January has seen a booming start to the year by share markets, despite fears (albeit fading, it has to be said) about inflation, recession and a move by big investors out of Wall Street into Eurozone and Emerging Markets, as well as Asia.
The rotation out of the US was highlighted in the first Bank of America big global investor survey of the year we told you about last week – the move was the most pronounced since before the GFC.
And yet it seems those who rotated have missed the bus, other markets are doing very well indeed so far.
In Australia, the ASX 200 is up a solid 6.7% while London’s Footsie (another index influenced these days by commodity shares) is up more than 4% so this month.
China’s CSI 300 index (it covers the top stocks quoted on China’s markets) is up more than 7% on the post Covid-re-opening story.
Tokyo’s Nikkei is up more than 6% as well this year so far, as is the pan-European measure, the Stoxx 600 index while Canada’s TSX (in Toronto) has seen a rise of nearly 6.5% so far in January. It’s another commodity-driven market.
And while the ‘value’ parts of Wall Street (the Dow and S&P 500) have lagged those gains and justified the big investor rotation out of Wall Street, they have missed the stellar start to the year by Nasdaq and the mega tech giants.
While the Dow is up 2.5% and the S&P has risen 6%, the Nasdaq has surged 11% so far in January.
Friday saw more of the same.
While the S&P 500 gained 0.25% to close at 4,070.56 and the Dow added 28.67 points, or 0.08%, to finish at 33,978.08, the Nasdaq jumped 0.95% to settle at 11,621.71,
The tech-heavy index rose 4.32% and closed out its fourth straight week of gains.
The S&P and Dow did OK, adding 2.47% and 1.81%, respectively, last week but the outperformance of the techs was very noticeable as Tesla shares leapt 33% in the week, Apple shares were up 5.7%, Amazon shares 4.6% and Microsoft shares finished 3% higher, despite the weak quarterly report.
Alphabet shares rose by just 1.5% as investors fretted about the latest legal action from the US government trying limit the company’s domination of online advertising.
Exxon Mobil reports its 2022 and December earnings tonight – the former will be an all-time high and the latter will be solid but after its biggest US rival, Chevron, revealed weaker than expected 4th quarter earnings, Exxon could follow suit according to some analysts.
Chevron did announce an increase in its share buyback to $US75 billion, its biggest ever and a move that brought a surge of criticism of the company from some parts of the market and the White House.
It is a sign though that even a huge energy giant has no idea where to invest its surplus cash at a time of high prices and recovering demand because the rise of renewables is starting to damage the outlook for fossil fuels.
US drivers (of ICE-powered cars) won’t be happy after paying record prices for their petrol for much of 2022.
Warren Buffett will be happy though as Chevron’s buyback will push his stake in the oil giant from around 8.6% to more than 10% once the purchases end. That will keep his Berkshire Hathaway as the biggest single investor in Chevron, all without him or his company spending a cent.
The coming week though will be an odd one – on the face of it the Fed meeting and decision and then the January jobs data should dominate, but it will be the trio of mega stock quarterlies and their quality which investors will be focusing on.
The rise in markets in the US and globally in the first four weeks of 2023 has been a surprise given the plethora of gloom and doom stories about the eventual impact of the rapid rise in interest rates on economic activity.
It is starting to look as though investors are looking through the recession (which has yet to occur, even in the UK) and started adding up the gains from a rebound. It’s all a bit airy fairy at the moment
Investors though can rely on Fed chair, Jay Powell to bring a note of realism to any comments he makes post meeting this week.
Now the December Consumer Price Index and the PCE inflation and consumption data last Friday (the Fed’s preferred price measures) showed a further easing in cost pressures, but that won’t be enough for the central bank.
Remember the hard-line message in the Fed’s December minutes and those post meeting comments from chair, Jay Powell who acknowledged that while inflation had been subdued in October and November, the central bank required “substantially more evidence” of declining inflation for the Fed to pause its rate hikes.
“We have a long way to go,” Powell said, “to get to price stability.”
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The ASX 200 future market was showing a 12-point gain by the close on Friday.
That was after the S&P/ASX 200 was up 25.5 points, or 0.3%, at 7,493.8 at the close on Friday, and rose 0.8% over the week to be up 6.7% year to date and less than 2% away from its all-time high.
Coal stocks were hit last week and especially on Friday from the drop in prices mid-week.
Shares in Yancoal were down 9.5%, New Hope (down 9%) and Whitehaven Coal (down 6.6%) as the price of Newcastle traded thermal coal dropped 12.7% over the week.
The weak coal price will continue to be a sore point for the local market this week and for a while longer, even as coal producers eagerly await the return of Chinese buyers.
They will buy the lower grade 5,000 to 5,500 kilo calorie energy coal (that’s a measure of the amount of energy in the coal) and not the 6,000 coals priced in Newcastle and up to double the price.
The China reality is that the gains from the re-opening will be slow and small in coming.
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And finally, Reuters reports that bankers across Asia are becoming worried about the financial health of India’s biggest industrial group, Adani Enterprises with the fate of a $US2.5 billion capital raising suddenly looking a bit creaky.
If the fund-raising falls over then markets in India and several other countries in Asia will be shaken.
Reuters reported that bankers on the $2.5 billion issue are considering extending the sale or cutting the issue price after shares plunged on a US short seller’s report last week.
Adani had set a floor price of 3,112 rupees ($US38.22) a share and a cap of 3,276 rupees, but Adani Enterprises closed Friday’s session 11% under the base level at 2,761.45 rupees.
Friday’s 18.5% fall in shares of group flagship Adani Enterprises took the week’s losses to more than 20%, sparking a weekend of talks about delaying the issue by up to four days.
On the first day of retail bidding on Friday, the issue was subscribed by around 1% (of the 45.5 million shares to be issued), raising concerns over whether it would be able to proceed, according to Reuters. A second option for the bankers is to cut the issue price, which would be less embarrassing than pulling the issue.
Reuters said that seven listed companies in the Adani group (controlled by one of the world’s richest men, Gautam Adan) had lost a combined $US48 billion in market value by Friday after Hindenburg Research on Tuesday released its report that flagged concerns about debt levels and the use of tax havens.
The Adani Group called the report baseless and said it was considering taking action against Hindenburg.
Adani owns the Carmichael coal mine in Queensland and the Abbot Point coal terminal north of Bowen in Queensland.
