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Inflation shock; Rate hike odds run hot; FAANGs report: What we learned this week

Nicola Chand  |  29 Apr 2022Text size  Decrease  Increase  |  
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Musk puts Tesla on the back burner

Tesla founder and the world’s richest man reached a deal on Monday to buy Twitter for US$44 billion. What began earlier this month with Elon Musk taking a 9.2% stake in the “digital town square” finally ended after Twitter’s board endorsed his US$54.20 per share offer to take the company private. Musk still needs approval from most Twitter shareholders and US corporate regulators.

Tesla shareholders appear to have doubts. Shares are down 19% since news first broke Musk’s had taken a stake in Twitter. That's despite the electric car maker beating Wall Street profit forecasts when it reported quarterly earnings last week. Investors may be concerned about the tens of millions of Tesla shares Musk has stumped up as collateral for his US$12.5 billion margin loan. There’s also the risk Musk’s purchase will take his time and attention away from Tesla.

FAANGs split up

The fates of the so-called FAANGs – US tech giants Facebook, Amazon, Apple, Netflix, and Google - are diverging as corporate reporting season enters its fourth week.

  • Google parent Alphabet missed market expectations with its quarterly profit of US$16 billion. Shares slid 3.8% on Wednesday before nearly erasing losses the next day.
  • Amazon dipped 9% in after-market trading on Thursday after posting its first loss since 2015.
  • Shares in Apple bounced higher during the same session amid record quarterly revenue before reversing gains after management delivered a pessimistic outlook clouded by supply chain issues and slowing demand in China.
  • Tech investors found refuge in Microsoft, up over 7%, as the shift to working from home boosted demand for its cloud-based services.
  • Facebook owner Meta Platforms rose almost 18% after reporting a return to user growth.

AMP cuts ties with Collimate

173-year-old investment manager AMP is selling assets and shareholders should benefit. The company agreed on Wednesday to a deal with Dexus for part of its funds management business, Collimate Capital. It sold the remainder a day later to US investment firm DigitalBridge. Morningstar analyst Shaun Ler estimates AMP will receive $1.2 billion in the near term, rising to $1.7 billion if Collimate hits certain performance benchmarks over the next two to four years. He expects a mix of capital returns and share buybacks from next year.

Telstra spends on shiny new Fetch TV

Telstra locked in a $50 million deal for a 51% stake in content aggregator Fetch TV. The company bundles streaming services and digital TV channels into a set top box that plugs into a television. The purchase is part of the telco giant’s efforts to make its products “more sticky”, says Morningstar director of equity research Brian Han, who says it will connect Telstra better to the digital media space.

Telstra sealed its purchase a week after chaos engulfed streaming giant Netflix. Shares plummeted 43% last week after reporting that it lost subscribers for the first time since 2011.

Fortescue bullish on iron ore demand

Brushing aside Chinese lockdowns, Fortescue Metals increased the miner’s export targets for the next quarter on Thursday. The new export target is between 185 million tonnes and 188 million tonnes, compared to the prior forecast of 180 million tonnes to 185 million tonnes. If met, it will be the third year in a row that the company reports record exports. Chief Executive Elizabeth Gaines remains bullish on iron ore, saying Chinese lockdowns have interrupted the supply of scrap iron, an indirect competitor for Fortescue’s iron ore.

Get your bets in: RBA rate hike odds run red hot

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Economists from Westpac, NAB, ANZ, UBS and a range of other banks now expect the Reserve Bank to hike rates for the first time since 2010 when it meets next Tuesday. Traders agree. On Friday, investors in derivatives markets were pricing in a 36% chance the RBA will hike rates at its meeting next week, up from 17% on Tuesday. The shift follows data released Wednesday showing a 5.1% jump in consumer prices for the March quarter.

China weighs on Australian equities: Market recap

Australian shares ended the week lower in volatile trading as China’s zero-covid policy sparked growth jitters and local inflation hit the highest level since John Howard was prime minister.

The S&P/ASX 200 fell 0.8% over the shortened trading week. Shares fell sharply at the open on Tuesday, declining a full 3.1% by Wednesday’s close. Markets pared losses later in the week amid a broad-based rebound.

Technology stocks led decliners, falling 1.68% in line with heavy selling of US technology stocks earlier in the week. Locally listed shares in Block fell 0.64%. The heavyweight materials and financials sectors were down 1.14% and 0.7%, respectively.

China’s decision to maintain its zero-covid policy in the face of flagging growth rattled markets this week, says Aaron Binsted, a portfolio manager at Lazard. He cited weak economic data coming out of China.

Iron ore prices fell sharply on Monday before regaining ground later in the week as Chinese President Xi Jinping pledged more infrastructure spending to jump start the economy. 

Binsted notes shares may have been bolstered later in the week by underwhelming US GDP data released on Thursday as investors bet slowing growth would give central banks room to proceed cautiously with interest rate hikes.

“Funnily enough, I think one of the reasons we saw a recovery recently was that US GDP came in quite weak for the quarter,” he says. “I think some people said growth is lower, so there may be less monetary tightening.”

Binsted adds that high inflation numbers across the world mean any moderation of central bank rate hikes is unlikely.

Utilities, A-REITs, customer discretionary and industrials were the only sectors to gain for the week, up 1.3%, 0.67%, 0.34% and 0.79% respectively.

Blue chip movers

  • Magellan Financial Group ↑ 4.4%.
  • Telstra ↓ 0.3%.
  • AGL ↑ 2.4%.
  • Supermarkets: Woolworths ↑ 2.1% / Coles ↓ 0.9%.
  • Resources: Rio Tinto ↓ 0.6% / BHP ↓ 1.3% / Fortescue metals ↑ 1.7%.
  • Big Banks: NAB ↓ 1.4% / Westpac ↓ 1.4% / CBA ↓ 1.6%/ ANZ ↓ 1.8%.

What we’re watching next week

  • Tuesday: Reserve Bank meeting and cash rate decision
  • Wednesday: ANZ earnings, Uber earnings
  • Thursday: NAB earnings
  • Friday: Macquarie Group earnings

One good read

Not quite a read this weekend, but we’d love your thoughts on what matters to you in the upcoming election.

 

is a wealth and finance journalist with Morningstar

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