16 Jun 2023
Investors buoyed by falling US inflation
Markets
- Local and global equity markets rose strongly this week as investors reacted positively to a lower-than-expected US inflation print and no rate increase from the US central bank.
- The Japanese stock market rose to its highest closing level since March 1990, spurred by a weaker US inflation print.
- In local stock news, Dexus announced it had sold its 26-level Sydney office tower at 44 Market Street for $393.1 million, 17.2% below its December 2022 valuation.
- Domino’s shares fell to a more than four-year low after the fast-food giant reported that its attempt to rebound from a drop in sales reported in February had not yet been successful. The company intends to close its 27 stores in Denmark along with 65-70 other underperforming corporate-owned stores in a bid to cut costs by around $55 million a year.
- CSL shares dropped sharply after the company announced it now expects a foreign currency headwind of around US$230-250 million, up from US$175 million previously. The company also forecast a net profit range well below market expectations.
- The Aussie dollar rose this week on a stronger than expected employment result, likely confirming that the RBA still has more rate hikes left in them.
Economics
- Australia’s unemployment rate declined to 3.6% in May, below market expectations of 3.7%, as the number of unemployed fell by 16,500. At the same time, employment grew by 75,900, the second straight month of increase, coming in well above market forecasts of a 15,000 rise.
- Australian national home values have now increased for three consecutive months, with CoreLogic reporting a 1.2% increase in May preceded by a 0.5% rise in April and a 0.6% increase in March.
- Australian consumer sentiment was broadly unchanged in June, remaining near recession-lows for the past twelve months. Inflation remains the dominant drag to confidence. Business conditions and confidence fell, whilst costs and prices ticked up.
- Total Commonwealth Bank of Australia credit and debit card spending rose by 1.4% in April and is 10.1% higher through the year. The result was driven by strength in services spending.
- The US central bank left their cash rate unchanged at 5-5.25% as expected but signalled that rates may go higher by year-end if the economy and inflation do not slow down more. Market expectations are that they will raise rates at their next meeting.
- The US consumer price index for May showed prices rose 4% from a year earlier, a larger decline from April’s 4.9% increase. Core inflation, which excludes volatile food and energy categories, was at 5.3%. Shelter was the main factor keeping core prices elevated.
- The US Labor Department reported that first-time unemployment claims rose sharply in possible signs tight labour market conditions are abating.
- The Commerce Department showed US retail spending rose 0.3% in May, compared with the month before. Economists had expected a 0.2% decline.
- The European Central Bank increased interest rates by 0.25% to 4.0%, in an expected move, to the highest level since the GFC. The Bank also revised its inflation forecasts higher and said a July rate hike was likely.
- The unemployment rate in the UK came in at 3.8% in the quarter to the end of April, up slightly on the previous quarter but below market expectations of 4%. Employment levels rose by 250,000 to an all time high. Wages excluding bonuses were 7.2% higher than a year earlier.
- Producer prices in Japan rose by 5.1% on the same time last year in May, slowing the fifth straight month to its lowest level in nearly two years.
- China’s inflation rate remained close to zero in May fuelling calls for rate cuts and more stimulus by authorities.
- China’s central bank cut its seven-day reverse repurchase rate by 0.10% from 2% to 1.9%. The nation’s largest banks cut deposit rates recently. The Bank also cut the year medium-term lending facility rate by 0.10% to 2.65%.
- China’s industrial production advanced by 3.5% in May on the same time last year, easing from a 5.6% rise in April and slightly less than market forecasts of 3.6%. It was the thirteenth straight month of growth in output, but the softest pace in three months.
- New Zealand has officially fallen into recession after its economy contracted for a second consecutive quarter in the March quarter. The economy is cooling after the central bank hiked interest rates at a record pace.
Politics
- Former US President Donald Trump heads to court to face a 37-count federal indictment for mishandling classified documents. The news comes as House Republican representatives push for the FBI to hand over documents relating to bribery accusations levelled at President Biden and family.
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