19 May 2023
Markets up on worsening economic data
Markets
- Local and global stock markets rose this week on the back of weaker economic data.
- Japan’s stock market has rallied to an 18-month high with financials leading gains. Better economic data, stronger company earnings and improved share buybacks have helped.
- QBE warned that it anticipates worse earnings this year than last year. Flooding in Australia and damage from winter storms in the US have seen claims rise, whilst there is likely to be lower earnings on premiums as bond yields have fallen.
- REA Group, owner of realestate.com, provided a mixed third quarter update with property volumes remaining light having started the quarter down 24% on the same time last year.
- Aristocrat Leisure announced a $1.5 billion all-cash acquisition of Nasdaq listed US gaming software company NeoGames. The acquisition gives Aristocrat a presence in the US online lottery market.
- Australian gold miner Newcrest finally agreed to Newmont’s takeover offer. The move will result in Australia’s biggest gold miner being acquired by the world’s biggest gold miner.
- Funeral service operator Invocare shares rose strongly after private equity firm TPG Capital came back with an improved offer of $13 a share, or $2.2 billion.
- James Hardie shares soared after the company reported third quarter numbers with global sales down 4% and net income down 16%, whilst the company narrowed their net income guidance range lower to US$600-620 million due to softer than expected volumes in North America and Asia Pacific. Less bad news was taken well by investors.
Economics
- Australian employment unexpectedly fell in April with 4,300 fewer people employed versus March. The fall saw the unemployment rate tick up to 3.7% with an additional 18,400 unemployed.
- The minutes of the RBA’s May meeting show that the decision to raise by 0.25% was a close one, but concerns surrounding strong services inflation pushed the call over the line.
- Australian wages rose by 0.8% in the March quarter which saw the annual rate move up to 3.7%. Public sector wages rose by 0.9% in the quarter whilst private sector wages rose 0.8%. The March quarter number came in slightly below the RBA’s estimates.
- Australian consumer confidence fell by 7.9% in May after the RBA increased the cash rate and the federal budget was delivered. The fall in confidence was large for both renters and mortgage holders. The unemployment expectations index rose.
- US retail sales data showed Americans increased their spending slightly in April as inflationary pressures eased. However, the figure came in well below expectations.
- US consumer sentiment fell to a six-month low adding to worries that consumers may reign in spending.
- US consumer long term inflation expectations increased from 3% in April to 3.2% in May, the highest reading since May 2011.
- A key US manufacturing survey dropped into negative territory in May from a positive reading in the prior month. The May reading came in well below expectations and was the biggest monthly decline since April 2020.
- US housing starts rose by 2.2% in April to a 1.4 million annualised rate, in line with expectations. Building permits fell by 1.5% in April.
- US existing home sales fell 3.4% in April from the prior month to be down more than 23% on the same time last year, with prices declining from a year earlier by the most in more than 11 years.
- Eurozone industrial production fell by 4.1% in March, coming in well below expectations and the biggest fall since April 2020. The largest contractions came from Ireland and Germany.
- The European Union raised its inflation forecasts to 5.8% this year and members expect the European central bank to continue with rate hikes.
- Japan’s economy emerged from recession and grew faster than expected in the first quarter as post-covid consumption rebounded strongly.
- Chinese economic data showed that industrial production, retail sales, and property investment data came in below market expectations.
Politics
- US President Biden cancelled his trip to Australia for the Quad meeting and shortened his G7 trip to Asia to focus on resolving the US debt ceiling debacle which remains ongoing. Estimates have the US government running out of money to meet expenses as early as 1 June.
- The US National Security Adviser and China’s top diplomat sat down for two days of talks in Vienna, aiming to ease tensions that had led to a complete breakdown in communications between the two countries.
- Thailand and Turkey both held elections with Thailand’s pro-democracy parties notching a victory whilst President Erdogan in Turkey won 49.3% of the vote but failed to reach a majority with 98% of the vote counted.
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