Weekly Australia Market Wrap for the Week-Ended 28 April 2023

The big driver of global equity markets last week was the large number of US companies delivering their first quarter earnings reports. The US market was down until we saw reports by Amazon, Meta (Facebook), Microsoft and Apple. These companies are bellwether stocks that are highly sensitive to economic conditions and helped lift the US market into Positive territory. The Dow Jones Index finished 0.86% higher and the S&P 500 closed 0.87% higher. The Nasdaq lifted 1.28% on the week. Shares in China rose 0.67%, Japan jumped 1.02%, India rose 2.44% but Hong Kong drifted 0.90% lower. Eurozone shares fell 0.9%.

In Australia we saw both the S&P/ASX200 and the All Ordinaries Index drift­ 0.29% lower. Bond yields, copper, Iron Ore, Steel, Coal and oil all fell.

Shares year-to-date are still showing good returns with Australia up around 3.85%, Japan up 10.58%, the broader US market up 8.59%, the tech-focused Nasdaq is up 16.82% and China is up 7.58%.

Real Estate, Industrials and IT were the three best performing sectors in Australia last week rising 1.45%, 1.08% and 1.09% respectively. Materials (-3.13%), Financials (-0.64%), Utilities (-0.52%) were the worst performers.

Megaport, an IT business involved in a range of internet connectivity services led the charge rising 30.63% after announcing its financial year 2023 earnings would be "materially above" forecast at between $16m and $18m. This is well above the $9m previously forecast. Normalised EBITDA was now expected to be in range of $41m to $46m, well up from the forecast $30m. Shares were trading around 4 year lows before rocketing to close the week at $5.63.

In the REIT sector Mirvac (+6.64%) and Stockland (+5.95%) were the leading performers with Vicinity (+3.96%) and Scentre (+2.86%) not far behind.

Brambles continues its recent strong run rising another 2.00% after releasing a third quarter trading update. It has risen nine out of the past ten weeks and is up 18% for the year to date.

Transurban, the toll road operator, is another that has risen strongly this year,. It is up 15.48% year-to-date and last week rose 1.28% as traffic volumes continue to improve.

Materials were sold off last week with Iron Ore falling 9.48% and Copper dropping 2.71%. Steel prices fell 5.33% and as a result we saw BHP lose 3.60%, Fortescue drop 6.60% and Rio Tinto lose 6.71%. Lithium miner Pilbara Minerals rose 9.00% saying it expected lithium prices to continue to soften in the short term before Chinese battery chemical makers start to rebuild inventory.

A year ago Syrah Resources was the toast of the town having negotiated a $145m loan from the US Government that was intent on shoring up supply of graphite used in industry-critical battery anodes. The stock hit a high of $2.69 in November 2022 but has since dropped steadily to close at $1.15 last week. It announced the results of a definitive feasibility study that concluded the expansion of its Louisiana based-facility would have a "total installed capital cost of $US539m".

The latest Australian inflation numbers imply that inflation reached a peak in December 2022 and is still falling. The CPI number for the year to March came in at 7.0% from a 30-year high of 7.8% in December. This was despite strong increases in household gas prices in the three months and sharp increases in medical services and university fees. Gas prices in Melbourne alone jumped 23% over the quarter. The latest quarterly increase of 1.4% was the lowest since late 2021. The RBA has expressed concerns about a tight labour market and increased immigration feeding into inflation but these latest numbers have a number of bank analysts suggesting the RBA now has reason to extend its pause in rate hikes. We will find out more when the RBA holds its Board meeting on Tuesday May 2.

Embattled online retailer Kogan jumped 24.29% last week after announcing a business update and initiating a share buy-back. It said the past three months had shown a return to consistent underlying profitability after a year of refocusing the business. The shares traded at $3.42 on April 21 before closing last week at $4.35.

Infant formula group Synlait Milk dropped 24.49% last week after announcing a profit downgrade. It blamed reduced demand for infant formula from one of its customers for most of the slide as well as higher supply chain and financing costs. The price drop affected fellow milk supplier A2 Milk which owns nearly 20% of Synlait. Both companies are heavily dependent on infant formula sales into China. A2 Milk said that is revenue would be at the low-end of guidance.

The AUD closed the week at $USD0.6617 down 1.14% for the week.

The market will begin to focus on the Federal Budget (May 9) this week but before that the RBA the US Fed and the European Central bank will all hold meetings to determine where interest rates are headed. The ECB is expected to raise rates another 0.25%, Australia is likely to leave rates on hold after the CPI numbers last week and the US Fed is a bit of a lottery. The RBA Governor will speak on Tuesday and the RBA’s Statement on monetary policy is set to be released on Friday. US quarterly earnings reports next week will drive short term equity markets as well.