by Paul Sanger
The Australian opened significantly higher on Friday, extending gains from the previous three sessions, following positive cues from US markets overnight. At noon, the S&P/ASX 200 is 0.82 per cent or 56.30 points higher at 6946.00.
US equities rallied Thursday for the second day in a row, closing near best levels, even after the latest GDP results showed a second-straight contraction, as investors bet the economic downturn would soon cause the Federal Reserve to end its aggressive hiking campaign.
On the data front, Q2 GDP dropped at a 0.9 per cent annual rate, which is the second consecutive quarterly drop for GDP. News of the back-to-back contractions heightened a debate in Washington over whether a recession had begun. Most economists still don’t think the US economy meets the formal definition of a recession, but the data leaves little doubt that the recovery is losing momentum amid rising interest rates, high inflation and anaemic consumer spending. Treasury Secretary Janet Yellen said Thursday the US economy is in a state of transition, rather than recession, despite two consecutive quarters of negative growth being an historical measure of a recession. Recession, Yellen insisted, is a “broad-based weakening of our economy” that includes substantial layoffs, business closures, strains in household finances and a slowdown in private sector activity.
Seems like definition of a recession is about to become a political football.
The Dow Jones Industrial Average jumped 332.04 points, or 1 per cent, to 32,529.63. The blue-chip index added about 400 points in the previous session. The S&P 500 rose 1.2 per cent to 4,072.43, and the Nasdaq Composite added nearly 1.1 per cent to 12,162.59. All of the major averages are on pace for a winning week as well as their best month of 2022. All three major indexes have risen at least 7 per cent from their 2022 lows in mid-June.
Traders had a deluge of second-quarter company earnings to digest Thursday, and results continue to drive a divergence across the sectors. Honeywell (up 3.7 per cent) and Etsy (up 10 per cent) both reported strong results. Ford Motor climbed 7.1 per cent after it beat profit and revenue estimates and raised its dividend. However, shares of Meta Platforms dipped 5.2 per cent on the back of disappointing quarterly numbers, with guidance matching concerns about multiple headwinds on digital advertising.
In other news, solar stocks soared after both sides of the political divide said they’ve reached a deal on climate spending. Residential solar installers Sunrun and Sunnova jumped nearly 30 per cent each, with SunPower up about 18.2 per cent. The Invesco Solar ETF added 7.5 per cent.
US contracts extended gains, with AAPL-US and AMZN-US strengthening after hours following earnings.
More traction behind the peak Fed narrative has supported risk assets this week after Chair Powell scrapped forward guidance on rates and stressed data dependency. Bigger-than-expected contraction in US GDP strengthened market expectations of a slowdown in pace of tightening. Futures continue to price rate cuts in 2023 as recession risk helps drive rally in bond markets and inversion of yield curves.
Asian equities are mostly higher Friday.
Greater China markets have opened lower, with Alibaba weighing on the Hang Seng following a report Jack Ma will cede control of Ant Group. Taiwanese and Korean markets are outperforming.
Taiwan is the focus of Thursday’s call between Biden and Xi. Biden warned Xi against military action while Xi warned Biden against “playing with fire”. Both aimed to keep lines of communication open, including possible face-to-face meetings. The China Politburo meeting is in line with previews after leaders walked back a commitment to the 2022 growth target. No new stimulus was announced, but a less restrictive stance on housing and internet platforms was signalled. The Covid Zero commitment was reaffirmed.
The Bank of Japan Summary of Opinions reiterated the need for continued easing amid downside risks from commodity prices, Covid-19, Fed tightening and the risk of US recession. Tokyo core inflation rose further above the BOJ’s 2 per cent target. Retail sales undershot, but METI upgraded its industrial production outlook. South Korean industrial production rose as manufacturing output quickened, but retail sales fell for a fourth consecutive month.
In local economic news, bonds are mixed, with JGB, Australian and New Zealand curves steepening further, while Treasury yields have reversed higher.
Best and worst performers
The best-performing sector is Real Estate Investment Trusts, up 2.09 per cent. The sector with the fewest gains is Health Care, up 0.06 per cent.
The best-performing stock in the S&P/ASX 200 is EML Payments (ASX:EML), trading 6.70 per cent higher at $1.03. It is followed by shares in Janus Henderson Group (ASX:JHG) and Charter Hall Group (ASX:CHC).
The worst-performing stock in the S&P/ASX 200 is Zip Co (ASX:ZIP), trading 22.37 per cent lower at $1.18. It is followed by shares in Brainchip (ASX:BRN) and PointsBet Holdings (ASX:PBH).
Company news
Buy now, pay later player Sezzle (ASX:SZL) says total revenue grew 6.8 per cent in the June quarter to US$29.3 million on total merchant sales, which are up 1.9 per cent to US$419.1 million. Total active merchants climbed 19 per cent year-on-year to 47,900. Sezzle said it is targeting US$40 million in annualised revenue and cost savings via staff redundancies and new deals with merchants. It said it received US$11 million compensation from Zip after the merger deal was called off. Shares in SZL are currently trading up 8.82 per cent at $1.11.
Origin Energy (ASX:ORG) has a $2.2bn writedown for the 2022 financial year after revising the value of its energy markets business, while bumper gas prices delivered a bump in quarterly revenue from its LNG unit. The electricity and gas retailer said the non-cash impairment was sparked by a $4.4bn rise of in-the-money derivative assets connected with the hedging of high wholesale electricity and gas prices. Origin said the carrying value of the energy markets business is assessed independently of the derivatives and does not take into account the benefit of positive hedge contracts. Shares in ORG are currently trading up 3.07 per cent at $5.875.
Lithium explorer Lake Resources (ASX:LKE) has reported an operating cash loss of $7.2 million for the 12 months to June 30. It reported an investing cash outflow of $23.5 million, with $21.7 million spent on exploration and development. As at the period end it had cash on hand of $175.1 million. The company owns the Kachi lithium deposit in Argentina and says it expects to reach production by 2024 using a new direct lithium extraction technology which is not yet proven at commercial scale. It said it expected to complete drafts of its definitive feasibility study towards the end of the third quarter of 2022. Shares in Lake are currently trading up 1.94 per cent at 79 cents.
Marley spoon (ASX:MMM) today shared with investors highlights from the quarter ended Q2 2022. Q2 2022 net revenue was 109 million euros, with 35 per cent growth year over year. H1 2022 net revenue was 212 million euros, with 34 per cent year over year. Operating EBITDA showed a loss of 3 million euros, a sequential improvement vs Q1 2022. CEO Fabian Siegel highlighted, “In the second quarter we continued to see good growth that was driven by the successful execution of all three pillars of our growth strategy. We continue to acquire subscribers at attractive unit economics, we have increased average order volumes by expanding.” Shares in MMM are currently trading up 12.5 per cent at 27 cents.
Laybuy Group (ASX:LBY) released its latest quarterly business activities update for 1Q FY23 last night, together with the outcome of the strategic review announced in April. In summary, the company has had a very good quarter, with significant improvement in net transaction margin and operating cash flow on the back of better fraud prevention and credit risk management. The improved NTM and further planned cuts to overheads mean that the path to profitability has become much clearer, with Laybuy now targeting 4Q FY23 to reach profitability (that is, the March quarter 2023). This will make Laybuy one of the first, if not the first, profitable pure-play BNPL company on the ASX. As a consequence, the strategic review has concluded that a sale or partial sale of the business is not currently in the best interests of shareholders. The company has also indicated that the shortened path to profitability removes the need for a capital raising in the medium term. Shares in LBY are currently trading down 26.67 per cent at 11 cents.
Commodities and the dollar
Gold is trading at US$1754.49 an ounce.
Iron ore is 6.2 per cent higher at US$117.95 a tonne.
Iron ore futures are pointing to a rise of 1.2 per cent.
One Australian dollar is buying 69.97 US cents.
