16 Dec 2022
Fed confirms higher for longer
Markets
- Local and global equity markets fell this week as the US and European central banks hiked rates with quite hawkish rhetoric regarding higher rates for longer.
- In local stock news, the Albanese government’s plans for energy price caps saw utility stocks tumble with Origin Energy down almost 8% alone, given the price cap might affect the $9 a share takeover of the company by Brookfield. Woodside released a strongly worded statement condemning the government’s plan.
- CSL has appointed its chief operating officer Paul McKenzie as its new CEO as Paul Perreault prepares to retire after a decade at the helm and 25 years with the company.
- The Australian Competition and Consumer Commission outlined a timeline for review of ANZ’s pending $4.9 billion purchase of Suncorp’s banking arm, with the commission’s decision not expected until June 12.
- Woolworths raised $636 million by selling down its stake in liquor retailer Endeavour Group to 9.1% from 14.6%. The supermarket giant plans to use the funds to buy a majority stake in a pet food and accessory retailer.
- The oil price rose this week as the US Keystone pipeline closed following a spill and concerns rose regarding Russian supply into 2023 as Putin considers constraining supply following Western imposed price caps on Russian oil and gas.
Economics
- Australian employment rose by 64,000 in November whilst the participation rose back to a record high and the unemployment rate remained steady at 3.4%. The November jobs increase was much larger than expected. Both full-time and part-time employment rose. Population data also showed a substantial lift in immigration.
- Australian consumer sentiment remained very low in December despite a 3% increase helped by respondents with mortgages. Both business confidence and conditions fell in November, showing more signs of weakness ahead. Business confidence fell into negative territory whilst consumers continue to be pessimistic about their personal finances and the outlook for the economy.
- The US central bank raised rates by 0.50% as expected following the weaker than expected inflation print. However, the bank signalled that rates may have to move even higher than previously thought and may need to stay at these levels for longer (ie. into 2024).
- US inflation eased to an annual rate of 7.1% in November from 7.7% in October, coming in below forecasts, providing confirmation to the market that inflation has peaked. The monthly increase in inflation was the smallest in more than a year.
- The US producer price index rose by 0.3% in November, coming in above expectations, with annual growth rate falling from 8.1% to 7.4%. The core figure also came in higher than expectations.
- US consumer sentiment improved in December coming in well above expectations, with one-year inflation expectations falling to levels not seen since September 2021.
- In other US data, retail sales fell 0.6% in November from the prior month, whilst manufacturing activity in the Philadelphia region also contracted more than expected.
- The European Central Bank raised interest rates by 0.50% to 2.50%, its 4th consecutive increase, and said it expects rates to rise “significantly” further. If they carry through with that rhetoric, a deeper European recession is more likely.
- The Bank of England also raised rates by 0.5% to 3.5%.
- UK home sellers cut their asking prices at the quickest pace in four years as soaring interest rates have spooked buyers. Data showed that the average asking price dropped by 2.1% in December.
- UK economic growth rose 0.5% in October from minus 0.6% in September, beating expectations of a 0.4% increase. UK inflation dropped to 10.7% in November from a 41-year high of 11.1% in October, coming in below expectations.
- Britain’s unemployment rate rose for a second month with other signs in data that some of the inflationary heat in the labour market is cooling, including an increase in older people looking for work.
- China economic data showed that industrial production, fixed asset investment, and retail sales all came in under expectations.
Politics
- The Australian government is proceeding with price caps on coal and gas as it tries to reduce the impact of surging energy prices to come in 2023 and 2024. A short-sighted and silly policy as all price caps do is discourage private sector investment and cause prices to rise later.
- Chinese officials continued to downplay the risks of covid as restrictions are eased. The messaging follows the government’s latest line on the virus as it exits covid-zero, with limited testing and counting of only symptomatic cases. Covid cases continued to rise and despite pleas from state media and health experts for people to self-medicate and recover at home, many are flocking to hospitals creating concerns of over-crowded hospitals.
- Japan and Netherlands have agreed in principle to join the US in tightening controls over the export of advanced chipmaking machinery to China. The alliance would significantly inhibit China’s ability to buy the equipment necessary to making leading edge chips. The pressure either forces China to play nice or emboldens them further, with the latter being more likely.
- The US government announced bipartisan legislation to ban China’s popular social media app TikTok from government issued devices, amid fears the app could be used to spy on Americans and censor content.
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