Markets Awaits Inflation Data | Macquarie Update

14 February 2022

Global markets were mixed overnight, with US markets (S&P 500 index +0.7%) higher on a generally upbeat day that saw investors digest another batch of corporate as investors await upcoming US inflation (CPI) data.

There hasn’t been a great deal of news to digest, but everyone is watching global interest rates push higher and wondering how high they can go this cycle. The 10-year US Treasury yield hit fresh pandemic high’s now at 1.96%, a level not seen since November 2019. Wall Street is dealing with the possibility of inflation data reach an annual increase of 7.2% which would be the highest in almost 40 years (with data released Thursday).

In stock news, Pfizer shares slipped -2.8% after its sales missed expectations and their full-year sales forecast from its covid-19 vaccine and antiviral pill were less than what investors had hoped for. Other companies fared much better, Harley-Davidson rising +8% after reporting a surprise profit, while Amgen (+7%) and Chegg (+16%) rose strongly on earnings beats. Peloton shares rose +18%, after announcing an aggressive shake up, its CEO replaced by Ex Spotify/Netflix CFO and said it will cut 2,800 jobs and structure the company to slash costs and right size the business.

European Markets (Stoxx 600 index +0.01%) were flat as they await US inflation data as losses for tech shares were offset by gains for basic resources. BP slipped -2%, despite reporting its highest full year profit in eight years supported by strong commodity prices.

Macquarie Group (MQG:ASX)

Macquarie shares were up +3.9% yesterday following the release of its third quarter operational update, without going into any detail stating it was “a record quarter.”

This was driven by strong performances from its market-facing business. Management advised that the Commodities and Global Markets (CGM) and Macquarie Capital businesses have delivered a combined profit contribution that was up “substantially” on the prior corresponding period.

Macquarie has highlighted that a whopping US$75 trillion of total infrastructure investment will be required globally by 2040 – which bodes well considering they are the number one global infrastructure financial advisor in 2021.

We have always had a positive view on Macquarie in terms of it continuing to grow its profits but at the current juncture we believe the valuation is stretched, trading at a forward Price to Earnings multiple of ~18x and offering a dividend yield of ~3%. We continue to HOLD Macquarie in our Australian portfolio, but would prefer to BUY the stock at more attractive (lower) valuation multiples.



Australia & New Zealand Market Movers

The Australian market was up yesterday (ASX200 index, +1.1%). Most sectors traded positively led by materials again, following iron topping US$149 per tonne, while financials also performed strongly.

Travel stocks gaining strongly for a second day in a row, Webjet (+7.4%) and Flight Centre (+7.2%) leading gains, while other tourism beneficiaries such as casino and hotel operators also traded positively SkyCity (+5.1%), Star Entertainment (+3.9%), and Crown Resorts (+0.2%).

The New Zealand market (NZX 50 index, +0.3%) was up on Monday.
Tourism plays with Australian exposure led gains as Australia opens up, Sky City up +6.2% due to their Adelaide casino, while Air NZ rose another +4.7%. 

Meridian Energy rose +1.3% after Tiwai point aluminium smelter announced it would stay open beyond the 2024 closure it had previously planned. 

Contact energy was up +0.6% yesterday, after announcing that the Tauhara project is progressing well, expecting it to generate 168 megawatts, up from 152 megawatts – unfortunately the increased capacity and cost inflation means the project will cost $818m, a $140m above the initial investment and could be delayed by 3-6 months. 


3 Things Markets will be Watching this Week

  1. US Inflation (CPI) data will be in focus given its importance in regards to its importance for the interest rate track.
  2. US earnings from the likes of Pfizer, Toyota, Coca-Cola, Walt Disney, PepsiCo, L’Oreal, Astra Zeneca, Unilever and Uber.
  3. Locally, Australian & NZ earnings season commences, with results of note from Suncorp, CBA, AMP and Downer EDI. 
Global markets were mixed overnight, with US markets (S&P 500 index +0.7%) higher on a generally upbeat day that saw investors digest another batch of corporate as investors await upcoming US inflation (CPI) data.

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