Block jumps, market finishes higher, CSR, Pendal deliver

The local sharemarket capped another positive week, closing 0.5 per cent higher on Friday on the back of a surge in the oil price. The energy sector gained 3.4 per cent behind a jump in Woodside (ASX:WDS) and Santos (ASX:STO), while another five sectors were down lead by healthcare, which fell 0.8 per cent. The standout, however, was Block Payments (ASX:SQ1) which surged by more than 10 per cent after the company delivered a far better than expected earnings report. Owner of Afterpay and the Cash App, the company reported a 38 per cent jump in gross profit and a 51 per cent jump in transactions on the platform, contributing to another strong quarter. Pendal (ASX:PDL) management remain adamant that the takeover by Perpetual (ASX:PPT) will go ahead, despite the suitor receiving its own bid this week. Building product provider CSR (ASX:CSR) gained 3.5 per cent after reporting a 27 per cent increase in profit for the six months to 30 September, the result came on the back of a 14 per cent increase in revenue. Shares in Magellan (ASX:MFG) fell by 2.4 per cent after the company reported another $2.4 billion in outflows taking funds under management to $50 billion. Across the week the market gained another 1.6 per cent with Coronado Coal (ASX:CRN) gaining 22 per cent and Lend Lease (ASX:LLC) falling 12.1 per cent.

Market rallies on weaker employment, China stock surge continues, PayPal growth cut

Global markets finished on a stronger tone, suggesting a positive start to the week in Australia. The Dow Jones gained 1.3 per cent, the S&P500 1.4 and the Nasdaq 1.3 per cent after a report confirmed the US economy added another 261,000 jobs in October, but the unemployment rate still increased to 3.7 per cent. Markets are trying to determine when the full impact of rate hikes will be felt in the real economy. Over the week, the Dow finished 1.4 per cent lower, the Nasdaq 5.6, as the tech sector weakened, and the S&P500 3.3 per cent. Chinese markets remain the standout with the Hang Seng gaining more than 5 per cent to finish the week on the back of an end to the harsh lockdown policies that have exported inflation to the rest of the world; Alibaba (NYSE:BABA) gained 7.1 per cent. Shares in PayPal (NYSE:PYPL) weakened after the company cut growth expectations by 10 per cent, citing a weakening outlook for consumer goods and retail transactions for the weakness. It was the opposite story for Starbucks (NYSE:SBUX) which gained more than 8 per cent after management confirmed expectations of same store sales growth of between 7 and 9 per cent while reporting a 6 per cent pass through of input cost inflation.

Rates not slowing, inflation drives margins, bargains, spreads expand

The Federal Reserve all but ended hopes that the speed of rate rises was set to slow with Chairman Powell suggesting the cash rate could move as high as the core inflation rate, which exceeds 5 per cent. This would send mortgage rates significantly higher, but must be taken with a grain of salt as the Fed seeks to use sentiment to dampen animal spirits in the economy. Inflation remains front of mind in AGM season with both Amcor and Woolworths highlighting the challenge faced by businesses. Amcor was able to pass on more than $600 million in costs associated with packaging inputs, while Woolworths reported food inflation exceeding 7 per cent. The concern of course is that higher prices eventually results in consumption habits changing and sales slowing as a result. Bargains galore or falling knives? That is the biggest question as the divergence between even technology companies continues to grow. On the one hand Block stood out, jumping double figures on better than expected sales, while Atlassian dropped by more than 20 per cent after a troubling result.

Drew Meredith

Drew is publisher of the Inside Network's mastheads and a principal adviser at Wattle Partners.