After Omicron reared its head late last year, domestic investors were “anxious and uncertain” heading into the latest round of ASX trading updates, UBS said.

But so far, so good.

February reporting season is around 20% complete, and the numbers so far have been “reassuring”.

Holding strong

One way to assess reporting season results is in the way that company earnings results act as a gauge for market health and broader economic strength.

And on that front, Australia’s big banks — which make up the biggest weighting of the local index — fared pretty well.

While the mix of quarterly and half-year results for the banking majors showed margin pressures are intensifying as post-COVID competition heats up, UBS said the sector’s results were a net-positive.

The performance of the banks also implied “further earnings upgrades to come for the sector”.

If that’s the case, it indicates that broader activity in Australia’s economy has held up through the unpredictable nature of lockdowns.

For inventory-based businesses, the lockdown challenge has been more acute as COVID-19 wreaks havoc on supply chains and stock management.

On that front, UBS said early reporting season results also suggest the worst of those impacts may be starting to fade.

For evidence, they flagged a detail in the update from pure-play online homewares retailer Temple & Webster (ASX:TPW), which said post-reporting date revenue growth for the five weeks from January 1 to February 6 was up 26% on the same period last year.

“Nods to the domestic economy’s strength were also seen through the real estate space, with Centuria Office REIT noting that they see tenant demand for Australian office improving throughout 2022,” UBS said.

And while the outlook for residential real estate has grown more bearish in some quarters as financial conditions tighten, listings platform REA Group (ASX:REA) isn’t flagging a downturn.

Instead, the company said new listing volumes for January 2022 were up by 14% from the prior year period.

Easing the pressure?

How about labour costs — are Australia’s border lockdowns and underlying economic strength flowing through to upward pressure on salaries?

UBS said that so far in reporting season, that reality was probably best reflected by the ASX itself which reported an earnings miss.

Other companies also reported difficulties in finding enough skilled staff to meet demand.

But while it’s still early days in February reporting season, “we have picked up some tentative signals from companies that supply chain pressures may have already peaked”.

In calls with analysts, mining technology company Imdex (ASX:IMD) and engineering firm GUD Holdings (ASX:GUD) expressed optimism that the peak in supply chain pressures may already have passed.

“These comments echo recent readings from our US Equity Strategy team, who found supply chain issues still very negative across US Q4 earning results, but improving slightly versus Q3 levels,” UBS said.

The early insights emerging from companies on the ground — both here and abroad — will be a useful indicator to watch in the months ahead given its connection to the dominant investment narrative so far in 2022.

Namely, how fast the US Fed will raise rates to combat ongoing inflationary pressure.