20 Oct 2023
Rising Middle East tensions temper investor optimism
Markets
- Local and global equity markets fell this week as Middle East tensions rose and US inflation data disappointed.
- Traders betting on the direction of US rates lowered their expectations of another US rate increase this year, with the probability falling from 50% to 33%. Increasingly likely that the recent rise in bond yields has done the heavy lifting for the US Fed.
- In local stock news, Liontown Resources went into a trading halt after US lithium giant Albermarle advised it was walking away from its $6.6 billion takeover bid. Completing the deal was made problematic by Gina Rinehart’s Hancock Prospecting acquiring a 19.9% stake in Liontown.
- Qantas shares fell further after the company announced that their Loyalty CEO Olivia Wirth, who was previously a contender to replace Alan Joyce as CEO, would step down in February. The Qantas / Alliance Aviation tie up was also called off as both parties agreed to walk away.
- Treasury Wine Estates shares rose after the company reaffirmed guidance at the wine group’s annual general meeting, saying the demand for luxury wine remained strong.
- Energy companies benefited from rising oil prices this week whilst coalminer Whitehaven’s shares soared after the company agreed to pay up to $6.4 billion for two of BHP and Mitsubishi’s coking coalmines in Queensland.
- BHP’s September quarter production results showed mix results with iron ore production lower versus expectations, and nickel and energy coal higher, whilst metallurgical coal production fell sharply due to plant maintenance and higher strip ratios. Average realised prices were lower across the board.
- Corporate Travel Management provided a market update which said the first quarter of the financial year was off to a great start and on-track to meet its goals for the full year. Revenue was up 36% in the quarter and underlying earnings were up 157%. All about expectations.
- Oil prices rose this week as traders grew concerned supply may be further reduced if the conflict in the Middle East escalates further.
Economics
- The minutes from the RBA’s last meeting showed board members are concerned about the upside risks of inflation stating they have a low tolerance for a slower return of inflation to target than currently expected. Fairly clear change in stance.
- The Australian unemployment rate unexpectedly fell to 3.6% in September as the total number of people employed grew by 6,700 in September and the participation rate unexpectedly fell. The reading was much weaker than expected, for growth of 18,000, and well below the 65,000 jump in the prior month.
- US inflation was unchanged at 3.7% in the 12 months to September, coming in against expectations for a slightly lower pace.
- US central bank chair Jerome Powell said the US economy’s strength and continued tight labour markets could require tougher borrowing conditions to control inflation, but that bond markets were helping their cause. He also suggested that the bank is inclined to hold rates steady at its next meeting but leave the door open to hike if needed.
- US retail sales increased more than forecast in September providing further evidence household demand remains durable, even in light of wage growth starting to subside as the labour market remains strong.
- A key US consumer sentiment data point fell well short of analyst expectations to its lowest level in five months. Inflation expectations in the year ahead rose to 3.8% from 3.2% in the previous month. Assessments of personal finances fell 15% whilst business condition expectations for the year ahead fell almost 20%.
- Euro area inflation came in at 4.3% in September, down from August’s 5.2%, and the lowest since October 2021. Prices increased at a slower pace for services, non-energy industrial goods, and food, alcohol, & tobacco. Across the area, inflation decreased in Germany and the Netherlands, was unchanged in France, and rose in Italy and Spain.
- The Chinese economy grew by 1.3% in the third quarter (4.9% from the year earlier), topping expectations of a 1% increase, and showing a sharp acceleration from a downwardly revised 0.5% in the second quarter. First sign of proof stimulus measures are starting to work.
- Chinese exports fell 6.2% in September compared with the same time last year, whilst headline inflation in September was flat.
Politics
- No de-escalation in the Israel / Palestine conflict with anticipation the Israeli ground invasion of Gaza, likely delayed by President Biden’s visit to Israel, could escalate the conflict and draw in Iran more directly.
- The US plans to tighten measures to restrict China’s access to advanced semiconductors and chipmaking equipment. The latest rules aim to refine and close loopholes from curbs announced last year.
- The US House is still without a speaker as it became clear front runner Republican Jim Jordan doesn’t have the votes on the House floor to secure leadership with 20 Republicans voting against him. Looks likely the current back-up speaker will become interim speaker until at least January.
- China and Australia appear closer to resolving a dispute over wine tariffs as relations continue to thaw.
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