Markets
Local and Asian shares rose this week on the back of Chinese stimulus, whilst US equities look to finish the week flat after a very strong run of late.
US second quarter reporting season continued with profits from the largest five hundred companies down about 8% from a year ago. However, 80% of companies have so far topped expectations, a slightly higher rate than average.
In local stock news, South32 shares fell after the company took a US$1.3 billion non-cash impairment on the value of its Taylor deposit in the US. A range of issues have eroded the value of the zinc/lead/silver ore body. The company will complete a feasibility study early next year.
Resource stocks received a boost following the Chinese government’s announcement they would provide additional support for their troubled property sector. But the package stopped short of supporting commodity-intensive infrastructure.
ANZ Bank granted the competition regulator’s second request for more time to review its $4.9 billion purchase of Suncorp’s banking arm. The regulator must make a ruling on the merger by August 4.
Ship builder Austal’s shares fell sharply after the company downgraded its full year guidance by $58 million, saying it could lose as much as $10 million in 2022/23.
Mineral Resources shares rose after the company reported largely in line production results.
Macquarie Group shares fell after their CEO told the investment bank’s annual general meeting that the group’s first quarter net profit was down substantially from a year ago.
Corporate Travel Management slightly reshaped their financial year 2023 earnings guidance to $165-170 million with market consensus at the bottom end of the new range.
Oil prices rose this week on tighter supply concerns and stronger demand optimism as China signalled more support for their economy.
Economic
Australian headline inflation rose by a lower than expected 0.8% in the June quarter and the annual rate dipped to 6% from 7% in the previous quarter. The RBA’s preferred measure increased by 0.9% in the quarter with the annual rate moving down to 5.9% from 6.6%. Services inflation stepped up again to the highest annual rate since 2001.
Australian export prices fell sharply in the June quarter driven by large falls in key exports including coal and gas. Import prices fell by 0.8% in the quarter owing to falls in petroleum products. The big fall in export prices will result in a large contraction in the terms of trade.
The US central bank raised rates by 0.25% to 5.25-5.50% as expected, to its highest level in 22 years, with the bank hedging their bets for the September meeting by pointing to the possibility that the lagging effects of tightened lending conditions may slow wage growth or remove some tightness from the labour market.
US economic data was stronger than expected with the economy growing at a 2.4% annual pace in the June quarter, well above expectations.
A key US manufacturing production index rose in July, coming in well above expectations for a small fall whilst remaining in contractionary territory. The equivalent services index fell, remained in expansionary territory, but came in below expectations.
US consumer confidence rose strongly in July, remaining in positive territory.
Two key US home price indices rose in May, both coming in above expectations.
The European central bank raised interest rates by 0.25% to 4.25% but sounded a cautious note on future rate rises.
British retail sales grew by a faster than expected 0.7% in June despite high inflation.
China’s top decision-making body has signalled more support for the real estate sector alongside pledges to boost consumption and ease local government debt. No large-scale stimulus yet.
The IMF raised its outlook for world economic growth this year to 3% from its 2.8% forecast in April, saying risks have eased in recent months. It warned risks remain, particularly persistently high inflation.
Politics
China’s sanctions on agricultural exports and commodities only shrunk Australia’s economic growth by an estimated 0.009% according to new research by the Productivity Commission. Australian exports have clearly benefited from higher demand elsewhere, especially in the face of shortages out of Russia/Ukraine.
Chinese regulators have met with global investors in a bid to boost market confidence as the country’s economic backdrop worsens. The meeting came after President Xi’s administration voiced its strongest support for private technology enterprises.
Italian PM Meloni is reportedly likely to notify the US soon about her plan to pull Italy out of an investment pact with China.
Japanese officials have become increasingly worried with their country’s imposition of export controls on chip making tools to China to align with a US policy. The officials believe a combative US approach may hamper coordination and needlessly provoke Beijing.
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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