Finanical Insights M

Commonwealth Bank shares fall further from record highs on results miss, Tesla rip up despite hot CPI

Jessica Amir
Market Strategist

Summary:  Watch our video or read below on what’s happening in markets with potential trading and investing considerations. The Aussie dollar's 50-day moving average continues to limit downside ahead of AU employment data. The sectors that win from hotter than expected US CPI. CBA shares moved into oversold territory after its results missed expectations, but CBA's pull back from its record highs may encourage investors to buy in.

US equities supported by technical levels, despite hotter-than-expected CPI. Fed speakers suggest more rates hikes could be ahead

The S&P500(US500.I) closed flat, while the Nasdaq 100 (USNAS100.I) gained 0 6% - with the tech index propped up by a 7.5% jump in Tesla shares, which erased Tesla’s two-day fall. That said, Tesla still remains in overbought territory. The major US indices seem to be supported by their 50, 100, and 200-day simple moving averages (SMAs), suggesting a slow rebound in equities may continue, as the market is still pricing in rate cuts later this year. This is despite the headwinds of hotter-than-expected January CPI, which suggests the Fed can keep rates higher for longer, which would pressure aggregate S&P500 company margins/profits, especially those high PE names, such as non-profitable tech companies. Headline consumer prices rose 0.5% in January - the biggest jump in three months, and 6.4% YoY – while the market expected CPI to slide from 6.5% to 6.2%. Core CPI (ex-food and energy) was also higher than forecast at 5.6% YoY – resulting in two Fed speakers saying the central bank may need to raise rates, more than envisioned. While another Fed speaker says the rate-hike path could be near its end. 

Investor reflections from hotter-than-expected US CPI; with airlines costs and commodities up  

Shelter costs were a large contributor to US monthly prices moving up -  with rent prices up 8.6%, while large price jumps were seen in airfares costs, up 26%. Airlines are not only seeing more passengers, but also increasing their fares  - and this is translating to higher earnings expectations and thus stronger share price performance in airline industry stocks. American Airlines shares are up 40% from their lows, while aircraft maker Boeing is up 80% off its lows. Across other inflation categories, other significant price moves were seen in eggs, butter, fuel, gas, lettuce, cereals, and pet food. This reinforces Saxo’s bullish and overweight view on Commodities as we see higher prices for longer. Companies such as Shell trade 32% up from their lows, while agricultural company Deere is up 40% from its lows. For more commodity companies, refer to Saxo's Commodity equity basket theme. 

Australia equities (ASXSP200.I) fall back to January 16 levels, dragged down by Commonwealth Bank’s cautious outlook

Shares in the biggest bank in Australia, the Commonwealth Bank (CBA) sank 5.2% pulling away from their record high territory, after reporting half-year results today that paint a cautious tone for banks for the year ahead. And CBA’s stock drop pulled the broad Aussie shar market back to January 16 levels. CBA’s profit results mostly disappointed, although its net interest margin- the main metric analysts look at for banking profitability - came in at 2.1% - on par with expectations. CBA’s cash profit missed expectations with profit up 8.6% YoY to $5.15 billion (vs $5.17 billion Bloomberg consensus), while CBA’s return on equity improved – but also missed market targets. That spooked the market, along with CBA putting aside more capital for bad debts, as higher price pressures continue to hurt consumers, along with falling home prices. 

Even though CBA’s results missed, it announced a $1 billion share buy-back as its headline profit after tax moved to a record, which was supported by a surge in business banking profits. The share buy back should theatrically support CBA's shares over the medium to longer term, coupled with the market expecting 2023 profits to hit another record, with margins to improve.  CBA shares gapped down, wiping out a month of gains - with CBA shares moving into oversold territory. 

Aussie dollar's 50-day moving average continues to limit downside ahead of AU employment 

The Aussie dollar has continued to track sideways for the last 7 trading sessions, with the Aussie dollar against the US - the AUDUSD pair being supported by its 50-day moving average-  ahead of Australian employment on Thursday. Despite hotter than expected US CPI, the pair is steady - also supported by the fundaments - metal prices have moved higher, with Copper and Iron Ore prices back at June 2022 levels. The next catalyst will be Thursday’s Australian employment data, if we see more than 20,000 jobs added, then we will be watching the resistance levels, at perhaps 0.7114 for the Aussie. On the downside, if Australian employment is weaker than expected, we will be watching for a potential pullback. Support for the AUDUSD is perhaps at 0.6879. But, over the medium-to-long term, should the USD continue to track lower, commodity prices stay higher and AU exports continue to grow to China, we see the Aussie dollar doing well.  

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