved up impressively by 9.26%, 7.73% and 6.92%.
Brickworks launched a new joint venture manufacturing property trust – Brickworks Manufacturing Trust with Goodman Group, and expects to deliver record property earnings in FY22 (financial year 2022) – an estimated property EBIT of approximately AU$620 million.
Industrial majors Amcor CDI (ASX:AMC) and Brambles (ASX:BXB) lost 1.31% and 0.17%, however, Reece (ASX:REH) and Reliance Worldwide (ASX:RWC) raced higher by 6.30% and 6.64%.
Infrastructure players Transurban Group (ASX:TCL) and Qube Holdings (ASX: QUB) plunged 3.04% and 2.88% respectively.
Amongst airlines Qantas (ASX: QAN) was up 0.89% though Air New Zealand (ASX: AIZ) slipped 2.61%.
ASX Financials Index (ASX:XFJ)
The ASX Financials Index (ASX:XFJ) trended higher this week by 3.18%.
Banking heavyweights Commonwealth Bank of Australia (ASX:CBA), Australia New Zealand Bank (ASX:ANZ), Westpac (ASX:WBC) and National Australia Bank (ASX:NAB) all gained in the range of 4% to 5% on increasing consensus among the major banks’ economists that interest rates will rise higher, sooner.
ANZ was in the limelight after it announced a $4.9B deal to buy Suncorp’s banking arm.
Regional banks Bank Of Queensland (ASX:BOQ) and Bendigo Adelaide (ASX:BEN) too shot up by 5.53% and 6.94%, respectively.
However, wealth managers were even more bullish and Magellan (ASX:MFG) and Platinum Asset Management (ASX:PTM) rocketed higher by 20.99% and 15.95% respectively; AMP (ASX:AMP) gained 3.21%.
Pendal Group (ASX:PDL) shot up 25.99% after it advised that it is in talks with Perpetual Limited (ASX:PPT) about a possible acquisition.
Insurers Suncorp (ASX:SUN) and QBE Insurance (ASX:QBE) and Insurance Australia Group (ASX:IAG) ended down in the range of 3% to 6%.
IAG said in its preliminary result that net natural-peril costs are expected to be $1.12 billion — a $354 million overrun from the insurer’s original allowance of $765 million.
Diversified financial services majors Macquarie Group (ASX: MQG) closed the week gaining 1.32%.
The ASX Consumer Discretionary Index (ASX:XDJ) shot up nearly 2% for the week.
Amongst hospitality companies Star Entertainment (ASX:SGR) was up 1.69% but Skycity Entertainment (ASX:SKC) lost 0.41%.
Travel companies Webjet (ASX:WEB) and Corporate Travel Management (ASX:CTD) lost 5.24% and 1.19%, but Flight Centre (ASX:FLT) was flat.
Retailers enjoyed solid support from investors: Temple and Webster (ASX:TPW) and Kogan (ASX:KGN) rocketed double digits by 16.21% and 21.48% respectively as investors scooped up bargains.
Nick Scali (ASX:NCK), Harvey Norman (ASX:HVN) and JB Hi-Fi (ASX:JBH) gained 6.69%, 5.53% and 9.70%.
While appliance maker Breville (ASX:BRG) rebounded over 5%, food brands Dominos (ASX:DMP) and Collins Foods (ASX:CKF) were flat and +3.70% respectively.
ASX Consumer Staples Index (ASX:XSJ)
The ASX Consumer Staples Index (ASX:XSJ) was nearly unmoved for the week closing 0.14% higher.
Among sector heavyweights Coles Group (ASX:COL) and Woolworths (ASX:WOW) were flat while Wesfarmers (ASX:WES) rose 2.96%.
Food producers Tassal Group (ASX:TGR), Bega Cheese (ASX:BGA), and GrainCorp (ASX:GNC) went up 1.44%, 3.96%, and 0.36%, respectively, but Costa Group Holdings (ASX:CGC) ended the week flat.
Amongst processed food makers Bubs Australia (ASX:BUB) shot up 13.46% after the infant formula maker reported record Q4 gross revenue, which rose 278% year-on-year, and 174% quarter-on-quarter, to hit $48.1 million.
However, A2 Milk moved up only 0.66%.
ASX All Technology Index (ASX:XTX)
The ASX All Technology Index (ASX:XTX) played among the market leaders for the week, rising a solid 6.44% and getting a boost from the US market.
Platform companies REA Group (ASX:REA), Carsales (ASX:CAR), RedBubble (ASX:RBL), and Domain Holdings (ASX:DHG) received renewed investor interest and went up by 1.93%, 6.73%, 5.76% and 7.21% respectively.
Saas players Xero (ASX:XRO) and WiseTech Global (ASX:WTC) also clocked gains of 5.79% and 7.70% respectively.
Wisetech was upbeat after it announced an improved earnings forecast; Appen (ASX:APX) shot higher by 10.76%, though Nuix (ASX:NXL) sulked with a loss of 7.16% after it announced it expected its earnings to fall from $30.5 million last year to an estimated $10-$12 million this financial year.
BNPL players put on a stellar show this week with Block (ASX:SQ2), Sezzle (ASX:SZL), MoneyMe (ASX:MME) and Zip Co (ASX:Z1P) all recording double-digit gains of 10.70%, 38.10%, 13.33% and 52.59% respectively.
Zip shot higher massively on the back of its quarterly update which also outlined several steps to stem its cash burn.
Link Administration (ASX:LNK) was up 10.75% after accepting a revised $2.5 billion takeover bid from Canadian suitor Dye & Durham.
Semiconductor and data center companies Altium (ASX:ALU) and NextDC (ASX:NXT) were flat.
ASX Healthcare Index (ASX:XHJ)
The ASX Healthcare Index (ASX:XHJ) was mostly unchanged closing with a minor gain of 0.10%.
Healthcare providers Ramsay Healthcare (ASX:RHC), Fisher and Paykel (ASX:FPH), and Healius (ASX:HLS) recorded gains of 0.78%, 5.48% and 0.67% respectively.
Healthcare equipment makers Sonic Healthcare (ASX:SHL) and Resmed CDI (ASX:RMD) put on 1.73% and 1.39%; on the other hand Cochlear (ASX:COH) and CSL Ltd. (ASX:CSL) declined by 0.24% and 1.03%.
Biotech firms Imugene (ASX:IMU) and Mesoblast (ASX:MSB) gained 2% and 13.10% respectively.
ASX Real Estate Index (ASX:XPJ)
The ASX Real Estate Index (ASX:XPJ) was up 2.02% for the week.
Sector majors Mirvac Group (ASX: MGR), Stockland Group (ASX: SGP), Vicinity Centres (ASX: VCX), and Scentre (ASX: SCG) all ended in the green by 1.92%, 0.40%, 4.61%, and 2.91% respectively.
Goodman Group (ASX: GMG) was up 0.42%.
ASX Telecom Index (ASX: XTJ)
The ASX Telecom Index (ASX: XTJ) closed the week 2.04% in the green.
Sector players Telstra (ASX:TLS) and Uniti Group (ASX:UWL) were flat, Chorus (ASX:CNU) closed higher by 3.22%.
TPG Telecom (ASX:TPG) was a standout gainer at 4.69%.
Megaport (ASX:MP1) gained nearly 24% after it reported a profit during the three months to June 30.
ASX Utilities Index (ASX: XUJ)
Lastly, the ASX Utilities Index (ASX: XUJ) ended nearly flat at 0.81% in the green.
Among sector majors, APA Group (ASX:APA) lost 1.26% while Origin Energy (ASX:ORG) and AGL Energy (ASX:AGL) gained 0.18% and 5.11% respectively.
JPMorgan analysts upgraded AGL Energy to “overweight” from its previous rating of “neutral” as the firm believed the power company would benefit from increased wholesale electricity prices.
Next Week In Stocks
July 26: Australian Foundation Investment Company Ltd (ASX:AFI) – Preliminary Report
July 26: Bluescope Steel Ltd (ASX:BSL) – Preliminary Report
July 27: Rio Tinto Ltd (ASX:RIO) – Interim Report
July 28: MFF Capital (ASX:MFF) – Annual Report
New Listings
July 27: Sierra Rutile Holdings Limited (ASX:SRX) – a multi-mine mineral sands operation straddling the Bonthe and Moyamba districts in southern Sierra Leone – issue of ordinary fully paid shares.
Economic and Market Outlook
Last week
New Zealand Q2 QoQ CPI for June printed at 1.7% QoQ vs 1.5% expected, while CPI YoY came at 7.3% (highest in 32 years) vs 7.1% expected.
In the UK, Consumer Price Inflation (YoY) rose in June to 9.4%, the highest since February 1982, up from May’s 9.1% and above the 9.3% consensus, driven by surging petrol and food prices.
BoE Governor Bailey reaffirmed the central bank’s determination to bring inflation down to 2% and said it will mull a half-point rate hike in August.
Eurozone YoY CPI for June reported at 8.6%, up from May’s 8.1% yoy, with the bulk of the contribution accounted by energy (+4.19%).
Unsurprisingly, the ECB too joined the battle against inflation and raised rates (the first time in 11 years) by half a percentage point, twice what was expected.
The latest economic data “indicate a slowdown in growth, clouding the outlook for the second half of 2022 and beyond,” ECB President Christine Lagarde said at a news conference.
Meanwhile, the U.S. housing market stayed stable in June, with housing starts and building permits declining only marginally from May’s levels:
The number of housing starts nationwide fell only 2.0% on the month to 1.559 million from an 1.591 million in May; Building permits meanwhile, fell by 0.6% to 1.685 million, a slower decline than expected.
Next Week
Key data points releasing next week are:
Wednesday, July 27
- USA: New Home Sales (Jun); CB Consumer Confidence (Jul); Core Durable Goods Orders (MoM) (Jun)
- AUS: CPI (QoQ) (Q2)
Thursday, July 28
- USA: Pending Home Sales (MoM) (Jun); Crude Oil Inventories; Fed Interest Rate Decision; FOMC Statement; FOMC Press Conference
- AUS: Retail Sales (MoM) (Jun)
Forex Outlook
AUD/USD
AUD/USD closed at 0.69221, solidly above the previous weekly close of 0.67919, continuing its rebound off the July 14 low of 0.66827, and getting boosted by declining US dollar strength.
Also at play was the bullish week for the ASX Materials sector that ended nearly 2.5% in the green with iron ore prices turning up, and soft PMI readings out of the US.
The upmove has taken out the resistance line at 0.68511 but paused in the vicinity of the resistance line of 0.69900, which is also where the upper line of the downward sloping channel lies in wait.
Important data points releasing next week are the Fed interest rate decision and in Australia, Q2 CPI and retail sales for June.
These will determine whether AUD/USD can break into a decisive, longer-term uptrend after clearing the 0.69900 line.
AUD/NZD
AUD/NZD ended the week at 1.10704, and above the previous week’s close of 1.10254.
Though the pair has been making higher-highs and higher-lows, candles are showing long upper tails indicating the emergence of selling pressure at higher levels.
Next week the Fed is likely to hike rates by 0.75% but a 1% hike cannot be ruled out completely, especially in the light of the ECB’s higher-than-expected rate action.
In Australia, a high inflation number and retail sales could spark an upmove that would take out the supply overhang on AUD/NZD.
Failing this, the pair could head back down to 1.09700.
