Co-written by Market Strategists Jessica Amir in Australia, Charu Chanana in Singapore.
What’s happening in equites that you need to know?
Round the world in two sentences: Global equities rose on Monday from better than expected news coming through, plus the market’s anticipating the best ever quarterly earnings for commodity companies, In the US the S&P500 rose 0.8%, Nasdaq up 1.9%. In Europe, the Euro Soxx 50 rose 0.8. Most commodity screens are green. Oil is up 1.5% back over $104. Soft commodities like Wheat are up 2% and Cotton is up 2.5% as the weather and lack of supply push prices back up again.
Are Twitter’s (TWTR) gains sustainable? shares rose 27% for their best day ever after Elon Musk purchase a 9.2% stake in the company after Jack Dorsey stepped down. The next key catalyst to watch for Twitter is its earnings release on 29 April 2022. Also consider Twitter’s earnings are slowing. In fact the market thinks Twitter’s revenue growth will slow from 37% in 2021 to just 18% revenue growth in 2022. While profit growth is expected to slow slightly. Not good signs and these are likely to cap Twitter’s shares over the longer term. However the technical indicators suggest Twitter’s shares could be supported higher for now.
Meta (FB) shares rise again. But for how long? Meta shares rose 4% and moved above their 50-day average for the first time since January, with buying rising again. But we are weary on a company like Meta who’s profit and earnings growth are slowing markedly. It’s users are falling, heavily. And the market thinks Meta’s 2022 earnings growth will slow as a result, from 37% revenue growth in 2021, to 12% revenue growth in 2022. That’s a cause for concerns given earnings growth drives share price growth.
The Japanese yen moved higher this morning after comments from BoJ Governor Kuroda. USD/JPY slid to intraday lows of 122.38 on Tuesday morning in Asia as BoJ Governor Kuroda highlighted concerns on the swings in the yen, saying that current yen moves have been somewhat rapid. While the yen weakness is not particularly a concern as it helps Japan’s export-driven economy, his comments reaffirm that yen’s volatility has concerned the authorities and verbal intervention will continue. More importantly, it means that policy will still remain geared towards remaining accommodative. FOMC minutes due on Wednesday will remain key for USD/JPY this week.
The Australia share market (ASX200) continues to charge and is just a 0.7% huff and a puff away from its all time high. On Tuesday, the ASX200 rose 0.8%, with all sectors higher except Materials. We think the ASX200 will continue to outperform global markets and will likely set a new all time high.
Block’s revenue growth to outpace Australia’s biggest banks? Block’s (SQ2) shares are the best performing in the ASX, with Block up 6% after the price of Bitcoin rose to $46,603. But investors are waking up the fact that Block’s revenue growth is stronger than banks. Block makes 74% of its money from Bitcoin tap and go transactions. Interestingly, the market see Block’s revenue growth will be stronger than Australia’s biggest banks. Block’s revenue is tipped to grow 8% this year, vs Commbank, (CBA) with revue growth of 2%, meanwhile Westpac (WBC) revenue growth is tipped to fall 10%. ANZ (ANZ)’s revenue growth is tipped to rise 1.5%, and NAB’s (NAB) revenue growth is poise to gain 7.2%
What you need to consider
The RBA signals rate rises could come within months. As expected, at the RBA’s monthly meeting, Australia’s central bank held interest rates at 0.1% but importantly acknowledged inflation had picked up more than expected and that wages had been picking up too. The RBA expects wages to pick up gradually and for employment to strengthen again over the coming months, with unemployment to fall below 4% this year and remain below 4% next. Also, the RBA said it will review ‘additional evidence’ over the coming months. And given the bank dropped the word ‘patient’ from its language, if you put two and two together it’s highly probably the RBA could hike rates at its June meeting, and usher in up to 7 rate hikes after that. After the RBA meeting the market increased its expectation for rates to peak at 1.9% this year, instead of peaking at 1.75%.
India has joined other Asian countries to unveil its hydrogen roadmap, offering incentives for investors to produce the fuel at low costs and help the nation shift away from its reliance on fossil fuels, mainly coal. IOCL, which is India’s biggest oil refiner and a large user of hydrogen, will partner with top renewable energy producer ReNew Power and Larsen & Toubro Ltd. (LTOD) to produce green hydrogen that’s fast gaining momentum in the South Asian nation’s clean push.
EV battery makers battle is intensifying. The battle for EV batteries (about 1/3 of the total EV cost) will likely see more countries race to produce the rare metals. The EV business is currently led by China, which has risen to prominence from cheaper costs and government subsidies. Japan’s battery segment has trailed China in the high end segment, but focus is shifting to recycling technology and next-gen batteries. The same goes for Singapore as it lacks rare metal resources. However, Indonesia, Philippines and Australia have some of the world’s largest nickel mines. And they’re seeing an increase in EV investments over the past couple of years.
SAXO’s global strategy has also announced changes to its equity theme baskets, focusing on renewable energy. The basket is the third best performing basket year-to-date as investors are rotating into renewable energy stocks as the EU is accelerating its push to become energy independent from Russia which means massive investments into renewable energy in the coming years. There have been some updates to defense and commodity baskets as well.
India’s HDFC and HDFC bank merger should mean synergy benefits. HDFC’s shareholders will receive 42 shares of HDFC Bank for every 25 equity shares held in HDFC. Merger closure is expected within 18 months. The megamerger will create strength across retail and wholesale banking businesses, with the entity’s combined market value of $190 billion. The transaction is the second-largest in the world this year, and HDFC soared as much as 20% before paring gains, while HDFC Bank closed 10% higher. Overall, a positive for the Indian banking sector and it also opens up an additional 7% space for foreign portfolio investors into HDFC Bank.
Sri Lanka is barometer on the potential fallout from the unfolding food and energy crisis. Sri Lanka equities are down 57% in USD terms from the peak earlier this year taking the local equity market to its lowest levels since 2009 erasing a decade worth of wealth creation. The unfolding food and energy crisis is beginning to bite awfully in developing countries and Sri Lanka is the canary in the coal mine. Meanwhile, Turkey inflation jumped to 20-year highs, at 61% y/y in March with food prices surging 70% and transportation costs up 99%. These are just some of the idiosyncratic risks to be mindful about, especially for frontier and emerging markets.
India’s bonds continue to wait to be admitted to global bond indices. FTSE Russell will continue to keep Indian government bonds on its watch list for possible inclusion into its emerging markets debt index. India’s bonds are also under review for inclusion by JPMorgan. India’s inclusion into global bond indexes would lure around $40 billion of inflows into the country’s debt market.
Trading ideas to consider
If you believe in the push for EV minerals will intensify and support share price growth in the stocks in the sector, consider looking at ETF; ETFs Battery Tech & Lithium ETF (ACDC) that invests in the world’s 33 biggest companies arounds the world that are involved in the supply chain and production for battery technology and lithium mining. From a technical perspective, the ACDC chart looks like it could continue to rally over the coming days and weeks, echoing shift in policy around the world. For more see our prior notes.
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