Local and global equity markets fell this week as an increase in US inflation put additional pressure on the Fed and Chinese economic woes continued.
US government bond yields reached a 15-year high after minutes from the most recent central bank policy meeting showed Fed members are worried about a possible resurgence in inflation.
In local stock news, Carsales.com shares rose strongly after the online car classifieds company announced double-digit revenue and earnings growth in all key markets. Revenue of $781 million and earnings of $425 million saw net profit up 43% to $278 million. International segments were strong.
Lendlease shares fell after the construction and real estate company declared a statutory loss after the UK retrospectively extended builders’ liability for defects in residential buildings from six to thirty years.
CSL shares rose after the blood products company delivered a full year underlying profit of US$2.61 billion, up 10% from a year ago, with strong plasma collections (up 31%) now at record levels whilst collection costs fell.
Treasury Wines delivered a result in line with expectations with earnings up 11% on the year despite revenue being broadly flat at $2.49 billion as margins expanded from 21% to 24%.
Dexus shares fell as they reported results broadly in line with expectations, but the outlook commentary was weaker than expected. Funds from operations came in ahead of expectations with the dividend in line with expectations. Assets were revalued lower by 6.9%.
There was some relief on oil prices this week, following a strong rally since the back end of June, as demand concerns rose on the Chinese economic outlook.
Worsening Chinese economic conditions and collapsing property developers saw the Aussie dollar fall through the US64c mark this week as investors and economists come to realise the Chinese aren’t in any shape to help keep the Australian economy out of recession.
Australian employment fell by 14,600 in July after two strong months of gains, with the unemployment rate rising to 3.7%, the highest since May 2022. Average weekly ordinary time earnings for full-time workers rose by 3.9% to $1,838.10 over the year to May 2023. Hours worked continues to rise and the participation rate dipped slightly.
The RBA board minutes from their August meeting showed they sound more comfortable that inflation is heading in the right direction and aren’t necessarily in a rush to raise rates significantly from here, preferring patience, but remaining on alert for sticky services prices.
Australian wages rose by 0.8% in the second quarter with annual wages growth declining to 3.6%. Private sector wages growth was 3.8% whilst public sector wages growth was 3.1%. The decline in the annual rate of growth was due to fewer workers receiving increases, but for those that received a pay rise, the increase was higher.
US consumer prices rose 3.2% in the 12 months through to July, slightly under expectations of 3.3% and higher than the June reading.
US consumer inflation expectations for the year ahead fell for a fourth successive month to 3.5% in July, the lowest since April 2021, from 3.8% in June.
US producer price inflation showed supplier prices ticking up from June’s flat reading, prompting concern that the inflation fight is far from over.
In other US data, retail sales rose by 0.7% in July coming in above expectations; import prices rose in July as did export prices, with both coming in above expectations; business inventories were flat in June; a key housing market index fell sharply in August; a key manufacturing index fell sharply in August, coming in well below expectations.
In US housing data, housing starts rose by 3.9% in July to a 1.45 million annualised rate, in line with expectations. Building permits lifted in July to a 1.44 million annualised pace, coming in below expectations.
A gauge of US consumer sentiment inched down from a near two-year high, but showed Americans expect slightly lower inflation next year.
The UK economy grew at a better than expected 0.2% in the second quarter, though economists voiced caution.
UK headline inflation for July eased compared to June, coming in at the lowest rate since February 2022, but core inflation stayed the same and services inflation increased.
Japan’s exports fell in July for the first time in nearly two and a half years, with exports down 0.3% on the same time last year. The result was better than expected.
New data showed that China’s economy continues to slow with retail sales and homes sales increasing at a milder pace. Monthly China activity figures also missed expectations.
China’s central bank lowered two key lending rates this week, cutting the one-year medium term lending facility by 0.15% to 2.50%, surprising the market and signalling that there’s more work to be done in lifting the economy out of the doldrums.
China has started booking cargoes of Australian barley after Beijing scrapped onerous tariffs on the trade earlier this month.
China has said it will stop publishing data on youth unemployment, weeks after the gauge hit a record level, as pressure mounts on policy makers to arrest the current decline in the economy.
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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