Charts and caffeine: Goldman Sachs and Macquarie name their favourite big bank

The Morning Wrap

Livewire Markets

Welcome to Charts and Caffeine - our daily markets wrap featuring the best charts and reads from across Livewire's team of expert editors. Let's get you caught up on the overnight session.

Markets wrap

(Source: Marketwatch/Google Finance)
(Source: Marketwatch/Google Finance)

Stocks wrap - choose your fighter!

(Source: Marketwatch/Google Finance)
(Source: Marketwatch/Google Finance)

The overnight session was definitely a case of choose your fighter as not all companies in any one sector are created equal. The perfect case in point? Abercrombie and Fitch flagged rising costs after reporting a steep bottom-line loss. In contrast, retail compatriot Nordstrom beat the street's estimates on EPS, and revenues and issued strong guidance.

Macro calendar

Today is another one of those red-letter central bank days. The Reserve Bank of New Zealand is expected to raise its cash rate by 50 basis points (again!) to 2%. If it happens, the headline rate will sit at its highest since September 2016. Life was so much simpler back then, wasn't it?

In the meantime, the US Federal Reserve hands down its meeting minutes tonight. Here, the board's outlook on inflation and growth will come under increased scrutiny. One more negative GDP print, in addition to soaring inflation and a tight labour market, could lead to a stagflationary environment - and from there, recession.

ASX stocks to watch

Today's stock to watch is the National Australia Bank (ASX: NAB). Following the Big Bank earnings results of recent times (some of which we covered here), the brokers have been running the ruler over which major has what it takes to outperform in the next quarter. 

Goldman Sachs has a buy rating on the NAB (the only big four bank to get such an accolade) thanks to its favourable balance sheet and net interest margin outlook.

However, it does admit that it's not trading on cheap valuations. 

Macquarie also admitted NAB is not trading on cheap valuations, however, its outperformance "justifies" its price. As a footnote, it did not have a glowing view of ANZ's (ASX: ANZ) or Westpac (ASX: WBC)'s results despite the latter staying the course on reducing costs.

The chart

(Source: David Berthon-Jones, Aequitas Investment Partners)
(Source: David Berthon-Jones, Aequitas Investment Partners)

If you are wallowing in your losses, spare a thought for global investors who have had it a lot worse. David Berthon-Jones of Aequitas Investment Partners did the math on year-to-date returns across a range of emerging and developed markets. Frankly, it's not a pretty set of bars.

The quote

We cut developed market (DM) equities to neutral on the risk of the Fed talking
itself into overtightening policy and China adding to a weaker global outlook.

Today's quote is from Jean Boivin of the Blackrock Investment Institute (aka Blackrock's institutional arm) and it speaks to a similar theme to our chart of the day. Rate hikes are normally bad for emerging-market assets.

However, Jean thinks the Fed's messaging does not take into account all the risks that may come to fruition - and as a result, he does not see a bright outlook for risk assets. The same team also abandoned its bullish case for China recently - and I'm willing to bet this chart had something to do with that.

Disruption at its most pure. (Source: China NBS, Macrobond)

The best reads in business

The world’s financial system is entering dangerous waters again, warns guru of the Lehman crisis (The Telegraph, London): The global economy has never been so sensitive to the slightest change in borrowing costs. And as Adam Tooze of Columbia University points out, there is a long list of assets that could break as global central banks wind back the free money. 

4 takes on what's driving global supply-chain challenges (Livewire - Glenn Freeman): We started with a nod to Goldman Sachs so let's end with a word from Goldman Sachs. This chart from an early May report shows how global goods trade is starting to slow - not helped of course by those lockdowns in China. In this piece, Glenn discusses the factors which are allowing supply chain blockades to persist with the help of four leading analysts.  

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2 contributors mentioned

The Morning Wrap
Markets Wrap
Livewire Markets

Livewire and Market Index's pre-opening bell news and analysis wrap. Available weekday mornings and written by Chris Conway, Kerry Sun, and Hans Lee.

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