12 Jul 2024
US inflation lower while employment weakens
Markets
- Local and global equity stocks had a mixed week as investors tried to digest weaker economic data and lower US inflation on the read through to potential rate cuts and economic outlook concerns.
- In local stock news, BHP will close its loss-making nickel business in Australia, until at least early 2027, after the global oversupply of the metal has spread havoc through the market.
- ANZ Group shares fell after the bank overstated the value of government bonds it traded by more than $50 billion during a one-year period.
- GQG Partners shares fell after the company announced funds under management hit $229.8 billion, after pulling in a further big amount in June.
- Uranium stocks rose strongly after a hike in extraction taxes in Kazakhstan, the world’s largest producer, and after US President Biden signed new legislation to support nuclear power by speeding up the licensing for new reactors and simplifying and shortening environmental reviews.
- Telstra shares rose to a three-month high on the back of price increases announced by the mobile operator.
Economics
- Australian new housing lending unexpectedly fell in May, declining by 1.7% in the month. Lending to owner-occupiers and to investors both fell in the month but remain well-above levels a year ago. The May decline comes after April’s 4.8% rise, with new housing lending 18% higher than in May 2023.
- Australian business conditions eased again in June according to the NAB business survey, sitting well below the long run average.
- Australian consumer sentiment dipped a little in July to remain deeply in the pessimistic zone. Job ads continued their trend decline in June and the number of applicants per job ad pushed higher again in May.
- US consumer price inflation fell 0.1% in June, versus expectations of a 0.1% rise. The monthly fall was the first since May 2020, with the annual pace of growth falling to 3%. Core prices, excluding food & energy, rose in June with the annual rate falling to 3.3%.
- The US unemployment rate ticked up to 4.1%, adding to recent signs that the jobs market is cooling. The news also came with substantial downward revisions to previously reported job gains (54,000 less in May alone). The downward revisions are significantly larger than they have been through history.
- Data showed the US added 206,000 jobs last month, coming in above expectations for 190,000 in gains. Average hourly earnings rose 0.3% in the month to be 3.9% higher in the last year, moderating from the 4.1% annualised rate in May.
- The US central bank chair reiterated the need to see further evidence of cooling inflation before cutting interest rates, noting risks were “two-sided”. The market is now pricing a more than 70% chance of a US rate cut in September following the weaker employment data.
- The New York Federal Reserve reported the median one and five-year ahead inflation expectations both declined by 0.2% in June to 3% and 2.8% respectively.
- A key US small business sentiment reading rose slightly in June to the highest level this year but remains below the historical average.
- The European central bank requires additional reassurance that inflation is headed back to 2% target before it lowers rates further, with a particular focus on the growth in services prices which is being driven by elevated wages.
- China’s June consumer inflation grew for a fifth month but missed expectations, while factory gate prices continued to fall, pointing to persistently lacklustre demand despite Beijing’s efforts to lift consumption.
- The Reserve Bank of New Zealand left rates on hold as expected but highlighted gains were being made on the battle against inflation which it expects will return to target in the second half of 2024. A signal that rate cuts are likely later this year.
Politics
- The Chinese Communist Party will hold its Third Plenum in mid-July and China’s Politburo meeting is expected by the end of this month. The market patiently awaits potential further stimulus measures to aid in the Chinese economic recovery.
- The European Union (EU) confirmed tariffs on Chinese made electric vehicles (EVs) as they seek to protect their own EV market from significantly cheaper Chinese vehicles. Problem is European EVs are too expensive relative to the ambitious targets set by the EU for EV take-up.
- Keir Starmer’s Labour Party won the UK general election in a landslide victory that will see them win a clear majority in the House of Commons. The victory was ably assisted by a disastrous leadership campaign by the Tories who seem to have forgotten their core party values. The voter backlash was a stark reminder.
- Hamas is said to have dropped its objections over a US-backed ceasefire proposal to halt the war in Gaza. But there are still gaps between Hamas and Israel.
- The French elections went full circle on the first round of results with the second round showing a coalition of left-wing parties surprisingly winning a majority of seats. The likely end result is a hung parliament and electoral stalemate, which markets liked, but with the “far-left” likely to wield power within the leading coalition.
- US President Joe Biden sought to quell Democratic infighting about his presidential campaign, saying he was determined to remain in the race and challenging dissenters to end talk of his removal from the ballot.
- Saudi Arabia has apparently warned the US and the European Union it will dump the Dollar and Euro if they seize, or steal as they put it, the US$300 billion in frozen sovereign Russian assets.
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