Updated: Jan 17
Welcome back to the first Monday Briefing for 2022! With everyone’s New Years resolutions well underway, ours remains the same. This is to provide the best insight to the markets and to hit performance targets for the funds we manage. So without further adieu…
Whilst it is a new year, some key themes are set to continue from 2021. One thing that never seems to disappear is everyone’s close eye on interest rates.
Price pressures will remain in the near-term as the Omicron surge will cause further disruptions. Forced isolation from testing positive prevents employees in the supply chain from working. With these figures along with low unemployment, the Federal Reserve is becoming more hawkish, in which there is going to be a quicker pullback of quantitative easing and three to four rate rises this year. This doesn’t concern us due to the historically low levels interest rates are currently at, and we have factored this into our models.
US core CPI was up 0.6% for December, above expectations of 0.5%. In a mixed report, the PPI figure of 0.2% was below consensus forecasts of 0.4%. Economists prefer producer prices as it excludes some of the most volatile components of consumer prices.
In positive news for Australian retailers who suffered through months of lockdown last year, retail sales grew by 7.3% in November. This was well above forecasts of 3.9%.
Earnings season kicked off last week in the US, which as always starts with the major financials. Here are some of the earnings per share results:
- JPMorgan Chase (NYSE: JPM): $3.33 vs $3.01 expected
- Citigroup (NYSE: C): $1.46 vs $1.38 expected
- Wells Fargo (NYSE: WFC): $1.25 vs $1.13 expected
- BlackRock (NYSE: BLK): $10.42 vs $10.16 expected
The rest of the major financials report this week. This includes investment bank Goldman Sachs which we recently entered a position in.
Wall Street’s consensus forecasts is as following:
- Bank of America (NYSE: BAC): $0.77 EPS and $22.18 billion revenue
- Morgan Stanley (NYSE: MS): $1.94 EPS and $14.57 billion revenue
- Goldman Sachs (NYSE: GS): $11.75 EPS and $12 billion revenue
Other significant financials reporting includes Bank of NY Mellon (NYSE: BK), PNC Financial (NYSE: PNC), and U.S. Bancorp (NYSE: USB).
Other companies that we hold which are reporting includes consumer giant Procter & Gamble (NYSE: PG) which includes familiar household brands such as Head & Shoulders and Oral B, Australian software company Atlassian (NASDAQ: TEAM), and Intuitive Surgical (NASDAQ: ISRG). ISRG is known for its da Vinci Surgical System, which facilitates minimally invasive surgery controlled from a console.
We believe that Procter & Gamble will mitigate near-term margin pressures from commodity and freight inflation with their superior pricing power. The Omicron surge provides further tailwinds to Atlassian as companies and governments across the world are mandating or advising working from home for non-essential work. Atlassian provides collaboration software and tools that are essential for remote work.
Healthcare giant UnitedHealth Group (NYSE: UNH) is also reporting, which is a company we are considering holding. Covid surges impacts its healthcare analytics line as it hampers its customers who are a wide range of businesses. On the other hand, Covid surges are a tailwind to its health insurance line. There will be lower pay-outs for medical services as people avoid hospital or have non-essential visits cancelled due to capacity constraints.
Netflix is looking to keep up its subscriber growth momentum from the third quarter where it picked up 4.4 million subscribers, bouncing back from disappointing growth in the second quarter. Management has provided lofty guidance of 8.5 million new subscribers. With a subscriber count of 213.5 million there will be concerns of slower growth in the medium to long term due to saturation. With this, a key to Netflix’s long-term success is gradual expansion in operating margins.
In economic news, China will be reporting it’s fourth quarter GDP figures, which is expected to increase 3.6% year-on-year. China’s industrial production is expected to increase 3.7% year-on-year for the month of December. Jobs in Australia are expected to increase by 205,000.
An interesting statistic for the week
With all the serious talk about finance related insights and figures, I thought I’d like to end each piece with an interesting statistic for my readers. Here’s one to start it off…
Only 8% of the world’s currency is actual physical money
With most people paying for everyday items using their credit or debit card, or online with PayPal or Afterpay, we are using good old physical cash a lot less than we use to. However, some may find it surprising that this figure is just a paltry 8%.
Have a great week,
Sam Waldron - Research Analyst