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Oil price jump driving energy sector higher

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The S&P/ASX200 jumped higher after China GDP data was released and closed up on Monday, gaining 23.40 points or 0.32% to 7417.30. Tech and energy sectors rose, Santos up 1.2% by the close and Woodside 1.7% higher.

US markets are closed on Monday for Martin Luther King Jr day.

China’s central bank cut its key interest rate for the first time in almost two years, bolstering an economy that’s losing momentum in the face of repeated virus outbreaks, reported Bloomberg. The 10 basis-point reduction was announced shortly before data showed gross domestic product grew 4% in the final quarter of 2021 from a year earlier, higher than the 3.3% rise projected by economists but slower than in the previous three months. For the full year, the world’s second-largest economy expanded 8.1%, well above the government’s target of “over 6%.” A surge in global trade helped, with data last week showing exports from China rose to a record $US3.36 trillion in 2021.

Wesfarmers, which owns the Bunnings hardware chain, and Kmart, Target and Officeworks retail chains, said on Monday that the first half of January had seen customer traffic to stores soften after weaker overall retail trading conditions in the final two weeks of December. In an update to the market prior to the company’s scheduled 17 February results presentation, the company said in a statement to the ASX that solid results in its chemicals, energy and fertiliser businesses, along with a good performance from Bunnings, meant it should still deliver a first half net profit between $1.18 billion and $1.24 billion for the six months ended December 31.

Wage lender Beforepay, which provides a “pay on demand” offer for borrowers, dropped as much as 42.5% on debut. The IPO saw investors issued 10.3 million shares at $3.41 a share.

WTI crude futures rebounded more than 2% to around $US84 a barrel on Friday, its highest since October 2014, according to Trading Economics, as supply disruptions in Libya and Kazakhstan and dwindling US crude inventories more than offset mobility curbs in China. Brent gained to trade around $US86.42 a barrel but was slightly lower by the afternoon.

The Australian and Dow Jones Newswires are reporting these broker notes:

South32 Price Target Raised 8% to $5.40/Share by Credit Suisse

Alumina Upgraded to Outperform from Neutral by Credit Suisse

BHP Price Target Raised 4% to $41.00/Share by Credit Suisse

Qantas Airways Price Target Cut 0.8% to $6.25/Share by JPMorgan

Rio Tinto Price Target Raised 4% to $110.00/Share by Credit Suisse

Santos Price Target Cut 5.6% to $8.50/Share by RBC Capital Markets

Allkem raised to Outperform, Price Target $13.20: Credit Suisse

Cleanaway raised to Overweight, PT $3.30: Morgan Stanley

JB Hi-Fi raised to Add, PT $54: Morgans Financial

Pilbara Minerals raised to Neutral, PT $3.95: Credit Suisse

Santos raised to Positive, PT $7.90: Evans & Partners

The week ahead

The fourth-quarter earnings season continues, with companies such as Bank of America, Goldman Sachs, Morgan Stanley, P&G, and Netflix reporting.

Central banks in Japan, China, Indonesia, Malaysia, Turkey, and Norway will be deciding on monetary policy, while the ECB will be publishing meeting minutes.

Other key data includes US housing starts and building permits; Canada, UK, and Japan inflation data.

In the US

US stocks wavered on Friday after mixed earnings reports weighed on major banks, economic data disappointed and investors remained concerned about more aggressive Fed tightening. The Dow Jones lost around 200 points, led by falls in bank shares, the S&P was 0.1% up, while the Nasdaq Composite, outperformed its peers, adding as much as 0.6% after Netflix announced a price increase for US and Canadian subscribers.

On the corporate front, earnings from JPMorgan Chase and Wells Fargo beat estimates but only because of reserve releases and Citigroup profits dropped sharply. Meanwhile, both retail sales and industrial production unexpectedly fell, raising further concerns about the omicron spread, supply disruptions and high inflation, writes Trading Economics

Earnings previews from Michael Hewson’s week ahead article:

  1. Goldman Sachs Q4 21 – 18/01 – having set aside significant amounts of provision in respect of non-performing loans in 2020, US banks have had a blue riband year these past 12 months. Not only have we seen record revenues, but we’ve also seen big increases in profits as well. In Q2 Goldman Sachs blew past expectations as revenues came in at $15.39bn, well above expectations of $12.43bn, although trading revenue fell short at $4.9bn, although this appeared to be a one-off, as Q3 saw a pick up. This was more than offset by investment banking revenue which rose 26% to $3.45bn, with the high number of IPOs, as well as M&A fees helping to boost the numbers. Consumer and wealth management, which was expanded to the general public at the beginning of 2021, generated a record $1.75bn in revenues in Q2. In Q3 revenue came in at $13.61bn, $2bn above expectations while profits rose to $14.93c a share, well above the consensus of $9.92c a share. There were beats across the board in all divisions with the trading division standing out, with a return of $5.61bn, while equities also outperformed with revenues of $3.1bn, well above expectations of $2.2bn. The bank has also been better at cutting operating expenses. Unlike JPMorgan, Goldman seems to have a better handle on costs, however that’s probably easier given they have far fewer bank branches and no retail operation to speak of. Last week it was reported that its commodities desk reported record revenue for the full year, pushing through $2.2bn. Q4 profits are expected to come in lower, at $11.60 a share, however this may well understate this weeks number. Despite the excellence of these numbers over the past couple of quarters the shares have struggle to make any gains to speak over the past two quarters. This maybe down to concerns that banks could struggle to match the performance of the last 12 months, as speculation over possible rate rises tempers economic growth expectations and lending activity.
  2. Netflix – Q4 21 – 20/01 – Netflix shares have taken a bit of a tumble in the past few weeks, largely due to concerns over valuations and the prospect of higher US rates. Having hit a record high in November of $700 last year the shares have drifted lower, and could fall further even if we see a decent set of Q4 numbers later this week. When the streaming giant reported its Q3 numbers back in October, all the chatter was about the success of Squid Game even as the company faced increasing competition from the likes of Disney+, Apple TV+, Warner Media/Discovery, and Amazon who recently added the MGM back catalogue, for its Prime offering. While its US market is pretty much saturated, and given to quite a bit of churn, on a global scale Netflix remains out in front with over 210m subscribers and is very much holding its own, despite its worst first half for subscriber numbers since 2016. In Q3 subscribers came in at 4.4m, while management were also cautious about Q4, although revenue numbers continue to show decent improvements. In Q3 revenues came in at $7.4bn and are expected to come in at $7.7bn in Q4. Profits however are expected to come in much lower with management downgrading these to $0.80c a share, largely due to higher spending on content which will see margins decline from 23.5% to 6.5% during this quarter. Full year operating margins are still expected to come in at 20% or slightly better, despite the higher spend in Q4. This quarter we’ve seen Netflix release new series of The Witcher, Cobra Kai and the Tiger King, and Lost in Space, while viewers are still keenly awaiting new seasons for Stranger Things, which is now due in the summer of 2022. As Netflix increasingly focusses on its international markets there appears little sign that revenues are slowing, and the scope for user growth, particularly in international markets still looks fairly decent, even when measured against 2019 subscriber growth numbers. With the addition of streaming video games on mobile devices, and the recent acquisition of the Roald Dahl Company the potential for management to grow and diversify the business towards a younger cohort, as well as existing users can’t hurt either.

AUD/USD US72.08c

Bitcoin $US42,667

Gold $US1819.74 an ounce

Brent crude oil $US86.19 a barrel

WTI crude oil $US84.10 a barrel


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