Banks and tech led the ASX higher today while miners took a dive.
The S&P/ASX200 gained 22.50 points or 0.31% to 7,203.30. Over the last five days, the index has lost 1.21% and 2.39% over the last 52 weeks.
Top-performing stocks in this index are Bendigo and Adelaide Bank (ASX:BEN) Ltd and Megaport Ltd (ASX:MP1), up 7.08% and 6.40% respectively.
Bendigo Bank was higher on the strength of its Net Interest Margin in the five months to November.
UBS analyst John Storey said Bendigo’s $245 million cash profit was 15% ahead of consensus estimates.
"Sizeable earnings upgrades for FY23 are likely with the bigger debate still around the shape of the FY24 PnL (do NIMs fade and ECLs increase dramatically)," Storey says.
"Despite our central scenario of increased competition, higher funding costs and slowing volume growth we continue to see a clear path for BEN to generate a RoTE above 13% over our forecast period."
Bendigo and Adelaide Bank (ASX:BEN) is now at a four-month high.
"Our NIM has continued to rise as we carefully manage our volume growth and margins, while continuing to prudently manage costs in an inflationary environment," Bendigo chief executive Marnie Baker said.
Miners didn’t have such a good time of it.
BHP (ASX:BHP) Group Ltd (LSE:BHP, ASX:BHP) and Rio Tinto Ltd (ASX:RIO) were downgraded by UBS based on the outlook for the sector.
UBS rated BHP "sell" and cut its target price to $40. It downgraded Rio Tinto to sell, marked by a lower target price of $95. Rio lost 2.03% on the day, falling to $113.99. BHP fell 1.54% to $46.07.
It seems plunging demand for houses in China and a murky property outlook is to blame.
3 things to watch for the rest of the week
eToro market analyst Josh Gilbert shares his three things to watch in Australia in the coming days.
Governor Lowe speech
Reserve Bank of Australia (RBA) Governor Philip Lowe holds a keynote speech at the 2022 AusPayNet Annual Summit in Sydney on December 13. The address will hopefully provide investors with further insights into the RBA’s 8th consecutive hike and what 2023 may hold for the banks tightening cycle.
In the statement last week, Lowe once again mentioned he believes inflation will rise again before the end of the year, peaking at 8% in the December quarter, but he will undoubtedly be happy with October’s monthly reading of just 6.9%, which he referred to in his recent statement.
Markets will be wanting to see if the governor hints at another slowdown or a pause in early 2023, although he is unlikely to get ahead of himself before the Q4 inflation reading.
The key focus, for now, is whether Philip Lowe and his team can bring down inflation to the RBA’s target rate without tipping the economy into recession.
Unemployment rate
December 15 sees another reading on Australia’s tight labour market. The unemployment rate for October came in at 3.4%, lower than the 3.6% markets had anticipated.
Forecasts for November’s reading have yet another fall in the unemployment rate to 3.3% staying near decade lows.
According to Roy Morgan, the overall workforce in Australia is sitting at record highs, at 14.9 million people for November, attributing to another drop in unemployment. However, this could be the lowest we see unemployment reach.
Economic growth is expected to continue to slow down in 2023; therefore, we will likely see a rise in the unemployment rate again. Rising interest rates, higher input costs and customers tightening their belts mean the demand for labour will likely start to decline next year.
US Inflation and FOMC rate decision
The most watched data point in markets, US CPI, is released next week, followed by the Federal Reserve’s latest policy decision for 2022.
US CPI is an important reading for Australian investors to watch, given that sticky inflation would mean the Federal Reserve needs to keep aggressively raising interest rates, ultimately driving a recession.
However, there was some positivity in October when the CPI reading came in lower than expected at 7.7% and helped spark a rally on Wall Street, with the Federal Reserve pointing towards a potential slowdown on the horizon.
Markets expect another decline for November, with headline CPI estimated at 7.3% and core CPI at 6%. If both readings come in at or below estimates, it's likely Jerome Powell, and his team will opt for a move lower next week, with a 50 bps hike scaling back from its four consecutive 75 bps hikes.
That being said, US CPI has a history of coming in hotter than expected and Chair Powell has consistently stuck to his hawkish tone, saying the Fed will do whatever is necessary to bring inflation back to target, but the market is still pricing in a 50 bps hike next week.
Gold edges lower as focus turns to CPI, Fed
City Index market analyst Fawad Razaqzada gives his opinion on gold.
Gold has turned lower, hit by profit-taking ahead of the major central bank events taking place this week, with traders continuing to pay respect to the key $1,800 resistance level.
Whether or not we will break and hold above this level depends pretty much on how hawkish or otherwise the Fed is going to be on Wednesday. If the US central bank indicates that the terminal interest rate is going to be 5% or higher, then this will keep bond yields underpinned, which in turn should undermine the zero-yielding gold.
Ahead of the Fed decision, we will also have the latest US consumer inflation data on Tuesday.
November CPI is expected to have eased further to a still-very-high 7.3% annual rate from 7.7% the month before. A bit of a deviation in the expected figure shouldn’t matter too much since the Fed officials are unlikely to alter their views on the back of that. However, a big miss or beat could send the dollar in the direction of the surprise, pushing gold in the other direction.
Last week’s hotter-than-expected PPI print called into question the “peak inflation” narrative, although UoM's survey showed inflation expectations fell. If CPI continues its recent downtrend, then this should help provide gold some short-term support, before the focus shifts to the Fed.
Otherwise, and especially with bond yields bouncing back in the last couple of trading days, gold could remain under pressure. Rising yields tend to increase the opportunity cost to hold onto an asset that doesn’t pay any interest, unlike bonds.
Anyway, there is no need to rush into any trades as this week’s events have the potential to set the directional bias for the greenback – and gold – until at least the end of the year. We will have the likes of SNB, BoE and ECB all to look forward to Thursday of this week, too.
If by Thursday, the precious metal finds itself above $1800 then that should give the bulls the green light to power ahead as we approach year-end. But if by Thursday, gold has formed a key bearish reversal signal and there's been some downsides follow-through, then it is back to square one for the precious metal.
Let's wait for gold to show us the direction then trade accordingly. Patience is key here.
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