23 Dec 2022
Interest rate concerns continue to dominate
Markets
- Local and global equity markets had a mixed week with upwardly revised US economic growth putting more pressure on the US central bank.
- In local stock news, National Australian Bank’s CEO warned shareholders that 2023 will be a year of slower growth and with challenges continuing to emerge and evolve.
- Mineral Resources made a $403 million all-scrip (stock) takeover bid for its Perth energy joint venture partner.
- Aurizon shares rose as the country’s largest rail freight operator struck a deal to sell off its east coast haulage business for $425 million.
- Dexus shares traded higher after the company said that 177 of its 1,831 assets, comprising 34 office and 143 industrial properties, have been externally valued with the result being a reduction of 1.9% book value for the 6 months. Not a bad outcome.
- Star Entertainment Group shares fell sharply after the NSW Treasurer unveiled plans to increase taxes on the poker machines at the group’s Sydney casino. Either punishment for recent indiscretions or government budget hole needs filling.
- Treasury Wine Estates shares rose as Minister for Foreign Affairs Penny Wong prepared to fly to China to ease diplomatic tensions between our two countries. Beijing had previously placed 175% tariffs on Australian wine in late 2020.
- Online real estate listing company shares fell sharply after Domain downgraded guidance on a large drop in listings in Sydney and Melbourne, with listings in Sydney down 51% so far in December.
- Origin Energy shares rose after the company confirmed that Brookfield Asset Management was on track to finish due diligence on its $9 per share takeover offer in mid-January.
- TPG Telecom shares fell after the competition regulator rejected its proposed network sharing agreement with Telstra, a decision both companies will appeal.
Economics
- The RBA’s December Board Minutes were intentionally vague but showed that the Board considered no change in the cash rate for first time in this cycle.
- US and European central banks continued with their hawkish rhetoric on rates (higher and for longer), whilst the Bank of England signalled caution on raising rates much higher saying it believed the UK economy was already in recession. The RBA continues to keep their cards close to their chest.
- US manufacturing data fell again in December, the lowest level since May 2020, as business activity fell on weaker demand conditions with inflation and interest rates hikes dampening activity levels. The services component also fell, its sixth consecutive month of contraction.
- US consumer confidence data jumped sharply in December to its highest level since April, with sentiment around the economy and labour market improved, whilst inflation expectations for the year fell.
- US house market data fell in December, coming in the lowest since June 2012 (excluding the brief covid onset period). Existing home sales fell for the 10th straight month whilst home prices dropped for the 5th straight month.
- UK retail sales unexpectedly fell in November from a 0.9% increase in October, missing expectations for another increase.
- Eurozone manufacturing improved slightly in December but remained in contraction for a sixth consecutive month.
- Interestingly, Germany’s most prominent leading economic indicator staged a reasonably strong rebound in December, coming in above expectations.
- Germany’s producer price index fell 3.9% in November following on from a bigger fall in October. The November fall was bigger than expectations, but prices are still up more than 28% on the same time last year.
- The Bank of Japan loosened its yield control (ie. maintaining government 10-year bond yields at 0.25%) letting the yield curve shift higher to 0.5%, in a surprise move which increased the likelihood of interest rate rises (currently at minus 0.1%). Higher bond yields should support the currency.
Politics
- China’s vice premier said Beijing is considering more measures to support the struggling property sector.
- The US Commerce Department removed some Chinese stocks from their unverified list which saw some US listed Chinese companies shares rise after an oversight board secured complete access to inspect China-based audit firms.
- European Union member states reached a deal on a ninth package of sanctions on Russia over its invasion of Ukraine.
- China has declared just 11 covid deaths among its 1.4 billion people since 19 November, despite an increase in pandemic cases after the government’s first steps toward permanent reopening. The government has narrowed how it defines a covid death to “from covid” rather than “with covid”.
- European Union member states have reached a deal to cap natural gas prices, ending months of political wrangling over whether to intervene in energy markets. The supposedly temporary measure will apply for one year from 15 February. Price caps do not work (e.g., Germany has just received approval for nationalisation of two major gas companies); increasing supply through removing bureaucracy and incentivising investment does.
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