11 Aug 2023
Weak Chinese data hits Aussie dollar
Markets
- A mixed week for equity markets with Asian equities weaker, US equities taking a breather, particularly the tech sector, whilst Australian and European markets rose.
- In local stock news, ResMed shares have come under pressure after the company reported fourth quarter 2023 earnings that were softer than expected, with softer revenue, lower gross margin, and higher costs. Adjusted earnings were higher than the same time last year but below expectations.
- Listed aged care operator Estia Health shares rose as the company signed a $838 million deal to be taken private by private equity firm Bain Capital for $3.20 a share.
- GQG Partners shares rose after the firm reported that its funds under management had hit US$108.1 billion as of July 31, a US$4 billion rise from a month earlier.
- James Hardie shares soared higher to an 18-month high on strong first quarter earnings, with operating cashflow up 65% as price hikes more than offset a decline in volumes. The company guided to second quarter profit of US$170-190 million, a 15% upgrade.
- Woodside shares rose after the company announced it would sell 10% of its Scarborough LNG project off the coast of WA to LNG Japan for US$500 million. The project expects its first LNG cargo in 2026.
- Commonwealth Bank shares rose after the company reported a higher than expected full-year profit of $10.2 billion. Margins improved, operating income was up 13% whilst cash earnings increased 6%.
- Suncorp released a result broadly in line with expectations with profit of $1.25 billion. A strong Australian insurance performance was offset by weaker bank and NZ business results. The final dividend was well below consensus.
- Global oil prices rose this week after a report from the US Energy Information Administration projected US crude production to rise by 850,000 barrels per day.
- The Aussie dollar continued to see downward pressure against the US dollar as Chinese economic data worsened and the US dollar received support as the US economy continues to hold up better than expected.
Economics
- The Westpac-Melbourne Institute consumer sentiment reading fell slightly in August, remaining deeply in pessimistic territory. The majority of respondents still anticipate further rate hikes and cost of living pressures remain problematic.
- The NAB business conditions index fell marginally while confidence edged higher in July. The cost and price component of the survey revealed a sharp rise in labour costs and final prices.
- US inflation rose by 0.2% in July to be up 3.2% on the year, coming in just below expectations. Core inflation (ex-food and energy) also rose by 0.2% in July, with annual core inflation easing from 4.8% to 4.7%, the lowest since October 2021.
- The US Labor Department said US employers added 187,000 jobs in July, indicating that hiring has slowed from the same time last year. Wages continue to rise.
- Total US credit rose by US$17.8 billion in June, coming in well above expectations, with non-revolving credit (i.e., auto, student, mortgage loans) up by US$18.5 billion, the biggest gain in eight months.
- US small business optimism rose slightly in July, coming in above expectations.
- The US trade deficit narrowed by US$2.8 billion to US$65.5 billion in June whilst wholesale inventories fell by 0.5% in June.
- The Chinese central bank vowed to ensure ample liquidity in the banking system with officials from multiple departments saying they would step up support for China’s second half growth, including increasing funding support for the private sector.
- China’s July exports fell 14.5% on the same time last year while imports declined 12.4%, reflecting weaker production and weaker demand within China, respectively. Exports to the US were down 23.1% and down 20.6% to Europe.
- China’s economy fell into deflation last month, with consumer prices dropping 0.3%, their first decline since early 2021. Producer prices also declined from a year ago.
Politics
- The Italian government introduced a surprise 40% windfall tax or levy on bank’s “extra profits” this year. Windfall taxes are never a good idea.
- US President Biden imposed limits on US investments in China in a push to restrict Beijing’s ability to develop military and surveillance technologies. The order will regulate US investments in some Chinese semiconductor, quantum computing and AI firms.
- China lifted its pandemic-era restrictions on group tours for more countries, including Australia, the US, UK, South Korea, and Japan, which will boost the tourism sector globally.
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