3 Nov 2023
Market rout ends, but caution remains
Markets
- Local and global equity markets rose this week as investors were more comfortable with slightly dovish comments from the Fed and with US reporting season faring better than expected thus far.
- Analysts are expecting the largest 500 US companies to have grown their earnings at 2.7% for the September quarter, which would be the first period of growth since the third quarter of 2022.
- In local stock news, ResMed shares fell yet again after the company said margins fell in the first quarter due to battery issue with its Astral ventilators. Revenue and earnings were broadly in line.
- Qantas Airways says the competition regulator is ignoring the realities of the aviation industry in the case filed against the airline over alleged bogus ticket sales. Qantas maintains it did not delay telling passengers their flights had been cancelled for commercial gain.
- Origin Energy shares were down after Australian Super flagged it would vote against its acquisition by Brookfield and EIG.
- Treasury Wine Estates agreed to buy DAOU Vineyards in California for as much as US$1 billion to expand the company’s stable of US luxury brands.
- Domino’s Pizza Enterprises’ shares rose after the CEO told its annual general meeting the company was delivering its best performance since inflation pressures started to hit households 18 months ago.
Economics
- Australian retail trade rose by 0.9% in the month of September, coming in well ahead of expectations to be up 2% over the year and up from 1.6% on the year in August. The September result came in well above expectations and significantly increases the chances of a November rate rise from the RBA.
- The pace of Australian private sector credit growth accelerated in September, rising by 0.5% which is up from August. The annual rate continued to slow and now sits at 4.9%. For the month, owner-occupied housing credit growth and business credit growth rose at a faster pace than the prior month.
- Australian new housing lending rose by 0.6% in the September, following a 2.4% increase in August. Investors continued to be the driver, with owner-occupied lending flat in the month.
- Australian dwelling prices rose by a strong 0.9% across the eight capital cities in October, the ninth consecutive monthly gain. Prices rose solidly in Sydney, Brisbane, Adelaide, and Perth. Prices are now up 8.9% since their February trough.
- Australian building approvals fell by 4.6% in September to be at near decade-lows. Private sector house approvals fell by 4.6% to be 12.6% lower through the year whilst private multi-unit dwellings fell by 5.1% to be 33.1% lower through the year.
- The Australian population increased by 0.7% in the March quarter of this year to be 2.2% higher through the year. Net oversees migration increased by a record 150,000 in the quarter and the natural increase was 29,000.
- The US central bank held interest rates steady again at 22-year highs. The Chair noted that financial conditions have clearly tightened with the recent jump in bond yields pushing up borrowing costs in ways that could ease price pressures and slow the US economy.
- The US central bank’s preferred measure of inflation rose 0.3% in September, to be up 3.7% on a year ago. Personal income data showed a 0.3% lift in September, coming in slightly below expectations, but with spending up 0.7%.
- In a range of other US data, a key US consumer sentiment index fell sharply in October; the employment cost index rose by 1.1% in the September quarter; a house price index rose by 0.6% in August whilst another reading focused on the largest 20 cities showed a 1.01% gain; consumer confidence fell from September to October; and private payroll jobs rose by 113,000 in October, coming in well under expectations.
- The Eurozone economy contracted by 0.1% in the third quarter, coming in worse than expectations for a flat reading.
- Inflation in UK stores fell to the lowest level in more than a year. UK shop prices were 5.2% higher in October than a year earlier, down from 6.2% in September.
- Annual German inflation fell to a 28-month low of 3% in October from 4.3% in September, coming in below expectations. Spain’s 12-month inflation in October was unchanged from the previous month at 3.5%, also coming in below expectations.
- The Bank of Japan kept its negative interest rate settings and their target on the 10-year government bond yield unchanged at 0%. The previous 1% hard upper limit for managing the 10-year bond yield has been removed and will be viewed as reference. First signs of tightening.
- Data showed China’s industrial profits grew for a second straight month in September, providing some signs of a stabilising economy.
- Other Chinese data suggested activity in the manufacturing sector was contracting, suggesting the need for more stimulus.
Politics
- The US Treasury prematurely sounded victory, reducing its estimate for federal borrowing for the current quarter thanks to stronger than expected revenues. Worth noting the net borrowing estimate for the quarter is now US$776 billion, the biggest in US history.
- Australia has rejected European Union proposals for a free trade agreement, and a deal is now unlikely to be reached for several years according to Australian government ministers.
- Chinese and Russian military chiefs targeted the US for criticism at a security forum in Beijing, even as China’s second most senior military commander vowed to boost defence ties with Washington.
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