Global markets were lower overnight, with US Markets (S&P 500 Index -0.3%) falling as investors digest the march US inflation print and easing covid restrictions in Shanghai saw price of oil jump +6.3% to $104/barrel, recovering from a recent dip.
Consumer prices in March rose +8.5% (keep in mind now annual rises are now from a higher base), the highest level since 1981, with monthly inflation rising +1.2%, boosted by a +18.3% increase in gas prices due to the Ukraine War and a 1% rise in food prices. Core CPI (Inflation) rose which excludes energy and food rose less than expected up +6.5% on an annual basis, and was up ‘only’ +0.3%. On the other side of the ledger, shelter inflation, which accounts for around 40% of core CPI and is made up of rent and so-called ‘owner’s equivalent rent’, was up 0.5% for the second month in a row. Leading indicators suggest shelter inflation will remain a persistent inflationary force this year.
The inflation data is reiterating market concerns than the Fed is now widely likely to raise its cash rate by 50 basis points next month. Financials and Healthcare stocks led losses, while tech stocks were mostly weaker. Energy stocks experienced healthy gains on rise in oil prices as demand in China would return.
European markets (Stoxx 600 index -0.3%) were weighed down by the high inflation print in the US. Deutsche Bank and Commerzbank, Germany’s largest banks were down -9.4% and -8.5% after an undisclosed investor had sold large stake. Losses were offset by oil and gas stocks rising.
Lynas Corporation (LYC:ASX)
Rare earth miner Lynas shares slipped -1.4% yesterday despite revealing a solid first quarter update for 2022. Lynas reported record revenue for the quarter coming in at $327.7m up +61.7% from last year driven by +17.5% increase in production and +82% increased in the average selling of $64.7/kg predominately form Neodymium Praseodymium (NdPr).
Lynas are able to meet elevated demand, by ramping up production, notably NdPr production reaching its highest level since the beginning of the pandemic. CEO said demand for its rare earths products remained strong and it “continues to receive many approaches from end users seeking to secure their raw material sourcing over the longer term”.
We are BUY (High Risk) rated on Lynas as a beneficiary of the upcoming EV boom.
Australia & New Zealand Market Movers
The Australian market fell on Tuesday (ASX200 index, -0.4%) after a weak lead from wall street sparked by rising bond yields.
All sectors were in the red with modest losses, materials and utilities ending almost flat, while healthcare and technology both growth sectors sensitive to rising interest rates lead losses.
Block shares fell -0.4% after releasing Afterpay’s losses for 2021 had quadrupled from the previous year to $345.5m, due to ballooning bad debts.
G8 education shares fell -2.3% when it revealed its earnings (EBIT) came in at $1m, down form $17m in the same corresponding period last year as earnings were squeezed due to omicron and flooding.
The New Zealand market fell yesterday (NZX 50 index, -0.4%), in anticipation of RBNZ’s Monetary policy decision today, as well as key inflation data in the US due overnight.
The sell off was mostly broad-based again, with Eroad leading losses down -10.4%, and A2 Milk hit hard again down another -4.3% – the later concerned about the Shanghai lockdown.
Stocks sensitive to rising interest rates were generally lower, as markets are wary of a 50 basis point interest rate hike. EBOS led gains up +4%, recovering Monday’s losses, while stocks linked to the economy were also stronger, Skellerup rising +3.9%, Mainfreight lifting +1.8% and Fletcher Building was up +0.8%.
3 Things Markets will be Watching this Week
- Geopolitical risks remain extremely elevated with the Russia/Ukraine conflict.
- Economic data wise, an interest rate call from the ECB is due, trade data in China and CPI infoation prints in the U.S, China and the U.K.
- Locally, the RBNZ OCR rate decision is due Wednesday along with employment data in Australia
