2 Sep 2022
Investors spooked by Powell commitment
Markets
- Local and global shares fell this week, spooked by comments from the US central bank chair Jerome Powell reaffirming their commitment to fighting inflation which might mean higher rates for longer.
- In local stock news, Wesfarmers reported a full-year net profit after tax of $2.3 billion, down 2.9% from last year but ahead of consensus expectations. The final dividend was lifted to $1 per share, also coming in ahead of expectations.
- Woodside Energy posted a strong result with a four-fold increase in profit for the first half of 2022 to $1.8 billlon.
- The Japanese yen breached a key level against the US dollar, falling to its lowest levels since September 1998 as interest rate differentials widened significantly between the two countries. The US central bank flagged more rate rises ahead, leaving the Bank of Japan stuck between a rock and a hard place.
- Oil prices fell sharply this week on rising global recession fears and continued weak Chinese data, with the US Federal Reserve chair’s address at Jackson Hole not helping.
- The Aussie dollar fell to below US68c due to a combination of risk-off selling on rising global recession fears and another surge in the US dollar. Interest rate differentials look likely to continue widening with investors seeking out safety.
Economics
- Australian home price falls accelerated in August, with prices falling by 1.6% across the eight capital cities, down by 4.2% from their April peak. Prices fell most in Sydney, Melbourne and Brisbane, with more modest declines in Adelaide and Perth. Sydney prices fell by 2.3%, making it the second consecutive monthly fall over 2%, taking the official cumulative fall since peak to 7.4%. House prices have also fallen more than unit prices over the past three months.
- New housing lending (excluding refinancing) fell by 8.5% in July with both owner-occupier and investor credit recording significant falls of 7% and 11.2% respectively. Every state recorded a fall in total new lending.
- The number of approvals of Australian residential properties fell by 17.2% in July, driven by a large decline in multi-dwelling approvals, but with detached dwelling approvals up very slightly. All states, except SA, recorded sharp declines. The value of residential building approvals also fell, down 6.1%, with alterations, additions and new residential approval values falling. The value of non-residential building approvals was down even further, with a sharp 22.6% drop.
- Australian manufacturing data fell in August, remaining in expansionary territory, and marking the 27th consecutive month of improvement but hitting the lowest level of the year. Growth in both manufacturing production and overall demand weakened from July.
- Total new capital expenditure in Australia unexpectedly fell by 0.3% in the June quarter, missing market forecasts of a 1.5% rise. The decline was mainly due to a fall in building capital expenditure, which dropped 2.5%.
- Australian private sector credit growth eased to 0.7% in July and is up 9.1% over the year. Total construction work done fell by 3.8% in Q2, coming in much softer than expectations, and after a revised 0.3% fall in Q1. The decline in construction was led by large falls in residential building work, while there were also less engineering work. Business credit remained the strongest source of credit growth while housing credit increased by 0.5% in the month to be 7.7% higher through the year.
- Australian retail trade figures were better than expected in July with turnover rising 1.3% in its biggest jump in four months, with annual growth sitting at 16.5%. There was strength in all categories apart from household goods retail in July.
- US central bank chair Jerome Powell’s highly anticipated speech saw him confirm the Fed’s intention to continue raising rates and keep them high until inflation is under control. Nothing new as it is what he’s been saying all year, but disappointed investors who mistakenly took the last Fed minutes as a signal that the Fed was nearly done. A 0.75% increase at the next meeting now looks likely.
- US consumer confidence rebounded more than expected in August after three straight monthly declines, boosted by vacation intentions rising to an eight-month high.
- US job openings rose in July to a seasonally adjusted 11.2 million, up from the prior month. However, a key employment report for August showed private-sector employers added a lower than expected 132,000 jobs, down from 268,000 jobs in July. It’s a sign that the labour market may be cooling. Economists had been expecting an increase of 300,000 jobs.
- UK households will pay almost triple the price to heat their homes this winter compared to a year ago, while the cost of living in Japan rose at a quicker than expected pace in August to reach the highest level since 1992.
- A data release showed that inflation in the Eurozone rose to 9.1% in August, up from 8.9% in July and above forecasts of 9%, marking a new record. Energy costs remained elevated and food prices continue to accelerate.
- Economists are downgrading growth forecasts for China’s economy further for 2022 and see lingering risks into next year as the property market crash and Covid-zero policies continue to hurt. The latest survey of economists saw them downgrade growth forecasts to 3.5%, down from 3.9%, with a fresh lockdown in the city of Chengdu (population 21 million) not helping.
- Official Chinese manufacturing data rose slightly in August, coming in above market forecasts. However, the latest figure was the second straight month of contraction in factory activity. Input costs dropped for the second consecutive month, assisted by price stabilisation measures from the government, while output costs declined for the fourth month running. Business sentiment improved slightly.
Politics
- Europe faces the risk of blackouts, rationing and a severe recession if Russia further slashes gas deliveries, which is likely to happen again with the three-day halt of the Nord Stream gas pipeline giving Putin another excuse to clamp down on supplies.
- The European Union is set to meet its gas storage goal two months ahead of target, leading into what will likely be a tough winter. The EU bolstered its storage rules earlier this year but that is unlikely to be enough to avoid blackouts and rationing with the French government urging businesses to cut energy use now to avoid rationing.
- Marking his first 100 days in office, PM Anthony Albanese has stood by tax changes which have been estimated to cost the budget billions in revenue. He stated that delivering on promises and maintaining consistency was key in the current environment.
If you would like to discuss any of the information or meet with us, please feel free to call or email us by clicking here
