15 Jul 2022
Equity investors turn concerns back to inflation
Markets
- Local and global equity markets fell this week as investor concern increased with strong labour market and inflation data potentially forcing central banks to raise rates more aggressively.
- In local stock news, Magellan Financial Group reported $5.2 billion in net outflows during the June quarter, leaving it with $61.3 billion funds under management. The new CEO starts next week.
- A UK court of appeal said a $6 billion lawsuit seeking damages over the 2015 Samarco dam disaster in Brazil could move forward. A long process still to be worked through.
- Brisbane-based fintech firm EML Payments saw its share price plunge as its CEO for the past decade resigned suddenly with no reason given. The company confirmed that no termination benefits will be provided.
- Costa Group shares fell sharply to a two-year low after the fruit and vegetable grower announced that weather events over the past few weeks had hit some of its plantings.
- Viva Energy shares rose after the Shell petrol station and Geelong refinery owner said it expects to announce half-year earnings had increased by 140% to $614 million, compared with the same period a year ago.
- ANZ confirmed it is in talks with US private equity giant KKR to buy accounting software platform MYOB, with the bank set to pay $4.5 billion for MYOB.
- OPEC’s first market outlook for 2023 shows they expect global demand growth to exceed the increase in supplies by one million barrels a day next year. To fill the gap, OPEC would need to significantly hike production which is currently proving difficult due to underinvestment and political instability.
- The oil price fell sharply this week with recession concerns mounting.
Economics
- Australian consumer sentiment fell by 3% in July and is almost 30% below its April 2021 peak, with pessimists firmly outweighing optimists. The fall marks the eighth consecutive monthly decline. Sentiment is now at levels consistent with major economic disruptions.
- Australian business confidence fell in June to sit just above positive territory. Business conditions also fell but remain above the long-term average, with the fall in confidence not yet translating into a significant drop in conditions.
- The Australian unemployment rate fell by more than expected to 3.5%, the lowest since August 1974, with employment rising by more than 88,000, supported by both full and part-time employment. The labour force participation rate also increased to a record high.
- The US annual headline inflation rate accelerated to 9.1% in June, the highest since November 1981, from 8.6% in May and above market forecasts of 8.8%. Energy prices were the biggest contributor, with food costs also surging.
- Two of the US central bank’s most hawkish policy makers have backed raising interest rates by 0.75% at the next meeting to curb inflation. Both are voting members. One of them thinks recession fears are overblown.
- The US economy added 372,000 payrolls in June, coming in ahead of market forecasts of 268,000 and slightly below the downwardly revised 384,000 in May. The June figures leave non-farm employment down by 524,000 from its pre-pandemic level in February 2020, whilst private sector employment has recovered the job losses and is 140,000 higher.
- Wells Fargo has fired a shot across the bow saying there’s no need to fret about the timing of a US recession because we’re already in one, citing inflation that’s faster and more broad-based than expected, weakening consumer sentiment and corporates flagging a shift in spending.
- A US economic optimism index increased in July but remained close to an 11-year low hit in June, with the household’s financial outlook for the next six months deteriorating further to a record low. How consumers feel about the economy’s prospects and confidence in federal economic policies rose.
- China’s annual inflation rate climbed to 2.5% in June from 2.1% in the prior month, coming in above market forecasts of 2.4%. This was the highest since July 2020, with food prices the main culprit. China’s inflation target is 3% for this year.
- Exports in China increased to a five-month high in June easing supply chain concerns. Export growth accelerated to 17.9%, confounding expectations of a slowdown. Import growth fell to only 1% on the year, stagnating for the last four months.
Politics
- Authorities in Beijing are considering further stimulus measures by allowing local governments to sell US$220 billion of bonds in the second half of this year. Proceeds from the sales would most likely be used to fund infrastructure projects.
- Former Japanese Prime Minister Shinzo Abe was assassinated during a political event, shocking the nation and the world. He was shot twice from behind while campaigning. Japan’s ruling coalition expanded its majority in the subsequent upper house election.
- The European Union is rushing to import as much gas from Africa as possible to make up for supplies lost due to sanctions on Russia. The key Nord Stream gas pipeline that connects Europe to Russian gas is currently under maintenance with rising concerns that Putin may not turn the gas back on once maintenance is complete.
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