22 Dec 2023
Not so fast on rate cuts in 2024
Markets
- Local and global equity markets were flat to slightly higher this week as central bankers tried to cool some optimism regarding rate cuts in 2024.
- In local stock news, Australian Clinical Labs withdrew its takeover bid for the larger competitor Healius in what would have been a tie-up of the number two and three pathology operators in the country. The competition regulator moved to block the deal regardless.
- Link Administration has agreed to be taken over by Mitsubishi UFJ Trust and Bank Corp in a deal valued at about $1.2 billion. The company also announced a memorandum of understanding with Australian Super to extend their service agreement to 2028.
- Dexus cut their office portfolio valuations by 6% and their industrial valuations by 2.1% coming into the end of the year. The property owner and operator also announced a 26.7c half-year dividend.
- Adbri (formerly Adelaide Brighton) shares soared to a one and a half year high after the cement manufacturer said it would recommend shareholders accept a $2.1 billion buyout from US listed CRH and Barro Group.
- Tabcorp shares surged higher after signing a 20-year wagering agreement with the Victorian government to maintain its exclusive licence for retail wagering in the state. Tabcorp will pay Victoria $600 million in June and another $30 million a year.
- Lithium miner Allkem shareholders approved its $9.7 billion all-scrip (shares) merger with US-based Livent. The new company, to be called Arcadium Lithium, will be the world’s third largest lithium producer by volume.
- Retailer KMD Brands shares fell to their lowest levels in more than three years after the Kathmandu, Rip Curl, and Oboz boots owner announced group sales were down 12.5% from August through to the end of November.
- Oil prices were higher after energy giant BP paused oil transit through the Red Sea amid growing concerns of attacks from Houthi rebels in Yemen on merchant ships in the area.
Economics
- The RBA’s board minutes from their December meeting confirmed the members once again debated the case to raise the cash rate or leave on hold, whilst also stating there is the possibility of a larger rise in the unemployment rate than anticipated.
- Central bankers did their best to talk down expectations of rate cuts in 2024, with the European and English banks suggesting rate cut talk was premature whilst a few US central bank members tried to clarify rate-setters were not actively debating rate cuts as previously suspected and the market has gotten ahead of itself in pricing too many rate cuts in 2024.
- Australia’s population rose by 2.4% in the year to June 2023, led by net overseas migration which was up 518,100 over the period. International students were the largest contributors to this increase. The Federal Government is targeting net overseas migration to slow over the next two fiscal years but will remain well above pre-covid levels.
- US retail sales unexpectedly picked up in November, with eight of the thirteen categories posting increases led by restaurants and bars, sporting goods stores, and online retailers.
- US manufacturing, services, and industrial production data all showed a very mixed picture of the state of the US economy, continuing the conflicting signals received this year.
- Eurozone manufacturing data contracted for a seventh month in December, coming in below expectations.
- The Bank of England left rates on hold, but three out of nine policy makers still voted for an increase. The decision came as UK manufacturing and services data both came in at six-month highs, confirming it is too early to be talking rate cuts.
- The UK’s headline inflation reading came in at 3.9%, much softer than expectations, giving some hope the Bank of England might be in a position to cut rates next year.
- UK consumer confidence edged higher in December as households looked forward to lower inflation and a slightly improved economic backdrop in 2024.
- The Bank of Japan decided to keep interest rates in negative territory, pushing the Yen lower and favouring exporters. The bank Governor said there was little data between now and the next meeting in January but did not rule out a hike entirely either.
- Chinese retail sales fell in November and home sales dropped by 4.3% in value on the year in the first eleven months of 2023.
Politics
- Australian trade minister Don Farrell said the tariffs the Chinese government imposed on Australian wine exports three years ago could be lifted shortly.
- The US Defense Secretary arrived in Israel this week, with officials saying talks are expected to focus on Israel’s end of their high intensity war in Gaza and its transition to a more limited / focused conflict. The move comes as the leader of Hamas made his first visit to Egypt in more than a month in signs a new ceasefire may be on the table.
- An unprecedented ruling by the Colorado Supreme Court bars Donald Trump from the state’s primary ballot due to his alleged actions of inciting the 6th January 2021 attack on the US Capitol. The ruling heads to the US Supreme Court, whilst the Colorado court decision also allows Trump to appeal their ruling.
- European Union finance officials finally agreed on new rules that will aim to rein in debt and define the bloc’s ability to invest in key sectors such as defence for years to come. The agreement was unanimous among the 27 member states.
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