Aussie Inflation Surprises On The Up

Markets

• Local and global equity markets moved higher again this week, but with US technology and Chinese stocks doing their best to hold markets back.

• US and Hong Kong listed Chinese stocks fell this week on investor concern that President Xi’s push to tighten his control over the government will stifle the economy and private enterprise.

• In local stock news, IAG shares fell as the insurance giant held its AGM with the company telling shareholders it was continuing to experience inflation and had seen further natural disasters, with 2,000 claims alone already from this week’s flooding in NSW and Victoria.

• Westpac warned that its second half reported net profit and cash earnings will be reduced by $1.3 billion after tax, citing a loss on the sale of its life insurance business, among others.

• Plumbing supplies company Reliance Worldwide’s shares fell sharply after reporting weaker than expected quarterly sales and mentioning tougher and unpredictable conditions in the period ahead. The company saw volumes decline in all regions except Australia.

• Medibank Private shares fell sharply after the health insurer resumed trading for the first time since last week following a hack of customer data. The company predicts the hack will cost at least $25-35 million in non-recurring costs, but this doesn’t include any remediation, regulatory, or litigation related expenses.

• ANZ Bank warned of a worsening macro outlook whilst posting a better than expected full year profit of $6.5 billion. The bank also forecast higher expenses than the market was expecting.

• JB Hi-Fi shares rose after the company announced double-digit sales growth in the September quarter, underlining strong consumer demand.

• The oil price rose this week on stronger than expected demand and a weakening US dollar.

• The Aussie dollar rose to 64c against the US dollar as market bets on a less hawkish Fed increased following weaker US economic data.

Economic

• Australian headline inflation rose by a large 1.8% in the third quarter with the annual rate surging 7.3%. The central bank’s preferred measure stepped up to an annual rate of 6.1%. Eight of the eleven main components saw price increases in the period, with the most pressure coming from new dwellings, gas, and furniture.

• The Australian budget deficit for 2022/23 is estimated at $36.9 billion, or 1.5% of GDP, consistent with most pre-budget expectations. The fiscal impulse of the budget (ie. impact on the economy) appears unchanged over the year, with phase three of the tax cuts to proceed as planned and no capping of electricity prices.

• Australian export prices fell by 3.6% in the third quarter with the prices of Australia’s key commodity exports mixed in the quarter. Import prices rose by 3% in the quarter, with the lower Australian dollar and higher materials and production costs the main causes. The outcome will weigh on economic growth in the quarter.

• The US economy expanded by 2.6% in the third quarter, after two quarterly contractions, coming in ahead of expectations. Private domestic demand grounded to a halt. Expectations remain that the US will enter some sort of sustained recession next year.

• US manufacturing and services data fell in October, coming in below expectations, with both readings now in contractionary territory.

• US house prices decreased by 1.3% in August for the second consecutive month, and its largest drop since March 2009, with mortgage rates now more than 7% and consumer confidence decreasing in October.

• US new home sales fell by 10.9%. Rent gains in the US are finally starting to slow, with landlords having little choice but to ease off big increases as demand from tenants falls.

• Euro area manufacturing data fell in October to a 23-month low.

• The European central bank raised its policy rate by 0.75%, in line with expectations, with the bank’s President saying that they had already made substantial progress in withdrawing monetary policy accommodation.

• UK retail sales fell 1.4% on the previous month in September continuing a downward trend. The September number missed expectations of a 0.5% decline. Hardly surprising given UK inflation came in at 10.1% in September and consumer confidence is at an all-time low.

• China’s fiscal deficit hit an all-time high in the first nine months of the year as covid outbreaks and a housing market slump continue to eat into government revenues.

Politics

• The European Union agreed to press ahead with a set of emergency actions to address the areas energy crisis, with Germany yielding to pressure from other member states to pave the way for a temporary price cap on natural gas prices.

• Chinese President Xi vowed to further open the world’s second biggest economy and stay connected with the rest of the globe. The statement came after Xi was reappointed as the Chinese leader, effectively for life.

• Former UK Chancellor Rishi Sunak became the new leader of the Conservative party, and hence the new UK Prime Minister.

Weekly market updates are written by Chris Lioutas. Chris is on the board of Peer Wealth X Futuro Investment Committee. View LinkedIn

Disclaimer: The material and contents provided in this article contains general information and does not take into account your personal objectives, financial situation or needs. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, please contact Peer Wealth on (02) 8014 7608.