| The Not So DAILY BULLETIN 26 July 2023 No.571 Top Stories Wednesday, 26 July 2023, the ASX 200 gained 62 points to close at 7402. This is the highest point since 16/2/23, as the inflation figures came in better than expected. As the chart below shows, we have been in a trading range between 7000 and 7500 all year. I’m not sure we are ready to break out of it yet. At 11.29 am, the ASX was up 11 points. When the 6% inflation figures came in at 11.30 am (down from 7%), the market jumped 50 points, and it was mainly the Banks as Resource stocks were already higher on the Chinese stimulus talk. There is growing noise from China that a stimulus package may be coming after last week’s lower-than-expected Chinese GDP figures. US profit season is in full swing, and Alphabet (Google) and Microsoft were the two main releases. They had profits for the quarter of $18.4bn US and $20bn US. Compare this to RIO, who released their half-yearly result after the market closed with a profit of $5.1bn US for the six months (not a quarter). The US results are better than expected, even though they are likely to fall 7% (could have been worse). This has seen the Dow Jones rise for 12 straight days. The longest streak is 13, which occurred in 2018. That might come to an end with the US Federal Reserve announcing their interest rate decision in the morning (5 am Aussie time). There is a 98% expectation of a rate rise to 5.50%, but it will be the commentary from US Federal Reserve chair Powell, that will be the driver of the markets over the next few weeks. WE ARE BECOMING LESS CAUTIOUS and EVEN A LITTLE MORE OPTIMISTIC  Aussie inflation falling Today’s better-than-expected quarterly inflation result was 0.8% for the quarter and 6% for the entire year. As the first chart (source Shane Oliver) below shows (headline inflation is all groups, while CORE inflation is trimmed mean), inflation is coming down quite quickly, as in the last quarter, it was 7%. The monthly inflation figures were released simultaneously, showing an annual rate of 5.4%. The market certainly took this as a positive as it was up just 11 points before 11.30 am, and then by noon, it was up by 60 points. However, looking at the numbers in more detail shows two stories. The 2nd chart (Source Shane Oliver) shows goods inflation is falling, but services inflation is still rising, which would be a slight concern to the RBA. The early updates from economists show they are reducing their peak interest rate by one rate. So a few think there might be only one more rate rise. Kevin H’s view at this stage is they will HOLD at the next meeting.   US Profits Before Australian companies provide half-yearly profits, the US is in full swing regarding profits. The graphic below shows the companies due over the next few weeks. So far, only about 20% of the US companies have reported, and generally, they have come in better than expected, but expectations are for a 7% drop for the quarter. This is hopefully the bottom of the profit cycle. For those, we’ve had recent review meetings. If this is the low in profits and the next quarter is positive (which we won’t know until Oct-Nov), then this may confirm the market theory that the market bottoms nine months before profits bottom. If this is the case, then the bottom of the market was September 2022. Only time will tell!  Financial Planning Snippets – Super Guarantee (SGC) for employees increases to 11% from 1/7/23 – Commonwealth Seniors Health Care card has seen the income limit increase to $144k(couple) $90k (single). If you are of Age Pension age and don’t have the card, please let us know. – Account Based Pension minimum pension payments will revert back to normal from July 2023 (from half normal, which were put in place due to COVID in 2020). Other Stories – RIO profit was $5.1bn US (down 43% on last year). The dividend $1.77 US, down 34%, but lower profit and dividend was expected. – Interest rate decisions also coming from European Central Bank (ECB) and Bank of Japan this week. – Macquarie Group AGM – Thursday. Broker Target Price changes – Ord Minnett Santos (STO) increased from $12 (highest broker) to $12.30 (still highest broker) South 32 (S32) decreased from $4.40 to $4.10 Morgans BHP decreased from $51.70 (highest broker) to $51.30 (still highest broker) S32 decreased from $5.60 (highest broker) to $5.15 (still highest broker) STO decreased from $8.75 to $8.45 (lowest broker) Morgan Stanley BHP decreased from $45 to $44.15 Coles (COL) increased from $14 (equal lowest broker) to $14.75 NAB increased from $25.30 to $25.50 STO increased from $8.66 to $8.88 Woolworth (WOW) increased from $29.70 to $30.50 Macquarie BHP decreased from $48 to $47 Goodman Group (GMG) decreased from $23.18 to $22.66 Lend Lease (LLC) increased from $8.03 (lowest broker) to $8.10 (still lowest broker) Sonic Health (SHL) increased from $31.50 to $33.50 STO decreased from $10 to $9.70 Bell Potter/Citigroup STO increased from $8 (lowest broker) to $8.50 SHL increased from $40 (highest broker) to $40.50 (still highest broker) UBS S32 decreased from $4.90 to $4.50 STO increased from $8.20 to $8.70 Woodside (WDS) decreased from $35.90 to $34.90 Tracking changes for 2023 Upgrades 197 Downgrades 193 (we have noticed the overall trend is down but the CORE stocks are seeing upgrades. It probably reflects the quality stocks in our 30 CORE stocks). Today’s ASX sector Movements Best – Materials +1.8% Worst – REITs -0.5% Core Watchlist Index (changes since last Not So) The CORE Watchlist is a collection of 30 Australian shares, predominantly “Blue Chip”. We obtain research from up to 6 brokers on each share. Each broker provides a Target Price (value in 12 months) which then provides us with an average for each stock. We then compare that average to the current price as a percentage. IE Macquarie price $176.95 Av. Target Price $205.96= 85.9% (meaning 14.1% upside over next 12 months) + income 4.35% (including franking). To get the CORE Index we take the average across the 30 stocks. This provides us with a market average as there are up to 80 teams of analysts providing the research and target prices. The CORE Watchlist stocks represent more than 55% of the ASX 200 and so provide us with a good indicator of the market value. When it’s at 100% then the market is fully priced. We have seen that when the index is below 90%, then it’s good buying, but that doesn’t happen very often. Should you have any questions, please let me know. The Core index increased from 93.90% to 95.01%. Overall Earnings Per Share (EPS) Y23 decreased from 3.84% to 3.43% (forecasts still falling FY24 decreased from 8.33% to 7.71% Most expensive – CBA 117.5% Least expensive – CSL and Lend Lease 80.1% The CORE Watchlist has 9 equal highest (8) stocks trading above 100%, they are BHP CBA COL JBH NAB RIO WDS WES WOW, lowest number ever is 0, highest 9. While 4 (6) are trading below 85% (highest 18) lowest for a while is 3. CSL LLC NEC STO (Figures in brackets is last Not So). STOCKS TRADING BELOW ALL BROKER FORECASTS ARE AS FOLLOWS; (it has been a handy indicator in the past). 8 out of the 30 CORE stocks are trading below the lowest broker target price. Highest 24. Lowest for some time 5. ALL current price $38.86 Broker range $41.20 to $46 CSL current price $262.86 Broker range $315 to $340 ORA current price $3.49 Broker range $3.50 to $3.80 ORI current price $15.70 Broker range $16.50 to $20.30 RMD current price $32.71 Broker range $34.70 to $40.50 S32 current price $3.93 Broker range $4.05 to $5.15 STO current price $7.97 Broker range $8 to $12 TLS current price $4.25 Broker range $4.50 to $4.75 Added Removed Banking Index Like the CORE Watchlist index, the Banking index is the four major banks’ average target price based on research from up to 6 brokers. The percentage below 100% is the potential upside over the next 12 months (not including income). If at or over 100%, then this indicates the Banks are fully priced. The Banking index remained at 103%. Today’s inflation rate may give some the banks some support. We will see what the analysts think, but they are above FULL price. ANZ 96% NAB 104% CBA 117% and WBC 94.5%. Macquarie (MQG) is probably the pick of them at 94%. Based on today’s bank prices, the table below shows the estimated dividends (c) and yield. The expectation is for increased dividend payments and still very attractive yields. PLUS FRANKING. FY 23 % FY 24 % FY 25 % ANZ 162.5 6.38% 163.0 6.40% 163.3 6.42% CBA 436.7 4.16% 445.5 4.24% 447.2 4.26% NAB 169.3 6.04% 170.0 6.06% 171.5 6.12% WBC 141.7 6.41% 143.5 6.50% 145.6 6.59% MQG 738.0 4.03% 696.6 3.81% 742.2 4.06% Dividend expectations have been cut for BHP and RIO. Yields are still expected to be very strong. The forecasts below are for the full year. I have added FY25. BHP and RIO results will see some changing forecasts with the likelihood of further reduction. FY23 cps % FY24 cps % FY25 cps % BHP 264.33 5.64% 226.17 4.82% 202.2 4.31% RIO 602.17 4.98% 675.00 5.59% 626.0 5.18% Plus franking. Please note RIO is Calendar Year (CY). Cents per share (CPS). Other Indicators (changes since last Not So) – US VIX Index increased from 13.76 to 13.86. Suggesting US markets are still very calm. – Iron Ore increased from $110.70 to $114.65. Still some talk of Chinese stimulus ALL-TIME HIGH of $237.57. Av expected for 2023 is $104.20 – Copper decreased from $3.83 to $3.90 Chinese stimulus – Gold decreased from $1983 to $1971. Record high $2063. – AUD/USD decreased from 68.19c to 67.69c. $A as interest peak maybe lower than thought. – USD/CNY increased from $7.18 to $7.15 Lowest $6.31 Highest in recent years $7.35. Chinese currency being lowered by Chinese Govt. – Asian markets – DOWN. – US 10 year Bonds increased from 3.77% to 3.89%. 4.23% (8 year high). US 30 year Bond increased from 3.86% to 3.94% The highest level was 4.27%. US Federal Reserve may raise to 5.5% tomorrow morning. The US 2 year rate has increased from 4.78% to 4.88% (5.37%, highest since 2006). The gap between the 2 yr and 10 years an inverse -0.99%. It was -1.01% but still inverted, which historically has suggested a recession. Widest inverse gap is -1.3%. This is the most it has been inverted in 42 years. – German Bonds increased from 2.39% to 2.42%. 2.74% highest since 2008 – Japanese Bonds decreased from 0.46% to 0.45% 0.508% highest in many years. – Aussie Bonds 10 year Bonds increased from 3.95% to 4.01%. Recent high 4.28% – Other Aussie Bonds 1 year 4.11% 2 year 4.05% 4 year 3.89% 5 year 3.86% 15 year Bonds 4.16%. The yield moved lower on peak rates soon. – Oil prices decreased from $75.4 to $79.27. Better outlook on Chinese stimulus – Tungsten – China remained at $305 to $315mtu. This week & next week Last “Not So” opened in 7 Aust states (excl NT ), US 6 states (California, Massachusetts Colorado South Carolina, New York & Minnesota) Sweden, |
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