Jessica Amir
Market Strategist
Summary: Extra caution is creeping back into markets, with geopolitical tensions picking up, and hotter than expected economic prints, with swaps now expecting the Fed to hike rates at the March, May and June meetings. Sentiment was also weighed by downbeat outlooks from Walmart and Home Depot. On a weekly chart, the S&P500 fell under its 50 day moving average indicating traders could exercise risk-off trading ahead. Australian listed Domino’s Pizza reported weaker than expected numbers and a soggy outlook, sending its shares down 20%, which will likely impact Domino’s shares listed globally. FOMC minutes and Rio results ahead.
The risk off tone was set by geopolitical tensions picking up - as well as economic prints showing the US services and manufacturing PMIs improved more than expected – with swaps now projecting the Fed can keep pushing rates higher — with the market indicating 25-basis-point hikes are coming at the March, May and June meetings. Sentiment was also weighed by downbeat outlooks from consumer spending bellwethers – Walmart (WMT) and Home Depot (HD). All while investors await Wednesday's Fed minutes release. Also ahead are earnings results from mining giant Rio Tinto (RIO), tourism and casino giant Ceazers Entertainment (CZR) and smartwatch and gadget business Garmin (GRMN). The three major indices shed at least 2%, with the Dow erasing 2023’s gains. On the weekly chart - the S&P500’s fell below its 50-day moving average –indicating there are more sellers than buyers – while also possibly indicating the market could potentially pull back. Pressuring sentiment - bond yields hit new 2023 cycle highs - with the 10-year note up 14 bps, while the dollar strengthened.
The Australian share market has fallen about 3.5% from its new cycle high that it hit on Feb 3. Pressure on the ASX200 comes after the RBA indicated it has more work to do to keep inflation and wage pressure in order. The ASX200 now appears to be pulling back, with Saxo’s Technical Analyst reinforcing the technical indicators suggest the ASX200 could drop further. However, if the ASX200 closes above 7,477, the uptrend can resume. Today, Origin Energy (ORG) is the best performer in large caps, up 13% after receiving a revised takeover offer from the Brookfield Asset Management-led group following months of due diligence. Meanwhile Domino’s (DMP) is the worst performer down 21% on reporting weaker than expected half year results. Meanwhile, BHP (BHP) shares are steady after reporting a stronger outlook yesterday. For more on BHP’s expectations for stronger fundamentals this and next year click here – also note BHP remains in a technical uptrend.
In the Australia session today, Domino’s reported underlying EBIT fell 21% Y/Y to A$113.9 million in the HY - with sales growth coming in weaker than expected and inflation also affecting earnings. Its European operations faced significant geopolitical disruptions, and the highest inflation levels across its business- while Asian sales were materially stronger than pre-Covid- but EBIT was lower. All in all, Domino’s financial metrics were down Y/Y, except its store count rose 16% Y/Y to 3,736 stores. The company also cut its half year dividend to A$0.674 per share. As for its - outlook that also disappointed - as customer counts have not met expectations since December - especially in Europe and Asia - which is lowering store profitability. New store openings will continue to grow in FY23 - but could be below Domino’s medium-term outlook for +8-10% growth. This implies there is less franchisee demand to open stores. That said, management is confident it will return to positive same store sales growth once customer demand increases. Domino’s Pizza (DMP) shares in gapped down in Australia , erasing 2023’s gains – taking DMP to A$57.97 – November 2022 levels. We will also be watching Domino’s in the US – DPZ, as well the London listed business – DOM.
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