A tale of two earnings guidance statements

Charts and Caffeine

Livewire Markets

Welcome to Charts and Caffeine - Livewire's pre-market open news and analysis wrap. We'll get you across the overnight session and share our best insights to get you better set for the investing day ahead.

MARKETS WRAP

  • S&P 500 - 4,119 (-0.28%)
  • NASDAQ - 12,369 (-0.18%)
  • CBOE VIX - 22.84 (+7.08%)
  • FTSE 100 - 7,413 (-0.13%)
  • STOXX 600 - 437.88 (unch)
  • GOLD - US$1781/oz
  • WTI CRUDE - US$93.89/bbl
  • US10YR - 2.59%
  • USD INDEX - 105.41

THE CALENDAR

Source: Forex Factory

It's RBA day in Australia and the hype for this one has been a little more subdued in comparison to other meetings in the recent past. Perhaps it's because we know what the answer is - a 50 basis point hike is widely expected (though some continue to stick to a 75 basis point call as the best course of action). 

Either way, the real action is in the rates market. The terminal rate projections have come back markedly - even as inflation continues to show signs it hasn't peaked yet. 

THE CHART

(Source: Gina Martin-Adams, Bloomberg)

I thought that since we are at the start of earnings season in Australia, it might be instructive to take a look at the state of earnings expectations. And although this is a US chart, there are still some lessons here for local earnings. Namely, we haven't seen an earnings/corporate recession hit yet. Will this August tell that story?

STOCKS TO WATCH

Today, we're doing two sets of stock comparisons. One has an Australian earnings flavour while the other features a fantastic correlation that you have to see to believe.

Here in Australia, let's start with United Malt Group (ASX: UMG). The company told the ASX it expects to miss its full-year earnings guidance due to - altogether now - inflation. As the price of everything goes up, inputs are getting tougher to source and the cost to get those inputs is becoming more expensive. In addition, supply chain disruptions and a deterioration in the quality of imported barley are weighing on its bottom line.

As of writing, the most bullish broker price target on this stock comes from Citi and is at $5/share. I suspect there's going to be some re-rating on the way.

Then, contrast that with Aussie Broadband (ASX: ABB) which expects to hit the top end of its full-year revenue guidance. And yet, the share price finished yesterday's session well into the red (-17% at one point). 

Aussie Broadband has the same issue as United Malt Group in broker land. That is, the share price is depressed in direct correlation to the consensus target price. In fact, Ord Minnett has a target price nearly 70% above the stock's actual price. 

Now that's what I call price not equalling value. 

My other stock price correlation is quite remarkable. It's the correlation between NVIDIA (XNAS: NVDA) and Cisco Systems (XNAS: CSCO). Both stocks have been listed since before the turn of the century (NVIDIA is the latter of the two, debuting in early 1999). But the correlation which they share is absolutely amazing when you compare "bubble to bubble". 

That is, take a look at Cisco's share price in the dot-com bubble and line that up with NVIDIA's share price since February 2020. Is the next leg lower?

Ooft. (Source: Bloomberg)

THE STAT

80%: The number of economies around the world now experiencing inflation above 6%. (Source: Refinitiv, GMI)

And here is the chart to prove it:

That's just hideous. (Source: Julien Bittel)

THE TWEET

In case you missed it, the US is now in a technical recession. However, the US bureau of statistics doesn't agree with the dictionary definition and neither does the White House (all of a sudden, it seems). So is this just politicking or is this really a different kind of economic slowdown? Either way, FinTwit is having a lot of fun with this.

Today's report was written by Hans Lee. Hans would also like to extend his appreciation to his colleagues for writing the report while he was on leave recently.

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Charts and Caffeine
Markets Wrap
Livewire Markets

Charts and Caffeine is Livewire's daily pre-market news and analysis wrap. Every day, Livewire's team of market journalists and editors get you across the overnight session and share their best insights to get you better set for the investing day...

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