Markets
Local and developed global equity markets were weak to flat this week, whilst pockets of Asian and emerging markets showed some strength as the US dollar weakened slightly.
In local stock news, Insurance Australia Group turned a 1st half profit and is looking forward to a favourable operating environment over the next 6 months. The company reported a net profit of $173 million after a loss of $460 million in the previous corresponding period.
Gaming giant Crown Resorts has sealed terms for a takeover by private equity group Blackstone. Under the proposal, Blackstone will buy all listed shares for $13.10 in cash, valuing the company at $8.9 billion.
JB Hi-Fi announced a $250 million share buy-back after reporting that 1st half profit fell more than 9% due to lockdowns and very strong sales in the previous comparable period.
BHP improved profit to $13.2 billion and paid a higher dividend which pleased investors.
Seek shares received a boost with the online jobs business reporting 1st half profit rose 32%, benefiting from employers competing for workers in the pandemic recovery.
Fortescue’s profit fell 32% after a period in which iron ore traded for substantially less than the same period a year earlier. Fortescue did talk up the prospect of Chinese steel production improving after the Winter Olympics.
Treasury Wine Estates continued to battle against Chinese tariffs on Australian wine, with net profit slipping 7%, but investors were encouraged by sales improving in most regions outside of Asia.
CSL shares rose strongly after investors accepted a lower profit due to the challenges of collecting blood in the pandemic.
The International Energy Agency warned that the OPEC+ coalition’s struggle to increase production means that global oil prices could climb further. The lack of investment in production globally is increasingly problematic for both supply and energy prices, not helping the current inflation dynamics.
The oil price was volatile this week with Russia/Ukraine tensions providing upward pressure whilst potential progress on Iran nuclear talks provided downward pressure, as Iran’s re-entry into the global market could significantly boost current supply.
Economic
The Reserve Bank of Australia governor Philip Lowe reiterated that an interest rate rise in 2022 is possible but told politicians that he wanted to see at least a couple more quarterly inflation results.
The Reserve Bank of Australia governor also reiterated that the reopening of Australia’s international border won’t hurt the overall unemployment rate, with the welcoming of skilled migrants providing a big boost to the economy.
The Australian January labour force survey showed that the labour market is very tight, with employment rising by almost 13,000, the unemployment rate remains unchanged at 4.2%, whilst the participation rate rose. Wages growth may accelerate again.
The US central bank minutes showed officials talked about stepping up their timetable for raising interest rates beginning with an anticipated increase in March, but there didn’t appear to be any serious talk about large rate rises (e.g. 0.50%) or hikes at each of the next 7 meetings. The tone of the minutes was more dovish than expected.
US average hourly earnings implied that wages jumped 5.7% in January from a year ago, but wages adjusted for inflation actually fell 1.7% last month.
The European central bank president Christine Lagarde warned that the Governing Council would harm the economy’s rebound from the pandemic if it were to rush to tighten monetary policy.
China’s inflation eased in January as food and energy prices weakened, providing Beijing with flexibility to shore up a slowing economy. The central bank governor has said that economic growth will return to its potential level in 2022.
Politics
Russia / Ukraine tensions settled even though diplomats failed to overcome differences. The US continues to warn an invasion is imminent, Russia maintains there is no plans for invasion, whilst the Ukraine calls for calm. There’s nothing for Putin to gain by taking more land from Ukraine, whilst any US sanctions on Russia would hurt Europe. All sides understand the ramifications of a physical war and the associated costs. But the risks are there.
The pandemic in Hong Kong has opened the door for China to increase control of the once autonomous city, with increased digital surveillance and tracking, following the current surge in virus cases.
Republicans have blocked votes on the Senate Banking Committee for the White House’s five Fed nominations, as a protest against the newly appointed vice chair for supervision, who has some fairly radical views.
Weekly market updates are written by Chris Lioutas. Chris is on the board of Peer Wealth X Futuro Investment Committee. View LinkedIn
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