21 Apr 2023
Markets lose steam as economic concerns mount
Markets
- Local and global equity markets traded lower this week as concerns mounted regarding the economic outlook as bets also increased that the Fed’s next move would be higher.
- In local stock news, Bank of Queensland shares were weaker after the company pre-released their first half numbers which were below expectations whilst also cutting the interim dividend by 10%. The bank’s capital position was better than expected, though the bank cited arrears picking up and competition for mortgages would eat into margins.
- The Australian Federal Court approved BHP’s $9.6 billion takeover of OZ Minerals following support from shareholders last week. The acquisition will make BHP the world’s biggest copper producer.
- Star Entertainment Group shares fell sharply after the company announced very poor earnings performance (ie. a 14% downgrade), a cut to five hundred roles, and a strategic review into its flagship Sydney casino.
- Qantas’ planned takeover of Alliance Aviation hit a snag after the competition watchdog said it would oppose the $614 million takeover of Alliance, a charter airline which mostly services the resources sector.
- IRESS maintained their guidance at their investor day but announced plans to cut its workforce by 10% to save $32 million a year. They also wrote down part of their UK business.
- Rio Tinto reported a mixed set of product results with iron ore getting off to a strong start for the year, but both bauxite and copper production were weaker on weather related issues.
- US shale oil production in the seven biggest basins is expected to rise in May by 49,000 barrels per day to 9.3 million barrels per day, the highest on record, according to data from the Energy Information Administration.
- Oil prices fell this week, reversing some of the gains over the last 4 weeks, as concerns grew regarding the economic outlook.
Economics
- The RBA Board minutes from April’s meeting show that the Board will discuss a rate rise or staying on hold at the next meeting which confirms that they’re not necessarily done raising rates. The April minutes also showed the Board discussed stronger than expected population growth and the impact it could have on inflation and wages.
- A key member of the US central bank said that more rate hikes are ahead, but they no longer need to be as aggressive given inflation is falling.
- Advance retail sales showed US consumer spending fell twice as much as expected in March, declining by 1%. According to reports, the lower figure was the result of lower fuel prices. February data was revised to show a 0.2% fall rather than a 0.4% fall.
- US 1-year inflation expectations rose from 3.6% to 4.6% whilst long term inflation expectations were steady.
- Rent in the US fell in March for the first time since March 2020. The median asking recently fell by 0.4% on the same time last year, to the lowest level in 13 months.
- US housing starts fell in February coming in slightly better than expected, whilst building permits fell coming in below expectations. Existing home sales also fell, coming in below expectations.
- A key US manufacturing index improved from minus 24.6 to plus 10.8 in April, coming in well above expectations and the first increase in five months.
- US foreclosure filings jumped 22% in the first quarter compared to the same period a year ago. Still below pre-covid levels, but foreclosure activity has been increasing since the federal moratorium ended in mid-2021.
- UK consumer prices fell from a 10.4% annual rate to 10.1% in March but came in above expectations.
- Chinese economic growth rose 4.5% on the same time last year in the first quarter, coming in ahead of expectations, following 2.9% growth in the December quarter.
Politics
- An independent review of the RBA was released with some interesting recommendations which will need to be accepted by parliament. Some of the recommendations included fewer meetings, separation of the current board into two separate boards, and a press conference after each meeting.
- Taiwan will buy up to 400 million more US missiles in order to increase its defence force, completing a deal that US congress approved in 2020.
- French President Macron said he wants to work with unions to change labour rules as the under-fire leader seeks to move post his controversial pension reform that has led to weeks of social unrest and a slowdown in economic activity.
- French President Macron’s push to garner China’s help to assist in getting Russia and Ukraine to the negotiating table has drawn criticism from some allies who see it as undermining European unity.
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