7 Oct 2022
Equities rally on weaker economic data
Markets
- Local and global stock markets moved higher this week with investors taking some comfort that central banks may be close to the end of their rate hiking cycles in light of weaker than expected economic data.
- In local stock news, South32 aims to accelerate development of the first new US manganese mine for decades as carmakers rush to secure supply of the metal needed in electric vehicle batteries.
- Global oil prices soared after OPEC+ producers agreed to a 2 million a barrel per day cut in production quotas in order to keep prices high, touting their need to protect the oil market and their economies from the risk of a global slowdown. The Biden administration slammed the decision.
Economics
- The RBA increased the cash rate by 0.25% to 2.60% at its October meeting, slowing the pace of tightening but largely maintaining the same tones in their statement from the previous month. The hike was the 6th consecutive monthly increase.
- The value of new lending for Australian housing fell by 3.4% in August, following the 8.5% contraction in the previous month and June’s 4.4% decline. NSW was the hardest hit, followed by SA and VIC. There was a 4.8% decline in investor lending in the month, with new investor lending below its levels a year ago and 24% below its March peak. The value of new lending to owner-occupiers fell by a smaller 2.7% to be 15.1% lower over the year.
- Private sector credit in Australia increased by 0.8% in August to be 9.3% higher through the year. The result came in above expectations, boosted by the continued strength in the business lending which increased 1.2% in the month to be 14.1% higher through the year.
- Australian home prices fell by a further 1.4% across capital cities in September, with prices now lower than their levels a year ago. National prices are down 5.5% from their peak and Sydney prices have now posted eight straight months of declines.
- Australian building approvals rose by over 28% in August driven by an almost doubling of multi-unit dwelling approvals. This follows a large contraction in approvals in July, with the August result coming in well ahead of expectations, boosted by NSW.
- Spending growth in Australia, excluding education is no longer rising rapidly. Consumers are yet to tighten their budgets much with retail trade data remaining resilient for now. Deeply pessimistic consumer sentiment readings point to a more significant slowdown in household consumption. Spending growth in WA is outperforming other states.
- The Australian trade surplus came in at $8.32 billion in August, well down on the record surplus of almost $18 billion in June. Exports were supported by stronger exports of rural goods as well as coal and LNG, whilst imports were boosted by strong imports of fuel and motor vehicles. Both exports and imports were higher in August.
- The US Labor Department showed that US job openings fell by 10% in August, the most in 2.5 years, whilst layoffs rose slightly showing some signs that the labour market is starting to cool.
- A key US employment report showed that private sector added 208,000 jobs in September, coming in above expectations and above the upwardly revised August number. Still the number is well down from earlier in the year.
- Growth in US manufacturing weakened to its lowest level in more than two years, whilst factory orders were flat in August and the US service sector held up better than expected in September.
- Annual inflation in the Euro area jumped to 10% in September from 9.1% in August, reaching double digits for the first time ever. Faster increases were seen for food, energy, and industrial goods and services. Germany recorded the highest inflation.
- A key Eurozone manufacturing index was revised lower in September, pointing to the biggest contraction in factory activity since June 2020.
- NZ house prices have suffered one of their biggest quarterly drops on record, with a 4.1% decline in the September quarter. The drop is second only to the 4.4% quarterly drop in the GFC. The fall comes as the NZ central bank hiked rates to 3.5%, its 5th consecutive 0.5% rise, with some members even favouring a 0.75% increase.
- The central bank of China decided to lower their interest rates on personal housing loans for first home buyers as they try to revive their housing market.
Politics
- UK PM Liz Truss dropped a plan to cut taxes on the UK’s highest earners just 10 days after it formed a key part of the mini budget that caused UK market stress. An embarrassing move for the new leader which already sees her leadership come into question and may make it difficult to push through other parts of her agenda.
- North Korea fired a missile over Japan for the first in five years further ratcheting up tensions and prompting a rare public safety warning to be issued by Tokyo. US President Biden assured the Japanese PM of America’s commitment to defending its Pacific ally.
- The Chinese government has “encouraged” state-owned banks to provide credit support to the real-estate sector, a move which saw Chinese bank shares fall.
- US semiconductor company Micron announced a US$100 billion investment to build a computer chip factory, marking a significant development as the US tries to reduce its dependency on foreign made chips and the supply chains it takes to get them.
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