Charts and caffeine: The ASX industrials company (still) universally loved by the brokers

July 01, 2022 07:12

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 - 3,785 (-0.88%)
NASDAQ - 11,029 (-1.33%)
CBOE VIX - 28.71
FTSE 100 - 7,169 (-1.96%)
STOXX 600 - 406.88 (-1.58%)
USD INDEX - 104.70
US10YR - 3.017%

THE CALENDAR

PCE - the Fed’s preferred inflation measure - remained stuck at the headline level last month at well over 6%. However, the core figure came down from 4.9% to 4.7% - and that seemed to alleviate fears about inflation.

THE CHARTS

Today, I thought I'd take a look at the global labour market from two different perspectives.

ACTU Secretary Sally McManus was quoted recently as saying "wage-price spirals" are a "boomer" concept. She claimed the RBA was "not in touch with reality" (a view that more than a few economists probably concur with) and that wages have gone back in essential industries for years now. While there is some merit to that argument, you may also want to be careful with bargaining too hard for wage rises. As this chart from the US shows - the more that wages go up, the more employers turn to robots in industries where that move is possible. It's not a threat, but it is just something to think about.

Then, there's this key data point that economists are watching like a hawk - job vacancies by state. And you don't need your masters to work out that the number is soaring in every state (but especially in WA). The job vacancy rate reached a new record high of 3.4% in May. As the brilliant Catherine Birch explains, the sheer volume of job vacancies
means that upward pressure on unemployment is still a while away. Or put it another way - Australia will be fully employed for a time to come. So if you want to ask for a pay rise in this country specifically, there may not be a better time than now. Just don't ask about what comes next for inflation once you get your pay rise. — Then, there's this key data point that economists are watching like a hawk - job vacancies by state. And you don't need your masters to work out that the number is soaring in every state (but especially in WA). The job vacancy rate reached a new record high of 3.4% in May. As the brilliant Catherine Birch explains, the sheer volume of job vacancies means that upward pressure on unemployment is still a while away. Or put it another way - Australia will be fully employed for a time to come. So if you want to ask for a pay rise in this country specifically, there may not be a better time than now. Just don't ask about what comes next for inflation once you get your pay rise.

STOCKS TO WATCH

There was one key data point to watch in today's edition of 'The Calendar', two charts to watch in the global labour force. So today, I thought we'd go through three different takes on an ASX sector that enjoyed quite the boom during the COVID-stimulus era:

Building and housing products

Ord Minnett, JP Morgan, and Citi have all made upgrades and downgrades to the sector ahead of August earnings season. If there is one theme among all of these updates, it's that the end of the housing boom is around the corner.

Rising rates are kick-starting a downturn in most major economies with housing bubbles. Given that we're in the early stages of this part of the cycle, analysts are using this opportunity to change their calls ahead of reporting season.

JPM's top ideas: James Hardie (ASX:JHX), Reliance Worldwide (ASX:RWC), and Fletcher Building (ASX:FBU). The last has been upgraded to overweight on valuation terms (and the fact that New Zealand is in a better part of the housing cycle).

In contrast, CSR (ASX:CSR) gets downgraded to a neutral while Reece (ASX:REH) remains the sole underweight in the sector.

It's a similar narrative at Ord Minnett with their analysts viewing the end of the housing boom in sight.

Ords' top ideas: James Hardie is, once again, the preferred play. Analysts see that company as the best chance of delivering big results in tricky times. CSR also gets a downgrade (for ironically the opposite reason to James Hardie). Adbri and Boral receive a hold rating each.

At Citi, they are even more bearish on building products - but they do have good reason to be. Analyst Samuel Seow thinks the pace and number of megaprojects will come down. For one, inflation has been stimulated and for another, tax receipts are now looking less optimistic. Then, there's this quote which got my attention:

Additionally with funding/capacity constraints, we expect socially important projects like water security and energy to be prioritised.

This will explain why the team has downgraded Boral to a sell recommendation. In contrast, mining exposure means Adbri keep its Neutral rating.

THE TWEET

THE QUOTE

Since the pandemic, we've been living in a world where the economy is driven by very different forces. What we don't know is whether we'll be going back to something that looks more like what we had before. We suspect it will be a blend ... we're learning to deal with it. Our job is to find price stability and maximum employment with these new forces.

The goals are the same but the game is much, much tougher. This quote from Fed Chair Jerome Powell at the ECB Forum in Portugal really speaks to the challenge these monetary authorities have. They know what the challenge is but they also have a mandate. The mandate, unfortunately, is looking increasingly tough to defend in this unprecedented world.

GET THE WRAP

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