5 May 2023
Central bank rate hiking cycle continues
Markets
- Local and global equity markets weakened this week as central banks continued to hike rates in order to bring inflation under control.
- US First Republic Bank went under with JPMorgan announcing it would buy most of the failed bank’s assets.
- More than 50% of the largest US listed companies have announced their March quarter results with earnings down but ahead of expectations. Almost 80% of results have come in above earnings expectations.
- In local stock news, Coles share price fell after the company reported third quarter group sales rose by 6.5% to $9.7 billion in the final results for departing CEO Steven Cain. Woolworths also saw some downward pressure in their share price after the company announced third quarter group sales had risen 8% but food inflation remained a concern.
- Tech company Megaport’s shares rose sharply after the company said they expect this financial year’s earnings to be materially above market consensus. Guidance was also strong with next financial year’s numbers expected to be 25-30% ahead of consensus expectations.
- ResMed shares were flat after the company reported higher earnings in the March quarter although margins were lower.
- Viva Energy completed its $300 million acquisition of the Coles Express 700-store convenience store chain from Coles Group. In other news in the sector, the families that own 750 7-Eleven stores around the country announced they are seeking to sell their private company.
- Qantas has named Vanessa Hudson as its new CEO and will assume the top job in November replacing Alan Joyce who steps down after almost 15 years in the job. Hudson is currently the airline’s CFO.
- National Australia Bank’s shares fell sharply even with sharply higher cash earnings as investors took a dislike to softer margins and expected weakness in margins ahead.
- A significant fall in the oil price this week as central banks continued to raise rates escalating fears of impending recession.
Economics
- The RBA raised rates by 0.25% at its May meeting bringing the cash rate up to 3.85%. The move came as a bit of a shock for most given expectations were for another pause.
- Australian home prices rose by 0.7% across the capital cities in April, the second consecutive monthly gain, with Sydney and Perth leading the way. Interestingly, CBA now believes home prices bottomed in February and now expects prices to rise by 3% this year and 5% next year.
- Australian retail trade rose by 0.4% in March with the annual pace now sitting at 5.4%. The monthly gain was higher than expected, driven by a lift in food goods and eating & drinking out. All other categories recorded a fall.
- The Australian trade surplus widened to $15.3 billion in March, the second largest on record. Exports rose by 3.8%, driven by metal ores and minerals. Imports rose by 2.5%, driven by a recovery in passenger vehicles.
- The US central bank raised interest rates by 0.25% to 5.25% in a largely expected move, though some changed terminology in their statement lead some to believe they may be coming to the back end of their rate hiking cycle.
- US job openings declined in March from 9.97 million to 9.59 million, coming in below expectations. The trend is clearly downwards but the overall number remains large.
- The US central bank’s preferred measure of inflation showed signs of slowing as it rose 0.3% in March, in line with expectations, to be up 4.6% on a year ago.
- US consumer spending was flat whilst credit growth in the economy rose by 0.3% in the month to be up 6.8% on the year.
- A US employment cost index rose by 1.2% in the March quarter, a little above expectations, whilst personal income lifted by 0.3% and consumer sentiment also rose.
- US manufacturing data showed the sector continued to contract in April, but at a slightly softer pace than in March.
- The Eurozone economy grew by 0.1% in the March quarter, coming in below expectations.
- The European central bank raised interest rates by 0.25% to 3.25%, in the smallest increase since the start of this rate hiking cycle, with the bank indicating more rate hikes are likely as they continue to battle inflation.
- The Bank of Japan scrapped its guidance on future interest rate levels and called for a long-term review of its policies while keeping its main stimulus measures unchanged at the first meeting under the new Governor.
- China’s factories are struggling with weaker global demand with recent data for April showing an unexpected slowdown in factory activity.
Politics
- The US Treasury secretary said the US government may hit the debt ceiling sooner than expected. With no agreement in sight, Republicans controlling the lower house and Democrats the upper house, and President Biden vowing to veto any cuts to expenditures, a technical default is a real possibility this time around.
- The UK government has said it will break its pledge to remove around 4,000 laws from Britain’s membership of the European Union by the end of year deadline. Instead, a smaller number of laws will be removed.
- France’s constitutional council rejected a second attempt to hold a referendum on President Macron’s unpopular decision to raise the retirement age to 64.
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