8 Dec 2023
Investor caution as the silly season begins
Markets
- Local and global equity markets were largely flat this week as investors took in more economic data.
- In local stock news, retailer Premium Investments’ chairman Solomon Lew told shareholders Black Friday week delivered a record sales result.
- Origin shares fell after the long-running takeover bid by a Brookfield-led private equity consortium failed to achieve the 75% shareholder vote threshold to get the deal through. 69% of shareholders voted in favour.
- IGA owner Metcash shares rose after the company reported a 12.2% profit boost for the first half of the financial year, helped by a 5.7% increase in food sales. Foot traffic in stores increased, but items per basket decreased.
- Woodside Energy shares bounced back after the company signed a 20-year agreement to sell 1.3 million tonnes of LNG per annum to energy company Mexico Pacific. Woodside also confirmed they’re in preliminary talks with Santos on a potential merger.
- Fund manager Perpetual rejected a private $3.5 billion takeover offer from investment conglomerate Soul Pattinson last month. The announcement of the rejected offer came after Perpetual announced the potential restructuring of their business into three separate businesses. The board may be under siege.
- The oil price fell sharply as traders doubted OPEC+ supply cuts and grew concerned regarding the economic outlook (ie. weak demand).
Economics
- The RBA Board left the cash rate unchanged at 4.35% at the December meeting, as expected. The statement didn’t provide any indications of the forward path for rates but did leave the door open for further rate rises if necessary.
- The Australian economy rose by a weak 0.2% in the third quarter to be up 2.1% on a year ago on a real basis. Household consumption was flat in the quarter, public spending was once again strong, business investment was reasonable, whilst net exports were a drag.
- Real (after inflation) household disposable income fell by a large 1.7% in the September quarter to be down by a big 5.6% over the year, with the savings rate dipping to 1.1%, well below the pre-covid five-year average of circa 6%.
- Australian company profits fell by 0.9% in the September quarter and fell further without an inventory adjustment. Mining profits fell by 7.7% in the quarter and are almost 19% lower over the year. The increase came from accommodation & food services, followed by retail trade.
- Australian wages & salaries rose by 2.7% in the quarter to be unchanged at 9.7% higher over the year, and below its peak of 11.4% in the December quarter of 2022. The quarterly rate picked up from a 2% pace in the two previous quarters.
- Australian inventories rose by 1.2% in the quarter and overall stocks are 1.2% higher over the year. The result was well above expectations and follows a fall in inventories of 1.3% in the second quarter. The lift in inventories was entirely due to the mining sector.
- The value of new Australian housing lending excluding refinancing rose by a solid 5.4% in October, with the gain broad-based across owner-occupiers and investors, respectively. The result came in well above expectations, with the September data also revised higher.
- Members of the US central bank made it clear it’s too early to be talking about rate cuts, but investors took comfort as the Chair vowed to move carefully on rates as they balance the risks of over-tightening with the risks of not controlling inflation.
- Closely followed US job openings fell from 9.4 million to 8.7 million in October, coming in well below expectations, and the lowest level since March 2021. In further signs of a weakening job market, private payroll jobs rose by 103,000 in November, coming in below expectations.
- In US economic data, construction spending rose in October, a key manufacturing index fell slightly into contractionary territory, whilst a key services index was steady but showed continued contraction.
- A key Eurozone manufacturing index rose slightly in November but remained firmly in contractionary territory.
- German industrial orders fell unexpectedly in October, declining by 3.7% on the previous month. Expectations were for a rise of 0.2%.
- Key Chinese manufacturing data beat expectations, recording an expansion last month.
- Credit rating agency Moody put China’s bonds at risk of a ratings downgrade on Tuesday, as rising debt concerns saw it cut its outlook on the nation’s bonds to negative from stable.
Politics
- Australia’s supermarket chains will be forced to answer an inquiry by the senate regarding their profits, after the Greens won support from the Labor government for hearings. Best course of action against “gouging” is controlling inflation and enabling competition. Hearings, funded by taxpayers, are generally just for show.
- India’s ruling Bharatiya Janata Party won three crucial state elections, unseating the opposition in two of them and strengthening PM Modi’s bid for a third term in office.
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