9 Jun 2023
RBA rate increase spooks local investors
Markets
- Local and global stocks had a flat to softer week with the RBA rate increase impacting local investors, whilst weaker European economic data and a surprise Canadian central bank increase raised foreign investor concerns.
- In local stock news, Adairs’ shares fell sharply after the furniture, homewares, and Manchester retailer said group sales were down 7% on the past 21 weeks. The announcement impacted sentiment on the broader retail sector.
- EBOS Group’s shares fell sharply whilst Sigma Healthcare’s shares rose sharply after Sigma beat EBOS for a billion-dollar contract from Chemist Warehouse to supply pharmaceutical drugs when its contract with EBOS expires in a little over a year.
- Saudi Arabia will make an extra one million barrel-a-day cut to oil supplies in July taking its production to the lowest level for several years. The move could come at the cost of supply as Russia and the UAE haven’t indicated they will be making any additional cuts.
- The oil price fell this week on apparently false reports that an US-Iran nuclear deal was near whilst weak Chinese data also didn’t help the outlook for oil demand.
- The Aussie dollar rose against the US dollar following the RBA’s unexpected increase in the cash rate.
Economics
- The RBA unexpectedly raised rates at their June meeting by 0.25% to 4.10% releasing a statement that was little changed from the previous. It’s likely the recent inflation print and a significant increase to award and minimum wages forced their hand.
- Australian real GDP growth rose by 0.2% in the March quarter to be up 2.3% on a year ago. The increase was weaker than expected. Household consumption growth slowed further, housing interest costs lifted further, and labour productivity was weak.
- Australian company profits rose by 0.5% in the March quarter to be 7.1% higher through the year. Profits in the mining industry fell by 2.2% which were offset by a 3.3% increase in non-mining industries.
- Australian wages and salaries rose by 1.8% in the quarter to be 11.4% higher on an annual basis. Employment rose solidly through the last 12 months, but hours worked were lower. Wages growth in the quarter was 0.8% taking the annual rate to 3.7%, the highest in over a decade.
- The Australian current account surplus widened to $12.3 billion in the March quarter with the trade surplus also widening. Our terms of trade rose by 2.8% remaining near record high levels.
- The Australian trade surplus narrowed to $11.2 billion in April, down from $14.8 billion in the previous month. Exports fell by 5%, driven by iron ore, whilst imports rose by 1.6%.
- The US economy added 339,000 new jobs in May, well above the 190,000 increase forecast by analysts. The unemployment rate rose to 3.7%.
- The services component of a key US manufacturing index fell in May but remained in expansionary territory, the fifth consecutive month of expansion. Other key take aways included a slowdown in business activity, new orders, and new export orders, whilst employment contracted.
- German factory orders fell 0.4% in April versus March data while Eurozone retail sales were flat.
- Economic growth in the Euro area rose by 1% on the same time last year in the first quarter of 2023, below estimates of a 1.3% rise, and the weakest performance since covid hit in 2020.
- The Japanese economy grew by 0.7% in the March quarter, exceeding market forecasts of a 0.5% gain. The second straight quarter of economic growth and the fastest pace of growth since the June quarter 2022.
- Chinese authorities asked the nation’s biggest banks to lower their deposit rates for the second time in less than a year. The aim here is to provide an incentive for banks to lend more money and for depositors to consume or invest more.
- Chinese exports fell for the first time in three months in May, with overseas shipments contracting 7.5% from a year ago versus consensus forecasts for a 1.8% drop. Imports declined 4.5% but came in better than an expected drop of 8%.
- The Reserve Bank of India left its policy rate on hold at 6.5% for the second consecutive month as widely expected. The country’s annual inflation slowed to an 18-month low of 4.7% in April, within the Bank’s target range of 2-6%.
Politics
- There’s been a significant increase in news flow of late citing increased military aggression by the Chinese towards the Americans by air and sea. Whilst more than valid in terms of increasing risks of an accident, basic geography would indicate that the US warships and planes are a long way from home in the South China Sea. Sometimes perspective is key.
- Rumours are swirling in the US that banks may face a 20% increase in capital requirements with banks with at least US$100 billion in assets having to adhere to the new requirement. Currently, the most stringent of rules are only applied to those banks with north of US$250 billion in assets.
- A dam controlled by the Russians appears to have been intentionally sabotaged (blown up) sending up to eighteen million cubic meters of water through the massive breach, swamping communities along the banks of the Dnipro River, putting key agricultural farmland at risk along with Crimea’s drinking water supply.
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