2 Jun 2023
US debt ceiling resolution calms markets
Markets
- Local and global equity markets had a mixed week with investors ending the week on a high following resolution of the US debt ceiling.
- Traders reduced their bets the US central bank will cut rates this year. Hardly surprising given core inflation is re-accelerating.
- In local stock news, Fisher & Paykel Healthcare shares fell sharply after the New Zealand respiratory products company announced a full-year profit of NZ$250 million, down 34% from last year and NZ$5 million under expectations. Rising costs impacted margins and guidance was weak, but the company expects margins to return to long term levels in the next 3-4 years.
- Online English language testing company IDP Education shares fell sharply following an announcement out of Canada that would remove the company’s monopoly over the testing. The company will still be the main offering but will lose market share as competition comes in.
- Qantas shares rose as the company held an investor day briefing that showed plans to use its three new Boeing 787-9 aircraft, as well as their existing fleet of eleven, to transform unprofitable long-haul flights. The company raised new non-stop flights to destinations such as Paris, Chicago, and Seattle as options.
- Vicinity Centres sold a 50% stake in their Broadmeadows shopping centre in Victoria for $134.5 million, a premium to their book (or carrying) value.
Economics
- Australian consumer prices rose by 0.3% in April, slower than the 0.5% rise in March. However, the annual rate moved higher to 6.8% largely due to strong rent and travel price growth along with effects from the fuel excise changes.
- Australian building approvals were very weak coming in at more than 10-year lows. Total dwelling approvals slid 8.1% in April while permits for apartments plunged 16.5%. The annual pace of approvals are now down 24.1% over the year. Housing supply issues will put further upward pressure on rents and home prices, especially as population growth rises.
- The value of Australian non-residential approvals rose by 13.5% in April and is up 29.8% on the year. The April strength was off a weak base, but the trend shows a lift in entertainment, healthcare, and other commercial buildings.
- Australian construction work done rose by 1.8% in the March quarter driven by 5.3% rise in engineering construction.
- The stock of Australian private sector credit rose by 0.6% in April to be up 6.6% for the year, whilst business credit growth accelerated by 1.1% in April.
- Australian capital city home prices accelerated to 1.4% in May, the third consecutive monthly gain. This along with the inflation print will put additional pressure on the RBA.
- The US central bank’s preferred measure of inflation rose by 0.4% in April, coming in ahead of expectations, to be up 4.7% on a year ago. Personal income lifted by 0.4% in April with spending up 0.8%.
- A key US employment report showed a 278,000 increase in May, coming in well above expectations. Job cuts also rose in May whilst unit labour costs grew by 4.2% in the March quarter.
- US job vacancies unexpectedly surged in April to the highest in three months. The advance in openings was led by retail, healthcare, transportation, and warehousing.
- A key US consumer sentiment reading fell in May, whilst consumer confidence also fell but came in above expectations.
- US home prices rose by 0.6% in March according to the FHFA house price index and by 1.5% according to the S&P/Case-Shiller index, with both coming in well above expectations.
- Eurozone inflation eased more than expected last month as underlying price growth also slowed. Inflation eased to 6.1% in May from 7% in April, below expectations for 6.3%.
- Eurozone bank lending growth to businesses slowed to 4.6% in April from 5.2% in March, while household credit growth dipped to 2.5% from 2.9%.
- UK business confidence fell for the first time in three months as faster than expected inflation figures weighed on firms’ sentiment about the economy.
- China manufacturing data fell into contractionary territory in May, continuing the patchy pace of the country’s economic recovery.
Politics
- US Congress passed a bill to extend the debt ceiling to January 2025 (no upper limit) with limited concessions on fiscal responsibility. The bill now goes to President Biden for signing. Good for markets, bad for basic budgeting and living within your means.
- Australia’s barley sector may receive a boost from improving relations with China with our trade minister now expecting China will remove its 80% tariffs on Australian barely exports within the next few weeks.
- US President Biden and his European allies have repeatedly stressed their desire to “de-risk” not “decouple” from the Chinese economy, as a way to defend the wave of restrictions and sanctions placed on trade with China. Hard sell given you use sanctions to attack, not defend.
- Turkish President Erdogan sealed an election victory winning 52.2% of a runoff vote against his challenger after initial voting failed to see either candidate achieve a 50% majority.
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