2 Dec 2022
Asset prices buoyed as end of rate hikes nigh
Markets
- Local and global equities, along with other asset prices, rose strongly this week helped by weaker than expected economic data and dovish central bank commentary on rate rises.
- In local stock news, Downer EDI announced their CEO will retire next year with current COO Peter Tompkins set to replace him. The departing CEO had been with the company for 14 years.
- Bank of Queensland shares fell after the regional lender announced its CEO of over 3 years was leaving immediately in a shock move.
- Imaging and pathology company Healius shares fell to a 2-year low after the company said its earnings were down 64% in the four months to October compared to the same time last year. The large drop is a function of declining covid testing, shortages of frontline staff, and issues with test reimbursements.
- Fisher & Paykel Healthcare shares rose strongly to a 7-month high after the respiratory care company delivered more half-year revenue than it had forecast. Overall revenue was down 23% but was 20% above pre-covid levels. The company expects higher revenue in the second half with improving margins.
- Domino’s Pizza went into a trading halt after announcing a $165 million capital raise to fund the buyout of its joint venture partner in Germany after the latter exercised an option in their partnership. The $150 million institutional portion of the placement will be at a 2% discount.
- Oil prices rose strongly on supply concerns and optimism China is moving to reduce covid restrictions.
- The gold price rose strongly following comments from the US central bank chair regarding a potential slowdown in rate hikes.
- The Aussie dollar rose as news of a potentially less aggressive US central bank put downward pressure on the US dollar.
Economics
- Australian inflation rose by 0.2% in October to be 6.9% higher over the year, but the result saw both the quarterly and annual pace of inflation slow, with the October result well below expectations of a further increase.
- Australian retail trade fell by 0.2% in October, the first fall all year, with spending lower in all major categories with the exception of food. The October result came in well below expectations for a 0.5% increase.
- Total construction work done in Australia rose by 2.2% in the September quarter, with gains across all segments. Building approvals fell by 6% in October, driven by a 11.3% fall in apartment approvals with private detached housing approvals also falling.
- Australian private sector credit rose by 0.6% in October with the pace of business credit growth easing to a still solid 0.8% for the month. Over the year, credit has risen by a strong 9.5%, the fastest pace since mid-2008.
- Australian dwelling prices fell by 1.1% in November across the 8 capital cities combined, with Brisbane and Hobart seeing the largest falls in the month. Sydney, Melbourne, and Canberra also posted falls. Prices nationally are now down 7.5% from their peak whilst Sydney is down more than 11%.
- The total volume of Australian capital expenditure fell by 0.6% in the September quarter, with mining investment falling by 5.1% while non-mining investment rose by 1.4%. Buildings & structures rose by 0.5% while equipment, plant & machinery fell.
- The US central bank chair said that moderating the pace of rate increases makes sense and that the economy was approaching a level of restraint that will be sufficient to bring inflation down.
- Data showed that the US economy grew by 2.9% in the year to September, coming in above expectations for a 2.7% growth.
- In US jobs data, a key payroll survey reported a 127,000 lift in new jobs in November, coming in well below expectations and below last month’s 239,000 increase, showing some signs the US jobs market is slowing. Job openings fell yet again, but still remain very high.
- Other US economic data showed a contraction in manufacturing activity, a mild easing in inflation and solid consumer spending.
- Germany’s economy grew 1.3% in the September quarter on the same time last year. This was lower than the 1.6% growth in the June quarter but above expectations of 1.2% growth.
- Germany’s inflation eased to 10% in November, down from a 10.4% print in October and below analyst expectations. Falling energy prices assisted.
- European central bank president Christine Lagarde said that Eurozone inflation has not yet peaked, hinting at further rate hikes ahead.
- China’s central bank again cut its required reserve ratio by 0.25% in order to encourage banks to lend. It’s likely that further cuts will be required but may not be as effective as they have been in the past given current conditions.
- China’s November manufacturing activity came in below forecasts, dropping to levels last seen in April 2022.
Politics
- Protests against covid restrictions spread across China as citizens took to the streets to show their disapproval and anger against local officials and the ruling Communist Party, in what appears to be one of the most significant local challenges since the Tiananmen crisis more than 30 years ago.
- Chinese officials announced a push to vaccinate individuals over the age of 80 across the mainland, whilst there was news of an easing of restrictions in two of China’s bigger cities.
- The European Union suspended talks over a proposed US$65-70 Russian oil price cap. Ongoing discussions included a cap as low as US$62 a barrel. Poland and the Baltic countries apparently still feel the cap is too generous for Russia with negotiations ongoing.
- The US House passed legislation to block a freight rail strike that President Biden warned would cripple the economy.
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