Markets
Local and global equity markets were mixed this week as investors were disappointed with the US central bank not rushing into rate cuts whilst falls in inflation provided comfort that rate relief is on its way in 2024.
In local stock news, BHP shares fell after a Brazilian judge ordered it and joint venture partner Vale to pay $14.7 billion over the 2015 Samarco dam disaster. BHP has previously set aside $5.6 billion to pay for damages.
Vehicle part company Bapcor shares rose after announcing they expect to deliver first-half revenue of about $1.2 billion, up 2% on the same time last year.
Woolworths shares were unmoved after the company said it would declare a $1.5 billion non-cash impairment on the value of its 191 NZ supermarkets. The result of slowing sales.
Qantas has brought in consulting firm McKinsey to try and ensure more flights leave and arrive on time. An external consulting firm trying to solve a core competency of one of Australia’s largest companies should raise a few eyebrows.
Oil prices fell this week as US crude inventories rose whilst there were rumours of a potential ceasefire in the Israel-Hamas conflict. Interesting move considering rising Middle East tensions.
Economic
Australian headline inflation rose by 0.6% in the December quarter bringing the annual rate back down to 4.1%. Excluding volatile items, inflation rose by 0.8% in the quarter to an annual rate of 4.2%. Meaningful inroads on the inflation front whilst services and the non-tradable components (new dwellings, rent, insurance, electricity) remain problematic.
Australian retail trade fell by a large 2.7% in December to be just 0.8% higher over the year and up 0.5% for the December quarter. A weak reading for household consumption. The biggest fall was for household goods, followed by department stores and clothing.
Private sector credit growth in Australia rose by 0.4% in December for the third consecutive month, with annual growth is now sitting at 4.8%. Housing credit growth also rose by 0.4% while other personal credit growth fell.
Australian dwelling prices rose by 0.4% across the eight capital cities in January, up from 0.3% gains in each of the prior two months. Price rises were strongest in Perth, Brisbane, and Adelaide in January.
The US central bank held the fed funds rate at 5.25-5.50% as expected, with the accompanying statement dropping their bias for further hikes but avoided suggesting imminent rate cuts.
The US central bank’s preferred inflation gauge rose 0.2% in December from the previous month, easing to 2.9% for the year, the slowest since March 2021 and below expectations.
US personal spending rose 0.7% and pending home sales jumped 8.3% in December, both coming in well above expectations and continuing the hope of a potential soft landing.
Mixed economic data from the US continued with a key US manufacturing index falling sharply in December, remaining in negative territory and coming in well below expectations; house prices rose less than expected in November; consumer confidence rose in January; job openings lifted to 9 million in December, whilst 107,000 new private jobs were added in January coming in below expectations.
The US government will borrow US$760 billion in the first quarter according to the Treasury Department, less than many had been expecting which supported bond prices.
The Bank of England kept interest rates at 5.5% but there was a three-way split in the decision with six members voting for a hold, two for another rate hike, and one for a cut.
Inflation in UK stores fell to the lowest level in more than eighteen months, with shop prices 2.9% higher in January on the same time last year, which follows a 4.3% annual increase in December.
The Reserve Bank of NZ’s chief economist said that inflation is still too high above the bank’s target band and there was a way to go to bring inflation under control despite a weakening economy.
Politics
Iran signalled that it is prepared to respond to any US strike on its soil or assets abroad as the US White House readies a response to the drone attack at a Jordanian base that killed three US soldiers. The news comes as Hamas and Israel negotiations continue with rumours of a potential ceasefire.
Former Labor minister Greg Combet will be the next chair of the Future Fund, replacing the fund’s founder Peter Costello.
The Bank of England is examining the potential for systemic risk in the US$1.6 trillion private credit market, following the rapid growth in the sector in recent years.
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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