UBS' top reporting season small cap picks

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 - 4,122 (-0.42%)
  • NASDAQ - 12,494 (-1.19%)
  • CBOE VIX - 21.78
  • GERMAN DAX - 13,535 (-1.12%)
  • STOXX 600 - 436.20 (-0.62%)
  • USD INDEX - 106.31
  • US10YR - 2.779%

EARNINGS WRAP AND PREVIEW

NAB reported a slight increase in cash earnings to over $1.8 billion, but its net interest margin story followed that of Suncorp's on Monday - i.e. lower. The silver lining is that CEO Ross McEwan says that 70% of customers are still staying ahead of their home loan repayments. In total contrast, News Corp shot the lights out and delivered a record profit and revenue double. Coronado Global Resources also shot the lights out as the price of metallurgical coal soared due to the war in Ukraine. Profits are up 95% at CRN, and the hiked dividends are going to be a thrill for shareholders. Finally, Megaport reported a miss on revenues and a smaller loss. But it didn't take too long for eagle-eyed viewers to realise that it too will succumb to the fate of other tech darlings in this post-pandemic world: redundancies are coming.

Today, it's the turn of the biggest bank of them all (CBA), along with Mineral Resources and Computershare. Strap yourselves in.

STOCKS TO WATCH

Speaking of earnings, UBS is out with its favoured picks at the small end of town for this August. If you read yesterday's CnC, you'll already be familiar with one of the names on the list - Redbubble (ASX: RBL). 

The woes for small-cap investors are well known, and so are the earnings revisions. As analyst Tim Plumbe pointed out, there has been a 5%+ negative EPS revision for nearly half of the broker's coverage universe. So what's there to love in the emerging end of town? Here's their dashboard to watch out for:

  • APM Human Services (ASX: APM)
  • Breville Group (ASX: BRG)
  • Corporate Travel Management (ASX: CTD)
  • IDP Education (ASX: IEL)
  • Kelsian Group (ASX: KLS)
  • Nufarm (ASX: NUF)
  • Redbubble (ASX: RBL)
  • Ridley Corporation (ASX: RIC)

Don't worry, we've got good tabs on these calls. 

PREVIEW OF US CPI

The good news is that headline inflation is predicted to cool down on a month-to-month basis, following the general downtrend core inflation has been set for a couple of months now. The bad news is that the same people who are predicting this phenomenon to occur tonight also completely misjudged last week's payrolls report. 

Conclusion? Who the heck knows?

All the same, tonight's read will help make a case for the Federal Reserve. That is, does it need to go for another 75 basis points hike or will it find a reason to dial it back to a 50? The pace and the breakdown will tell all. The pattern of the last few years has been beautifully illustrated in this chart by Investec (and shared by Mayhem4Markets on Twitter):

How much will this chart change at 10:30pm Sydney time tonight?

THE CHART

Correlation does not equal causation. Or does it....?

A big thanks to Callum Thomas of Top Down Charts for this one - it's the correlation between global equity flows and recession chatter. Unsurprisingly, when the going gets tough, the tough get going. How much in outflows will we see this time and will it pair with the previous definitions of recession for which we are all so used to?

THE STAT

4.5%: The one-week fall in ANZ-Roy Morgan weekly consumer confidence following last week's fourth rate rise from the RBA. 

The level is now also the lowest since April 2020. And if you don't believe me, here's the proof:

Yikes.

The competing Westpac-MI Consumer sentiment index reading was even worse - falling for a ninth consecutive month (to 81.2 in August from 83.8 in July) as rising interest rates, and high inflation weighed on consumers. 

So that inflation expectations fight is going well, then?

THE TWEET

Oh Jim, you've done it again. The two charts are the one-month performances of AMC Entertainment and GameStop. Don't fight the Fed may need to be replaced by Don't fight the crowd soon!

Today's report was written by Hans Lee.

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Charts and Caffeine
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Charts and Caffeine is Livewire's daily pre-market wrap. We get you across the overnight markets and share the best in global finance so you can start your day on the front foot. Written by Hans Lee (Mondays - Thursdays) and Chris Conway (Fridays).

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