19 Jan 2024
Central bankers temper rate cut enthusiasm
Markets
- Local and global equity markets were weaker this week as central bankers tried their best to pare back lofty investor expectations of rate cuts.
- In local stock news, consumer discretionary retail stocks soared with Super Retail Group and JB Hi-Fi shares rising to all-time highs. The move was supported by Super Retail Group reporting first half sales up 3%.
- Santos won a legal battle which will allow it to resume construction of a 262-kilometre pipeline in the Timor Sea. The court rejected claims by Indigenous residents of the Tiwi Islands.
- BHP shares fell after the company lowered full-year production guidance for its central Queensland coal operations. The company is also assessing options at its Nickel West operations in WA to mitigate the impacts of the sharp fall in nickel prices.
- The Aussie dollar fell as the US dollar strengthened on investors paring back their bets on an early and fast US rate cutting cycle.
Economics
- Australian employment fell by 65,100 in December, erasing the big lift of 72,600 in November, with the unemployment rate holding steady at 3.9% as the participation rate fell.
- Australian dwelling commencements fell by 10.4% in the third quarter, the lowest in a decade. Dwelling completions rose by 8.2% and a large backlog of work to be done remains. The total value of building work done fell whilst residential work done increased by 1.4%.
- The Westpac / MI consumer sentiment index fell by 1.3% in January to sit firmly in pessimism territory, at levels not seen since the deep downturns of the 1990s.
- Both US and European central bank members took turns in warning an early start to rate cuts and expectations of significant rate cuts for 2024 may be off the mark.
- US inflation accelerated at the end of 2023 with stubborn services costs the culprit, whilst the protracted decline in goods inflation slowed.
- US producer prices fell 0.1% in December, coming in below expectations, with the annual growth rate lifting from 0.8% to 1%.
- US retail sales rose by 0.6% in December, coming in above expectations, buoyed by a pickup in clothing and accessory stores. Retail sales ended 2023 up 5.6%.
- US housing starts fell 4.3% in December to a 1.46 million annual pace, whilst building permits rose 1.9%.
- A key US manufacturing index fell sharply in January, coming in well below expectations.
- Britain’s economy expanded in November with GDP growth coming in at 0.3%.
- Britain’s annual rate of inflation sped up for the first time in ten months in December, increasing to 4%. The rise went against expectations of a further decline in inflation.
- German economic growth fell by 0.3% in the fourth quarter bringing the annual rate of growth to negative 0.3%.
- Annual German inflation rose to 3.8% in December from 2.3% in November.
- China’s economy grew 5.2% in 2023 beating their own target. Given the economic malaise of 2023, this number seems a little fishy. China’s population fell for a second consecutive year in 2023.
- China’s consumer price inflation fell for a third straight month in December with core inflation remaining weak.
- China’s central bank kept key policy rates unchanged. Looks increasingly like they will need to adjust rates lower from here, but bank profitability may be a concern particularly following their property sector collapse. The Chinese Premier also gave clear signals Beijing won’t resort to huge stimulus.
Politics
- The US and the UK bombed Houthi military targets in Yemen. The move comes after Youthi rebels (fully backed by Iran) continued to attack western cargo ships and US military ships they allege were providing support to the Israelis in their conflict with Hamas.
- Taiwan’s ruling party will remain in power with election results showing pro-independence candidate Lai Ching-te the winner. Many feared a rebuke / response from China but that remains unlikely given the pro-independence candidate won with less support (no majority).
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