Charts and caffeine: Two ASX stalwarts, two opposite views

Welcome to another edition of 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 Friday's session.

MARKETS WRAP

Friday's labour report in America showed another 390,000 jobs were added - but that hourly earnings are still stagnant month-on-month. These themes continue to be a key thorn in the Federal Reserve's side. Unlike most others before it, the current cycle has started with an unusually low unemployment rate, which cannot go much lower. So, what will pay the price instead? This chart from Macrobond Financial looks at that.

• S&P 500 - 4,108 (-1.63%)
• NASDAQ - 12,548 (-2.67%)
• CBOE VIX - 26.03
• FTSE 100 - 7,533 (-0.98%)
• STOXX 600 - 440.08 (-0.26%)
• US 10YR - 2.941% (+0.49%)
• USD INDEX - 102.17 (+0.34%)
• WTI CRUDE - US$120.26/bbl (+2.9%)
• NATURAL GAS - US$8.54 (+0.64%)

THE CALENDAR

A rate hike is a done deal - what is up for debate is the size of that rate hike. (Besa Deda, St George Chief Economist)

I could have written a long-winded explanation that it's RBA decision day on Tuesday but that quote pretty much sums it up. Market economists are generally split between a 25 basis point hike and a 40 basis point hike. The question remains - are homeowners really ready?

Goldman Sachs and Bank of America both endorse a 1.35% cash rate in Australia by the end of the year while Franklin Templeton called market expectations simply unreachable.

Another central bank also meets this week - the European Central Bank. The difficulty for the continent is how it must wind back stimulus while an ongoing war shows no signs of letting up. Inflation's hotter than hotcakes and yet, as recently as a week ago, most economists were still expecting a 25 basis point hike from the ECB at its July meeting. 

Then, Deutsche Bank dropped the contrarian bomb.

The burden of proof has shifted further, and the data over the summer now need to disprove the case for a 50bp hike early in this hiking cycle... we believe the ECB is continuing to underestimate inflation and we expect support for a 50bp hike will increase as the summer progresses.

Finally, the latest read on US inflation hits the wires next week. Recent weakness in the US dollar may suggest core CPI has peaked. But food and energy prices will have something to say when it comes to the headline rate - especially with Brent crude not looking anywhere near a sub-$100/barrel price level. 

STOCKS TO WATCH

I thought we'd do a compare and contrast of two ASX stocks today, featuring the analysis of two different brokers in each case. Plus, to make everyone happy, I picked a growth name and a value name.

For the value kids, I picked Wesfarmers (ASX: WES) thanks to its strategy day held late last week - the first since its new health and digital divisions were created. 

Macquarie thinks the health and digital move could dilute returns for the group relative to those strong retail returns in the short run. Cognisant of additional retail headwinds (especially for Bunnings and Kmart), the broker has put WES on a hold rating (with a reduced price target). 

Goldman Sachs is concerned about the conglomerate's risk profile for the above reasons. They note that the Catch business still has not delivered, its health business needs to prove itself, and it isn't convinced Kmart can work through its inventory backlog. The broker has rated WES a sell - saying there is more share price downside to come.

For those with a growth inclination, I picked Pro Medicus (ASX: PME) after it secured another long-term contract win in the United States. Following this most recent contract win, CEO Sam Hupert described the pipeline (again) as “remaining strong” - and they have yet to disappoint.

Bell Potter is backing management all the way on this one - arguing the contract wins keep coming and that earnings are transparent enough for it to review. It's a buy rating with punchy upside expected.

Goldman Sachs has, in total contrast, also put the "medtech" firm at a sell rating - given the valuation remains elevated. The kicker is that the broker does not believe the recent win rates can be sustained.

THE CHART

Given that the RBA meeting is this coming week, I plucked this chart from the gang at ANZ. I specifically chose this because, for a while, the RBA needed wage growth as the final trigger to be pulled before rates would start to rise. Well, most economists shelved that theory after the Q1 inflation print but it turns out they were probably right not to wait for wages as well.

ANZ's Felicity Emmett argues the GDP data of last Wednesday showed very strong average hourly wages growth - even tracking above the RBA’s forecast. The figures suggest (to them at least) that policy needs to lean more strongly against the broadening of inflation pressures. 

In fact, it's this chart that explains why ANZ has joined AMP and Westpac in the 40 basis point rate hike camp. 

THE STAT

19.9%: The three month house price growth in Brisbane, per Corelogic and Morgan Stanley

I picked this stat because it proves (again) that not all roads on Australian property always lead to Sydney and Melbourne. While it is true that Sydney and Melbourne's prices are finally coming down, Brisbane's growth is still very, very hot.

THE QUOTE

I don't believe the Federal Reserve has the policy - or the tools - to do much with inflation right now. I'm not personally blaming them but most of the problems we're living with are policy generated and supply generated. 

When you think of Larry Fink at Blackrock, chances are you mostly think of his comments on ESG - but even Larry had something to say to Bloomberg's David Westin late last week on everyone's favourite topic - inflation. And to say he's sceptical is probably being polite.

BEST READS IN BUSINESS NEWS

Two erratic presidential candidates put Colombia at risk (The Economist): Let me just leave you the tease of this article because frankly, it's amazing: 

A Russian Default Won’t Win the War (Bloomberg): The war in Ukraine continues to drag on - soon entering the fifth month. Some say Russia's near-default on its debt could be a win for Ukraine - just don't say it will be the end of the war.

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