Local and global equity markets mostly finished weaker for the week due to a combination of US central bank rhetoric regarding the potential for sooner than expected rates rises and a potential new virus variant that has emerged out of South Africa.
In local stock news, private equity group Blackstone raised its price for Crown Resorts, with the US company tabling an offer of $12.50 per share despite a royal commission in Western Australia continuing.
Sonic Healthcare shares received a boost after the company revealed underlying earnings improved 16% in the first 4 months of the financial year, continuing to benefit from covid testing.
The Australian Stock Exchange has retained its licence following an ASIC probe into an outage which prevented people trading in November last year. ASIC has required the ASX to address the causes of the outage and have an independent expert oversee the changes.
Woodside Energy has confirmed it will proceed with a share sale to buy BHP’s oil and gas portfolio. The company also confirmed it will go ahead with its $16 billion Scarborough gas project off the West Australian coast.
The Aussie dollar continued to slide as a result of strength in the US dollar as investors flocked to safe haven assets on virus variant concerns.
Reserve Bank of Australia Governor Philip Lowe explained that people were buying more goods rather than services during the pandemic, leading to shortages and higher prices. Inflation will normalise as workers returned to their regular workplaces (including foreign workers) as they would then spend more on services allowing goods production to catch up. This may take some time to play out. The ending of government stimulus will also help quell demand.
ANZ Bank is predicting that house price growth will slow to 6% in 2022 and then fall 4% in 2023 as rising interest rates, lending regulation, and affordability problems would combine to depress prices. CBA predicting much of the same, on the back of expectations that the RBA will raise the cash rate to 1.25% by the 3rd quarter of 2023.
The parts of Sydney subject to the harshest lockdown restrictions have emerged with the highest rates of unemployment, with those areas accounting for nearly half the city’s job losses during the lockdown period.
Australian total construction work done fell by 0.3% in the 3rd quarter, with lockdowns in NSW which included the shutdown of the construction sector, driving the decline. Building work declined by 0.9% whilst engineering rose by 0.4%. Residential construction remains well supported but came in flat for the quarter due to a large decline for apartments, whilst new detached housing saw a 3.1% lift and alterations & additions increased 5.6%. Construction inflation also rose, not helped by border closures and skills and materials shortages.
A newly released survey found 65% of Australian businesses are optimistic they can generate growth over the next 12 months, in line with international peers. However, businesses named supply chain issues and inflation as rising concerns.
The US economy expanded at an annualised pace of 2.1% in the 3rd quarter, slightly higher than the government’s advance estimate, but below market forecasts for 2.2%. Personal spending jumped to 1.3% in October, coming in well above the previous month whilst also beating market forecasts. Personal income grew 0.5% in October.
The US central bank’s preferred measure of inflation rose 0.4% in October, in line with market expectations, which brings the year-on-year increase to 5% and the core measure to 4.1%.
The US central bank’s November meeting minutes showed members concerned about inflation and willing to raise rates sooner than had been anticipated, with some members pushing for more aggressive reductions in their monthly bond buying (money printing) program.
US consumer sentiment fell to its lowest level in a decade, data from a key survey showed. Inflation, goods shortages, energy prices, declining government stimulus, and lingering covid restrictions not helping.
The European central bank is seriously considering ending its emergency bond-buying (money printing) program in March and may not need to expand its pre-pandemic regular asset purchases to cover any shortfall.
European manufacturing and services data showed price pressures continued to rise for businesses in the Euro area. The data showed a strong increase in manufacturing output, coming in well above expectations, but the increasing likelihood of further lockdowns quashed any optimism.
A number of governments are considering releasing oil from their strategic reserves in response to rising oil prices, following the US doing so and President Biden asking others to follow suit. For most, it would be the first time they have released reserves for the sake of lowering prices, with reserves historically tapped only for emergencies like natural disasters, geopolitical risks, and during wartime. The importance of energy supply and security has been lost. Whilst each country has indicated they are doing so for their own purposes, it’s clear they’re seeking to apply pressure on OPEC+ to add more supply to address surging demand. OPEC didn’t appear to blink.
US President Biden has tapped the current central bank chair Jerome Powell to serve another 4-year term, continuity that will be well received by the market with Powell enjoying bipartisan support. Some Democrats have opposed the President’s nomination and pushed for a more “climate-focused” chair…. we’re struggling to see the connection between a central banker and climate change. Biden nominated Lael Brainard as vice chair in a move that likely puts some pressure on Powell not to move on raising rates too quickly.
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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