29 Nov 2024
Investors pause to digest tariffs
Markets
- Local and global equity markets were flat to slightly weaker this week as investors digested US tariff rhetoric, US and Australian inflation monthly prints, and a shortened week in US trading due to Thanksgiving public holiday.
- US government bond yields fell significantly this week largely on the news of President-elect Donald Trump’s pick for Treasury Secretary and with rising war risks given US/Europe and Russia posturing.
- In local stock news, Web Travel Group shares (spin out from Webjet) soared more than 13% to a six-week high as the business-to-business travel industry platform said it would spend up to $150 million buying back shares. This follows sharp falls in the share price a few weeks ago on earnings disappointment.
- An otherwise relatively quiet week on the local stock news front.
- The oil price fell early in the week on reports of a Middle East ceasefire.
Economics
- The RBA governor Michele Bullock spoke at a conference providing no new meaningful information, but she did point out their inflation forecast had large error bands, and the RBA Board would respond accordingly if inflation meaningfully deviated from expectations.
- The Australian monthly inflation indicator remained at 2.1% in October, coming in below the median economist expectations. Housing inflation, electricity prices, and rents fell the most, the latter two affected by government subsidies. Importantly, the RBA’s preferred measure was 3.5% in October, up from 3.2% in September.
- Australia’s economic growth (GDP) per person has hit six straight negative quarters making it the longest recession in the past 50 years. This is expected to continue, with real (post-inflation) household disposable income falling 9% since March 2022.
- Australian capital expenditure data revealed the volume of business investment rose by 1.1% in the quarter. Capital expenditure intentions for this financial year were downgraded.
- The volume of Australian construction work done rose by 1.6% in the third quarter, with total construction work 3.2% higher over the year. Building construction rose by 0.7%, with engineering construction continuing to drive overall growth here.
- The US central bank’s preferred inflation measure ticked up in October, largely as expected. Markets are still pencilling in a 0.25% rate cut at the Fed’s December meeting.
- A US house price index showed a 0.7% rise in September, coming in above expectations. New home sales fell 17.3% in October, well below expectations. Pending home sales rose 2% in October, coming in well above expectations.
- A key US consumer confidence index rose in November, largely meeting expectations.
- The second estimate of third-quarter US economic growth was unchanged at 2.8%. In a range of other US data, durable goods orders rose in October, personal income rose in October with personal spending also up, and manufacturing data came in a little softer than expected.
- German consumer confidence fell sharply, moving further into negative territory.
- Annual inflation in Germany was steady at 2.4% in October, in line with expectations, whilst Spanish inflation rose to 2.4% in November from 1.8% in October.
- Chinese industrial profits dropped 10% on the same time last year, but better than the 27% decline in the prior month. Stimulus is likely having some positive effects.
- The NZ central bank cut interest rates by 0.50% as expected, taking them to 4.25%, below the RBA’s cash rate. They also kept alive the prospect of another outsized cut at the next meeting in February.
Politics
- US President-elect Donald Trump has nominated Scott Bessent as the next Treasury Secretary. Bessent is on record as criticising current Secretary Janet Yellen’s approach to financing debt, pitching a deficit to GDP ratio target of 3% (vs the current 7%), stressing the need for fiscal constraint (tax cuts to be offset with spending cuts), floating the rollback of the Inflation Reduction Act, and halting President Biden’s student loan forgiveness plan.
- US President-elect Donald Trump announced he will impose additional 10% tariffs on Chinese goods, above any additional tariffs, as well as 25% tariffs on Mexico and Canada. These tariffs are specifically targeted at border control and stopping the flow of drugs into the US.
- The Australian banking regulator has kept their macroprudential settings unchanged, with the mortgage serviceability buffers remaining at 3%.
- The Israel and Hezbollah ceasefire agreement struck earlier in the week was fleeting with both sides claiming the other had violated the agreement.
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