15 Dec 2023
Investors buoyed by Fed comments
Markets
- Local and global equity markets rose strongly this week following the US central bank’s December meeting.
- In local stock news, Sigma Healthcare went into a trading halt after the pharmacy supplier announced it would “merge” with privately owned Chemist Warehouse in what is effectively a reverse takeover. The merged entity will have an estimated valuation of $8.8 billion.
- Perpetual shares rose after Soul Patts increased their stake to 11.6%, likely higher through other instruments. The move comes after Perpetual turned down a takeover offer from Soul Patts and after Soul Patts announced they had $435 million of cash to invest.
- Listed property stocks continued their strong rally, benefiting from increased optimism regarding the interest rate outlook for 2024, with investors scrambling to backfill their underweight positions on the sector.
- Oil prices rose during the week on a weaker US dollar and an International Energy Agency demand upgrade, with the agency expecting oil consumption will rise by 1.1 million barrels per day in 2024 citing an improvement in the outlook for the US and lower prices.
- The Aussie dollar rose this week to US67c as the US dollar fell to a four-month low on rising speculation that the US central bank may cut rates earlier than expected in 2024.
Economics
- Australia’s mid-year budget will reveal a lower-than-expected level of debt according to Treasurer Jim Chalmers. The 2023/24 budget is now estimated to be in deficit by $1.11 billion compared to the previous estimate of a $13.92 billion deficit, with the improvement coming from a large lift in government revenue (taxes and royalties).
- The Australian unemployment rate ticked up 3.9% in November, the highest since May 2022. Employment rose strongly in the month, but the participation rate rose to a record high.
- National Australia Bank reported through its monthly business survey that the economic outlook and activity had softened in November. Outside of the covid period, business confidence is now at its weakest since 2012. But trading conditions still remain above average, reflecting their high starting point.
- The US central bank left interest rates unchanged at their December meeting, as expected, but also made comments regarding the likelihood of rate cuts in 2024, satisfying investors.
- US inflation broadly matched expectations, rising by 0.1% in November with the annual growth rate falling to 3.1%. But core inflation remains at 4%, more than double the US central bank target.
- US job growth exceeded market estimates with 199,000 jobs added and the unemployment rate falling. Average hourly earnings lifted 0.4% in November to be up 4% on the year
- Americans are more upbeat about the economy, with a key consumer sentiment index rising strongly in December, and their inflation expectations for the next twelve months dropped from 3.6% to 3.4% - the lowest since April 2021.
- Both the European Central Bank (ECB) and the Bank of England (BOE) kept interest rates on hold at their December meetings. Way too early for the BOE to consider rate cuts with very strong wages growth and inflation above 4%, whilst the ECB hinted a first rate cut might be on the cards from the middle of 2024.
- UK home sellers slashed the prices they were asking for property, with the figures showing a 1.9% drop for December. Another report is predicting lending for house purchases will fall by 8% over 2024.
- UK data showed a widespread economic slowdown, with services, construction, and manufacturing all falling.
- Annual German inflation eased to 2.3% in November from 3% in October, coming in below expectations.
- The Chinese consumer price index fell by 0.5% in November on the same time a year ago, falling by more than expectations. The producer price index also fell, dropping 3% in November from a year earlier, also falling by more than expectations.
- The Chinese Politburo pledged to strengthen the government’s fiscal measures and make monetary policy more effective. No new policies were announced, but President Xi has said that fiscal policy will be stepped up appropriately.
- Data released showed the Japanese economy shrank at a faster pace than initially estimated in the third quarter. Recent weakness in consumption has emerged as a source of concern for policy makers.
- The Indian central bank left rates unchanged and raised its 2024 growth forecast for India to 7%.
Politics
- The European Union reached a tentative deal on a gas regulation enabling countries to effectively ban Russian shipments of LNG without new energy sanctions.
- Australia will raise fees (tripling) for foreigners who buy existing houses and will penalise them if they leave the properties vacant, whilst encouraging people from overseas to purchase new properties to boost housing supply.
- PM Anthony Albanese faces a tough task to arrest his plunging approval rating, currently polling at 40% versus 62% this time last year.
- New Zealand’s new government has simplified the central bank’s monetary policy remit, removing employment as an objective and any references to the housing market, returning it to a sole focus of inflation. Employment and housing are and will always be government problems.
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