1 Sep 2023
Stocks rise on hopes for pause in US rate hikes
Markets
- Local and global equity markets rose this week on hopes for a pause in US rate hikes.
- In local stock news, Insurance Australia Group shares fell after the securities regulator ASIC filed civil proceedings against two of its subsidiaries concerning the pricing of premiums for customers renewing home insurance products. The company said it would defend the proceeding and denied misleading customers.
- Fortescue Metals shares fell sharply as the world’s fourth largest iron ore exporter reported a 23% drop in net profit and the surprise departure of their CEO, who only joined in late February. She is the 10th senior executive to leave the company in the past three years.
- NEXTDC shares fell on softer earnings guidance for the 2024 financial year. But the 2023 financial year result was solid, and the lower guidance ahead relates to higher capital expenditure which will help deliver future growth.
- Mineral Resources reported a solid result, beating profit expectations and surprising with a higher-than-expected dividend given the uplift in capital expenditure guidance for the year ahead.
- Qantas shares fell after the ACCC sued the airline in the Federal Court, alleging misleading conduct by advertising tickets for over 8,000 flights it had already cancelled. Qantas claims the practice used is common at other airlines and came at a time of upheaval for the airline industry. The news follows outgoing CEO Alan Joyce’s appearance before a parliamentary inquiry which didn’t go well.
- Oil prices rose, buoyed by risk-on sentiment and news that Russia had pledged to curb its crude exports by 300,000 barrels a day in September.
Economics
- Australian consumer prices rose by 0.3% in July resulting in the annual rate dipping to 4.9% from 5.4% in the previous month. The result was well below market expectations. The declines were assisted by falling goods prices, easing food inflation, and softer holiday travel prices.
- Australian private sector credit growth was unchanged in July at 0.3%, with the annual rate of credit growth slowing further to 5.3%. Monthly housing credit growth held steady, but personal and business credit growth increased.
- The total volume of capital expenditure in Australia rose by 2.8% in the June quarter and the March quarter was also revised higher. Mining investment rose by 0.9% while non-mining rose by a faster 3.5%, driven by an uplift in other buildings & structures. Equipment, plant, and machinery also rose solidly.
- Australian retail trade rose by 0.5% in July, rebounding after a big fall in June, and stronger than market expectations. The result was driven by strength in department stores, clothing and eating out.
- The RBA deputy governor, and soon to be governor, Michele Bullock delivered a speech noting current inflation was still too high, and the bank may need to raise rates again.
- Australian construction work done rose by 0.4% in the June quarter, driven by gains in non-residential and engineering work. Residential work done in the quarter was flat due to weak renovation activity. Building approvals fell by 8.1% in July.
- The US economy grew at a 2.1% annualised rate in the June quarter, which was a downward revision from the previous estimate of 2.4%.
- A US inflation measure rose 0.2% in July to be up 4.2% on a year ago, inline with expectations. Personal income lifted by 0.2% in July with spending up 0.8%.
- US central bank chair Jerome Powell delivered his much-anticipated address at the Jackson Hole summit signalling steady interest rates for now (ie. no planned rate cuts) and reiterating their commitment to bringing inflation back down to target. The market read through is that rates may stay higher for longer.
- At the same summit, European Central Bank chair Christina Lagarde said the bank will set borrowing costs as high as needed and leave them there for as long as it takes to bring inflation back to its goal.
- US job openings fell from 9.17 million in June to 8.83 million in July, coming in below expectations. ADP payroll employment rose by 177,000 in August, below the 195,000 expected by the market. The labour market remains very strong, but the fall in job openings may point to the beginning of some weakness.
- A key US consumer sentiment index fell in August, coming in below expectations, whilst a consumer confidence index eased in July, coming in well below expectations.
- The UK shop price inflation fell sharply again to 6.9% in August from 7.6% the month before, with the slowest increase in grocery bills in almost a year. Food prices led the decline.
- A key German business climate index remained in negative territory in August, worsening from July and coming in below expectations.
- August German and Spanish inflation data disappointed. German inflation rose by an annual rate of 6.4%, down from the 6.5% in July but above expectations. Spanish inflation rose to 2.6% on the year, higher than the 2.3% in July and above forecasts.
- China’s manufacturing activity contracted for the fifth consecutive month in August. Activity increased slightly on the previous month but remained in contraction.
Politics
- Australian Treasurer Jim Chalmers said the department he oversees is closely watching slowing growth in China, which he described as the greatest risk to Australia’s economy alongside elevated interest rates.
- The Chinese government unveiled a raft of supportive policies over the weekend to boost capital markets following its mortgage easing measures on Friday. Steps included a reduction in the levy charged on stock trades, restrictions on share sales by top stakeholders at some firms, and lower deposit ratios for margin financing.
- Taiwan’s presidential elections are firmly in focus globally with the current Vice President (pro-Taiwanese independence) now going up against three other candidates who either support closer ties and/or the start of peace talks with Beijing. Looks eerily similar to how Hong Kong has played out over the years.
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