15 Nov 2024
Markets want (need) more rate cuts
Markets
- Local and global stocks finished the week a little weaker, the result of some profit taking and concerns regarding the lack of weakness in US inflation data.
- In local stock news, ANZ bank announced an 8% drop in cash profit to $6.7 billion with fierce competition for home loan customers weighing on margins at the big banks.
- Commonwealth Bank of Australia reported first quarter earnings slightly ahead of market consensus, helped by improved volumes in its home lending and household deposits. Cash profit was $2.5 billion for the quarter, the same as the corresponding period last year, whilst costs were up 3%.
- REA Group (realestate.com) reported underlying earnings of $243 million, a 23% increase on the year prior, with revenue up 21% in 2023.
- James Hardie was up strongly after the building materials supplier reaffirmed the lower end of its volume guidance.
- Aristocrat Leisure was up 2.5% after the gaming giant forecast higher full-year net profit.
- Shares in Mineral Resources fell after the company flagged the closure of its Bald Hill mine in Western Australia due to a prolonged downturn of lithium prices.
- Oil prices were down from China's demand concerns and forecasts for higher oil output.
- The Aussie dollar fell against the US dollar with the latter continuing to strengthen on the election result and hawkish US Fed remarks, whilst weaker Australian employment data saw Aussie dollar softness.
Economics
- Australian unemployment stood at 4.1% in October, helped by a fall in the participation rate, holding steady for the third consecutive month and in line with market estimates. Employment rose by 15,900 falling short of consensus of a 25,000 gain.
- Australia’s seasonally adjusted wage price index advanced by 3.5% in the September quarter versus the same time last year, easing from 4.1% growth in the previous quarter and falling short of forecasts for a 3.6% rise. This marked the weakest wage price growth since the December quarter of 2022.
- Consumer inflation expectations in Australia dropped to 3.8% in November from 4% in the previous month, marking the lowest reading since October 2021.
- A key National Australia Bank survey showed consumer sentiment is up whilst business confidence is at its highest level since early last year.
- Australian consumer sentiment in October rose by 5.3% according to a Westpac survey. This follows a strong reading in September, with consumers now optimistic about the outlook for the economy and finances with a modest pullback since the US election. Job loss fears are now at a nineteen-month low.
- US central bank chair Jerome Powell said the economy isn’t signalling they need to be in a hurry to lower rates, meaning they will take a more careful approach to monetary policy decisions.
- The US annual inflation rate increased in October to 2.6%, from 2.4% in September, in line with market expectations. On a monthly basis, inflation rose by 0.2%, consistent with the previous three months with shelter up 0.4%. The all-important core inflation stayed at 3.3%.
- US consumer inflation expectations for the year ahead edged down to 2.9% in October, the lowest since October 2020. Inflation expectations dropped across all major categories.
- A key US consumer sentiment reading increased strongly in November, coming in at the highest level in seven months and above forecasts. The reading came before the US election result.
- Euro area economic growth expanded by 0.90% in the third quarter of 2024 versus the same period last year.
- The Bank of Japan discussed the need for caution on raising its cash rate and offered no clear hint of a move next month.
- China’s annual inflation rate came in at 0.3% in October, below estimates and September’s print of 0.4%. October was the ninth straight month of (positive) inflation but the lowest since June. Deflation risks are still lingering.
- China’s producer prices dropped by 2.9% in October on the same time last year, worsening from last month’s reading and coming in below expectations. October marked the twenty-fifth consecutive month of producer deflation and the steepest contraction since November 2023.
- China unveiled a 10 trillion yuan (A$2.1 trillion) debt package aimed at easing local government financing and stabilising its faltering economy. The announcement disappointed investors who were looking for direct economic stimulus, rather than repair. More stimulus will now likely be needed given Trump’s tariff plans.
Politics
- Prime Minister Anthony Albanese told US President-elect Donald Trump the US has a trade surplus with Australia (implying tariffs shouldn’t apply) whilst the defence minister highlighted Australia’s record spending on security. The move comes after Trump has vowed to apply 10% tariffs to all imports and has strongly urged allies to lift their defence spending as “contributing their fair share”.
- US President-elect Donald Trump plans to drastically increase sanctions on Iran and throttle oil sales in a bid to weaken Iran’s support for Middle East proxies.
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