4 Oct 2024
Investors spooked on rising Middle East fears
Markets
- Local and global equity markets fell this week, with China the exception, as investor fears rose on a broadening and escalating conflict in the Middle East.
- Qatar Airways reportedly plans to take a 25% stake in Virgin Australian from private equity outfit Bain Capital. The move aims to give Qatar Airways better access to the Australian market after it was denied more connections by the Australian government last year.
- In local stock news, Coles and Woolworths shares came under a little pressure following the release of the competition watchdog’s 266-page report that classified them as an oligopoly. That’s largely been the case for a long time.
- Australian China-exposed stocks performed strongly on the back of meaningful stimulus provided by the Chinese government. Commodity (BHP, RIO), mining services (MIN), and Treasury Wines all benefited from the news.
- Commodity prices pushed higher this week with iron ore a notable beneficiary following the announced Chinese stimulus including a raft of property related measures.
- Oil prices shifted higher benefiting from an escalation of action in the Middle East (falling supply concerns) and Chinese stimulus (potential demand increase).
- The Aussie dollar weakened against the US dollar following its upward march over the last month, with traders not liking the widening war in the Middle East.
Economics
- The final Australian Federal Budget outcome for the 2023/24 year came in at an underlying cash surplus of $15.8 billion (0.6% of GDP), higher than the budget-time estimate of $9.3 billion. Most of the improvement came from temporary factors, with a budget deficit of $28.3 billion estimated for this coming year.
- Australian home prices across the eight capital cities rose by 0.5% in September, with ongoing relative strength in mid-sized capital cities (e.g. Perth). Year to date growth is 4.9% with a large divergence between capital cities. Growth is slowing.
- Australian retail trade showed a better-than-expected 0.7% gain in August following an upwardly revised 0.1% lift in July. Spending rose solidly at department stores, on clothing, and eating out. Father’s Day and a warmer month than usual likely assisted the gain.
- Commonwealth Bank of Australia bank accounts show that aggregate after-tax incomes have increased because of Stage 3 tax cuts, more than offsetting softer wages growth. But there has not been a commensurate increase in spending. Wages growth is slowing along with jobs growth.
- US central bank chair Jerome Powell said the overall US economy remained solid, the rate setting committee is not in a hurry to cut rates and further reductions will occur over time with policy not a preset path. Their current projections have them cutting by 0.25% two more times before the end of the year.
- The US Fed’s preferred inflation measure, the core PCE, rose 0.1% in August and was 2.7% higher on a year ago. The August reading was lower than expected.
- US private payroll data showed jobs increased more than expected in September, with a 143,000 gain. US job openings rose in August coming in above expectations.
- A key US consumer sentiment index rose to a five-month high in September whilst also coming in ahead of expectations.
- Eurozone inflation dipped below 2% for the first time since mid-2021 in September. An October rate cut may be on the way.
- Eurozone business activity slipped back into contraction last month, but the downturn was not as steep as expected.
Politics
- Three of China’s largest cities eased rules for home buyers, following through on the government’s latest efforts to prop up the embattled property sector.
- Middle East tensions rose as the conflict escalated with confirmed reports the leader of Lebanon’s Hezbollah was killed by Israeli strikes. The result saw Iran fire back at Israel while Israel has closed off areas along its border with Lebanon in preparation for a ground attack.
- A surprise win at the fifth attempt to become leader of Japan’s ruling party sees Shigeru Ishiba as the next prime minister. He said he will call a general election for October 27 and noted he didn’t think further interest rate hikes were warranted, putting downward pressure on the Yen.
- New French Prime Minister Michel Barnier is reportedly looking to raise US$16-20 billion through additional taxes as he looks at ways to regain control of the country’s public finances. He will also delay a target to bring the budget deficit within the EU’s ceiling of 3% of GDP until 2029.
- Dockworkers on the US east and Gulf coasts began their first large-scale stoppage in nearly 50 years, halting the flow of about half the nation’s ocean shipping after negotiations for a new labour contract broke down over wages.
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