Two double downgrades from CLSA

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 - 4,284 (+0.23%)
• NASDAQ - 12,965 (+0.21%)
• CBOE VIX - 19.53
• FTSE 100 - 7,542 (+0.35%)
• STOXX 600 - 440.76 (+0.39%)
• US10YR - 2.883%
• USD INDEX - 107.48
• GOLD - US$1,773/oz
• WTI CRUDE - US$90.56/bbl

SPI FUTURES (as of 6:30am, via Bloomberg): 7,045 +25 (+0.36%)

EARNINGS WRAP AND PREVIEW

The good news for Amcor (ASX: AMC) shareholders is that cost inflation was able to pass onto customers - benefitting its revenues. The bad news is that those same costs plus a one-off $200 million impairment from operations in Russia and Ukraine also caused profits to contract. In contrast, Blackmores (ASX: BKL) reported a lift in net profits but flagged cost reduction still has a way to go. Then, this line really spooked the crowd:

Blackmores acknowledges several macro-economic variables remain outside the company's control which could impact its business.

Don't tell shareholders that! They hate uncertainty! Cue the sinking share price.

Pro Medicus (ASX: PME) shares were relatively flat as investors praised its continued ability to win and keep contracts. You can follow this link to find out why they are also so bullish on the earnings outlook. Then, there's Origin Energy (ASX: ORG). In a year when LNG and energy prices have been so strong, you'd think this was their year. Their NPAT figures (against expectations) said otherwise.

Treasury Wine Estates (ASX: TWE) found a few more buyers for its Penfolds bottles, nearly completing a remarkable turnaround for that company following its woes in China just a few years ago. One of our resident fundies even called it "very cheap"! Transurban (ASX: TCL) also received a heap of praise from the fundie we chatted to. Like, a lot of praise.

Today, it’s the turn of such names as Cochlear (ASX: COH), Inghams (ASX: ING), Newcrest Mining (ASX: NCM) among others.

I'll spare you the earnings calendar for next week until Monday. You've worked hard enough this week. Take a breather.

STOCKS TO WATCH

There were many more downgrades hitting my email inbox yesterday - at least another six by my reckoning. But today's stocks to watch are about two companies that got a double whammy. That is - two companies that received a downgrade from outperform to underperform (bypassing a hold rating). 

Today, it's all eyes on Sims Metals (ASX: SGM) and Vicinity Centres (ASX: VCX). 

In Sims' case, a doubling in profits was not enough to shake investor fears about rising interest rates and supply chain issues. The target has been cut by analyst Daniel Kang to $16, from $20. 

Vicinity Centres was downgraded on valuation grounds. The price target was also slivered. This despite the company beating its first-half earnings expectations and reinstating full-year guidance! Even smashing earnings is no longer good enough for the brokers! (Or perhaps, too good.)

THE CALENDAR

Although it's a relatively quiet Friday, there are two sets of retail sales data to watch out for. Canada and the UK both report later today. But there's a key difference.

In the UK, economists are expecting a negative retail sales print - just as inflation hits 10% in the country on a headline basis. While in Canada, the figure is likely to be far more muted but not negative yet.

Next week is another big week though. If you're worried about the risk of a global recession, then you really need to be right across the data in the early part of the week. We'll tell you all about it on Monday.

THE STAT

41,000: The number of jobs that the Australian economy lost last month. 

(Source: ABS)

And yet the unemployment rate went down! Please explain? Simple, my dear reader. There were 20,000 extra people who were unemployed last month who didn't end up saying they were looking for work. This means they drop out of the participation rate, making the unemployment rate artificially higher. They're still unemployed, you know!

THE CHART

And speaking of unemployment, let's talk about wages. Wage price growth, as evidenced through the quarterly wage price index, is low and getting worse in comparison to inflation. In case you needed any proof, here's the CBA chart:

So, that's the Australian version. Awful, right? In the US, it's a different problem. ANZ's international team (led by Tom Kenny) just revised up its terminal rate forecast for the Federal Reserve. And that's with hourly earnings rising at over 5% per period. The catch is that since US inflation is at 8.5%, the differential is around the same as it is in Australia. That is, wages are still being eroded away by inflation very quickly. Hence, the hiked forecast. 

One last chart before I get off my tightening high-horse, and this one comes to us from Gennadiy Goldberg at TD New York. The July Fed minutes revealed this week that the central bank is more worried about the potential downside risks to the economy than inflation. Indeed, going too far and too fast is one problem. Higher expectations for longer is a completely different and much larger problem. 

All this is to say one thing: is the Federal Reserve's endgame actually further and higher than everyone expects? This chart may help inform that.

TODAY'S TOP READ

Today's report was written by Hans Lee.

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