6 Sep 2024
Markets reprice recession risks
Markets
- Local and global equity markets fell this week as US technology stocks came under pressure and concerns rose regarding a weakening economic environment ahead.
- Government bonds saw strong buyer support this week (yields lower) as traders and investors increased their probability of a recession (from a low base).
- In local stock news, Ramsay Healthcare shares fell despite the hospital operator announcing it had nearly tripled its net profit to $888.7 million. The CEO said margin recovery had slowed due to cost inflation.
- Harvey Norman shares fell after the retail giant posted a $352.5 million profit, down 35% from last year, with challenging retail conditions.
- TPG Telecom shares rallied after the company reaffirmed its earnings forecast for the full year whilst also confirming no further job cuts.
- Downer EDI shares rose strongly as the company swung back to profit and beat expectations previously set.
- REA Group (realestate.com.au) shares fell after the company confirmed it was considering making a cash and share offer for London stock exchange listed Rightmove, their equivalent in the British market, with a market capitalisation of $8.5 billion.
- NextDC shares rose sharply prompting a “please explain” from the ASX with the company unaware of any specific reason for the rise. But it did come after a private equity-led consortium agreed to pay $23.5 billion for a data centre operator in one of the biggest buyouts in Australian history.
- Oil prices moved lower on signs OPEC+ will progress with a plan to lift output in October, with downward pressure on prices also driven by Chinese economic concerns.
Economics
- Australian economic growth was weak in the June quarter, a 0.2% rise to be just 1% on a year ago levels. Net exports were softer than expected, public demand (government spending) was exceptionally strong, and the current account deficit deteriorated. The terms of trade fell due to low commodity prices.
- Australian retail trade data showed a flat result for July, coming in below expectations, with the annual rate ticking down to 2.3%. The data was soft given the start of the stage three income tax cuts – clearly savings being preferred over spending.
- House prices in the combined Australian capital cities were 0.5% higher in August, with Perth leading the charge. Annual growth now sits at 7.1%. Adelaide and Brisbane also rose strongly, with a softer gain from Sydney. Melbourne prices declined.
- Australian building approvals rebounded in July, up 10.4% after a 6.5% fall in June, but remain soft on an annual basis and well below the government’s target.
- Australian company profits fell by 5.2% in the June quarter, led by the mining sector. Businesses wage bill rose by 0.7% in the quarter, to be 5.3% higher over the past year. Still very high, but well down from its peak annual rate in the fourth quarter of 2022.
- The US central bank’s preferred measure of inflation rose 0.2% in July, in line with expectations, and was 2.6% higher on a year ago.
- US job openings fell to 7.67 million in July, coming in well below expectations and the lowest since January 2021.
- US private payroll jobs rose by 99,000 in August, coming in well below expectations. US personal income lifted 0.3% in July whilst personal spending was up 0.5%.
- US construction spending fell 0.3% in July, coming in below expectations, whilst a key manufacturing index rose in August but remained in contractionary territory.
- Eurozone inflation fell to 2.2% in August, in line with expectations, and down from 2.6% in July. This was the slowest pace since July 2021 and opens the door for another ECB rate cut in September.
- A Eurozone manufacturing index remained firmly in contractionary territory in August but came in very slightly above the preliminary estimate.
- China’s manufacturing data sank to a six-month low, with owners struggling for orders. Factory activity contracted for a fourth month in August.
Politics
- Interesting results in two regional German elections with the Prime Minister’s ruling coalition punished by populist parties on the Left and Right.
- An escalation in the Israel-Hamas conflict with the bodies of six Israeli hostages found in a tunnel in the Gaza Strip, prompting calls by some for a ceasefire and calls by others for additional aggression, with roughly one hundred remaining Israeli hostages in Gaza.
- Turkey has formally asked to join the BRICs group of emerging market nations as it seeks a more global remit and to forge new ties beyond traditional Western allies. Apparently, the move is also due to frustration over a lack of progress on its bid to join the EU (approximately ten years and counting).
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