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Fortescue's $50 billion comment: What we learned this week

Nicola Chand  |  01 Apr 2022Text size  Decrease  Increase  |  
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Stocks to benefit from budget largesse (for now)

The Federal government handed down a cost-of-living focused budget on Tuesday and analysts at Morningstar and UBS tip several sectors to benefit. A cut to fuel excise, $17.9 billion in infrastructure spending and cash handouts could be a short-term benefit for retailers like Coles as well as infrastructure players such as Downer. Morningstar’s Peter Warnes says any benefit to retailers is likely to be short lived due to the temporary nature of cost-of-living support policies.

China’s zero-covid policy leaves Shanghai traders scrambling to find their old sleeping bags

Shanghai banks rushed staff and their sleeping bags into offices on Monday as the Chinese government continues to battle the country's latest covid outbreak. Traders are watching how China’s lockdown will impact demand for iron ore and already strained supply chains. Pure-play iron ore miner Fortescue Metals fell more than 10% in early March, when lockdowns were first announced, before rebounding and ending 14% higher for the month.

The end of an era for Telstra’s Andy Penn

Telstra announced on Tuesday that chief executive Andy Penn will step down in September. In his seven years he navigated the firm through the rollout of the NBN and a price war in 4G mobile. His anointed successor is the current chief financial officer, Vicki Brady. She plans to turn the 30-year-old, former public telco into a growth company. Telstra shares closed down 0.9% on Wednesday. They ended the week up 0.8%. Morningstar’s Brian Han left Telstra’s fair value unchanged and believes Brady is well qualified to deliver the firm’s strategy.

Government backs technology in battle against climate change

Low emissions technologies including hydrogen will benefit from 250-million-dollars set aside in Tuesday’s budget to support private investment in the space. Federal Treasurer Josh Frydenberg restated the government’s preference for technology over taxes in his address. It comes as major Australian companies such as Fortescue Metals and Woodside Petroleum invest billions in green hydrogen. The Climate Council called the federal budget’s approach to climate change “a missed opportunity”.

Bond market ‘all in’ on rate hikes

Cash rate predictions jumped this week with bond traders betting the RBA will hike faster and further than previously anticipated. Derivative markets expect the cash rate to reach 1.74% by December 2022, up from 1.67% on Tuesday. Today’s cash rate is 0.1%. Traders may be responding to Tuesday's budget, which contained billions in new spending aimed at alleviating rising prices. Reserve Bank Governor Philip Lowe has previously called out bond markets for being too aggressive in their rate hike expectations. Economists at UBS and AMP forecast the cash rate to hit 0.75% by December 2022.

Fortescue walks back Forrest’s 50 billion dollar blunder

Fortescue Metals released a statement on Wednesday clarifying comments made by founder Andrew Forrest following a green hydrogen deal with German utility giant E.ON. Forrest implied that Fortescue would fork out 50 billion in an offhand comment as he signed the firm up to assist in replacing Russian gas with Australian green hydrogen. Within hours Fortescue released a statement clarified that “there is no commitment to this expenditure”. Uncertainty swells around Fortescue’s ambitious green hydrogen plans. Morningstar’s Mathew Hodge says more detail is required to determine its potential value.

ASX edges down, ends week higher: Market recap

Australian shares closed higher for the third week in a row as strength in commodity prices outweighed nervousness about an increasingly hawkish Federal Reserve.

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The ASX fell 0.1% on Friday, its second consecutive marginal loss after a run of seven consecutive days of gains ended mid-week. For the week the benchmark rose 1.2%, led by the resources and consumer staples sectors, up 3.7% and 1.2%, respectively.

Rising commodity prices helped the local index offset weakness in US equity markets later in the week as Federal Reserve officials hinted at more aggressive rate hikes, says Jun Bei Liu, the lead portfolio manager of the Tribeca Alpha Plus Fund.

“Australian equities are holding up,” she says. “In inflationary environments, the commodity complex tends to do quite well.”

Commonwealth, Westpac and ANZ shed between 1.2% and 1.5% on Friday following new data suggesting that the house-price boom could be ending.

In company news, a NSW planning panel has approved extending the life of Whitehaven Coal's mine at Narrabri.

Major moves

  • Magellan Financial Group ↑ 7.9%
  • Telstra ↑ 0.5%
  • AGL ↑ 2.9%
  • Woolworths ↑ 1.9% / Coles ↑ 0.1%
  • Rio Tinto 0.6% / BHP ↑ 4.3% / Fortescue metals ↑ 7.5%
  • NAB ↑ 1.5% / Westpac ↓ 1.2% / CBA ↓ 2.3%/ ANZ ↓ 2.1%

What we’re watching next week

  • Tuesday: Reserve Bank monetary policy decision. Watch for commentary on the rate hike schedule.

What we’re reading/listening to this weekend

Stagflation-friendly portfolios / Growing up in communist Albania / Why are global markets so calm during a war? / NFTs at SXSW / Labor’s budget reply / Government debt costs are rising / Managers with MBA’s cause lower wages

is a wealth and finance journalist with Morningstar

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