14 Apr 2023
Investors bet on potential Fed pause
Markets
- Local and global equity markets moved higher this week buoyed by lower US inflation and US central bank comments, led investors to believe they may be approaching a pause in rate settings.
- US gold miner Newmont raised its takeover bid for Australia’s Newcrest Mining to $30 billion. Newcrest said it would open its books so Newmont could put forward a firmer offer. Newcrest shareholders would own 31% of the combined company in a deal that would create the world’s biggest gold miner by a long way.
- BHP shares increased after Vietnam’s competition watchdog approved the metal mining company’s proposed $9.5 billion takeover of copper miner OZ Minerals.
- Data centre operator NextDC’s shares rose strongly after the company reported an increase in new customer contracts.
- Whitehaven Coal shares fell after the company downgraded its annual coal production and lifted its cost forecasts due to labour shortages and weather disruptions.
- Corporate Travel Management Limited shares rose sharply by 12% after the business travel company was awarded a $3 billion two-year contract by the UK’s Home Office.
- The Aussie dollar pushed higher, helped by stronger than expected Australian employment data and a falling US dollar due to weaker than expected consumer price inflation and rising jobless claims.
- The oil price rose on talks of US strategic reserve re-stocking, reports that OPEC’s share of oil production growth will shrink this year, and speculation of a US rate pause.
Economics
- Australian employment rose by 53,000 in March, after 64,000 jobs were added in February. The unemployment rate remained at 3.5% but underemployment rose to 6.2%. The March result was much stronger than expected, with a big lift in full-time employment. The participation rate was unchanged.
- The RBA has noted that whilst global financial stability risks have increased, the Australian financial system remains strong, profitable, and well capitalised. The RBA went on to say they expect most Australian households to be able to cope with rising mortgage payments and cost of living pressures.
- Australian consumer confidence rose by 9.4% in April, as the RBA paused its rate hiking cycle, but remains in pessimistic territory.
- Australian business conditions remain robust whilst business confidence remains soft, with businesses reporting that price pressures had eased in March.
- US consumer price inflation rose at a 5% annualised pace last month down from 6%. This offers some encouragement to investors that inflation continues to recede putting less pressure on the Fed to increase rates further. However, core inflation - the Fed’s preferred measure -remains sticky at 5.6%. US consumer inflation expectations rose from 4.2% to 4.7% in March.
- Minutes from the US central bank’s last meeting showed that some members had considered a pause in rate hikes in response to the bank failures. These minutes also showed the projection of a mild recession starting later this year. Market pricing currently shows a 70% chance of a rate hike at their next meeting.
- US nonfarm payrolls grew by 236,000 in March, in line with estimates, with the unemployment rate falling to 3.5%, against expectations it would hold from the previous month at 3.6%. Average hourly earnings rose by 0.3% to be up 4.2% on the year, the lowest level since June 2021.
- The support package US regulators put in place to provide liquidity to banks who might experience an increase in customer withdrawals only issued US$37 billion in the last week of March, a sharp drop from the US$304 billion two weeks earlier.
- US data showed that business optimism fell in March but came in above expectations.
- US Treasury Secretary Janet Yellen shrugged off recent banking troubles to declare the economy better off than six months ago. Yellen said she didn’t believe the banking turmoil had restricted the availability of credit. Very odd comments indeed.
- The new governor of the Bank of Japan said their yield curve control and the use of negative interest rate policy remained appropriate given the current economic backdrop. This signalled no significant changes to its monetary policy framework in the near term.
- Chinese data showed inflation (both consumer and producer) eased significantly in March, suggesting the covid reopening momentum remains weak, with inflation slowing to its lowest levels since September 2021.
- In other China data, new loans came in better than expected, China plans to ramp up construction spending this year, and exports unexpectedly rose in March, the first gain in six months.
Politics
- China held a second day of military drills around Taiwan, with multiple exercises involving aircraft and ships. The moves coincided with Taiwan’s President visiting the US. Subsequently, a US navy destroyer passed through waters claimed by China in the South China Sea in an apparent show of force.
- A top US Treasury official said that the US is not seeking to decouple its economy from China or limit the country’s growth.
- Brazil’s President called on BRICS nations to come up with an alternative to replace the US dollar in foreign trade. Seems like other countries have had enough of US domination of trade / reserve currency status.
- Swiss parliament’s lower house voted against approving the US$120 billion in government guarantees for UBS’s takeover of Credit Suisse, in a show of popular and political anger with the deal. The deal will still proceed, but this complicates matters further.
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