The S&P/ASX 200 (INDEXASX: XJO) futures are pointing to a strong, positive open for the Australian share market on Monday. The Whitehaven Coal Ltd (ASX: WHC) share price and Megaport Ltd (ASX: MP1) share price are in focus. The SPDR S&P/ASX 200 ETF (ASX: STW) and iShares S&P/ASX 200 Core ETF (ASX: IOZ) track the ASX 200 index.
Adairs share price jumps on guidance
A sustained rally in the energy sector, which finished 2 per cent higher on Friday, wasn’t enough to reverse broader losses with the S&P/ASX200 ultimately finishing 0.8 per cent lower. The utilities and real estate sectors were the hardest hit, falling 2.3 and 1.8 per cent, respectively, on growing concerns about the regulatory environment for the energy sector. Origin Energy Ltd (ASX: ORG) fell 4.4 per cent.
Fossil fuel companies continue to benefit from the energy crisis with New Hope Corporation Ltd (ASX: NHC) gaining 7.7 per cent to a record high and Whitehaven Coal Ltd (ASX: WHC) was up 4.6 per cent after seeking approval for an extension to its on market buy back.
There was broadly positive news elsewhere in the market, with furniture retailer Adairs Ltd (ASX: ADH), a company that offered rare full-year guidance, confirming the group was on track for a significant jump in sales for the full year. Adair shares gained 3.9 per cent.
While the rest of the lithium sector gained, led by Mineral Resources Ltd (ASX: MIN) up 3.1 per cent, Allkem (ASX: AKE) bucked the trend falling 1.8 per cent after announcing revenue of $298 million for the quarter, below expectations.
The local market finished 1.2 per cent lower over the week, with a similar trend to Friday, as the energy sector was the only one to post a gain, of 1.6 per cent. Financials were broadly flat with company-specific issues sending St Barbara (ASX: SBM) shares and Megaport (ASX: MP1) shares to losses of 24 and 36 per cent — over just five days.
US stocks rally to best week since June, Fed rate hikes to slow
The US market was boosted by a report on Friday that suggested the Federal Reserve may be ready to slow down the pace of interest rate hikes, with the Dow Jones gaining 2.5 per cent, the S&P500 up 2.4 per cent and the Nasdaq 2.3 per cent. Comments from a Fed member reduced the likelihood of a 75 basis point hike in both November and December, sending bond yields lower and buoying almost every company.
With earnings season now truly underway, estimates suggest some 72 per cent of companies have reported a ‘positive surprise’ on the earnings side despite the gloom and doom. One company unable to avoid the pressure was Snap (NYSE: SNAP) which fell more than 28 per cent on Friday after reporting that revenue increased by just 6 per cent on the prior year. Snap’s management blamed inflation for cuts to marketing budgets across the economy.
Facebook / Meta Platforms Inc (NASDAQ: FB) stock was caught up in the weakness, underperforming and falling 1.2 per cent. Despite this, every US stock market index posted the strongest week since June this year, with the Dow Jones finishing 4.9 per cent higher, the S&P500 up 4.7 per cent and the Nasdaq 2.3 per cent higher. Facebook/Meta is part of the Global X FANG+ ETF (ASX: FANG).
Beginning of the end, UK markets pressure politics, and coal miners gain
It’s fair to say 2022 has seen the most significant change in monetary and financial conditions than at almost any point in history. The increase in interest rates is close to unprecedented and has seen a repricing of almost every asset in the world: property and equities chief among them. There are signs, however, that the shift in rates may be underway, following commentary from the Federal Reserve this week. This would bode well for markets, but it is becoming increasingly clear that a rising tide will not lift all boats and even in this environment selectivity will be key.
Usually, politicians are putting pressure on markets and businesses through their own policy, yet this time it was financial markets essentially pushing Liz Truss, the outgoing Prime Minister of the UK, out the door. An abrupt resignation following an ill-fated and poorly received budget has the UK looking at an extended period of economic uncertainty. However, markets are beginning to settle.
For me, the performance of fossil fuel companies has been the surprise of the year, with many sitting at record highs as global demand surges, even as regulatory and political sentiment towards a faster transition to cleaner energy gathers steam. It remains difficult to see the long-term future profitability of this sector despite its short-term strength.
