Markets
Local and global equity markets grinded higher this week as investors tried to decipher mixed US economic data.
About 75% of the 500 largest listed companies in the USA have reported 4th quarter earnings with almost 70% beating analyst forecasts after consensus was reset fairly low leading into reporting season.
In local stock news, News Corp’s ASX-listed shares fell almost 7% after the company reported revenues had dropped 7% in the second quarter. The company also said it would lay off about 5% of its global workforce in a bid to save $130 million annually.
CBA shares fell despite the bank reporting a 9% lift in profit in line with expectations. The market didn’t like talk regarding the bank’s net interest margin with cost pressures set to rise and a looming bad debt cycle.
REA Group shares fell after the company reported its half-year profit after tax had fallen 9% to $205 million following a drop in listings.
JB Hi-Fi posted strong results for the first half, but its shares still fell after the company cautioned its sales growth in January had slowed.
IAG announced its profit after tax climbed 170% to $468 million, compared to a year ago, citing good cost discipline and the strongest first half gross written premium growth in seven years.
Endeavour Group shares rose after the alcohol retailer and hospitality company announced a 17% jump in first half profit benefiting from a bumper month in December.
Lend Lease shares fell on a weak outlook from the company with the developer flagging inflation, interest rates and other market risks blocking the recovery. The company missed expectations but secured a further $2.3 billion in work in the first half and expects to start on $6 billion of work in the second half. They reiterated guidance.
James Hardie shares suffered a decline after the company announced its third profit downgrade this financial year as both US and European housing markets slow. The miss came from a combination of lower volumes and lower realised price increases.
Treasury Wine Estates shares fell after the company missed profit expectations, giving back a strong run up in price over the last month or so.
CSL shares gained after the blood products giant recorded a 10% growth in underlying net profit, coming in ahead of analyst expectations and reaffirming guidance.
Dexus beat 1st half earnings expectations and increased distribution guidance. Occupancy levels have held up in their offices (95.3%) and remain strong in their industrial portfolio (97.4%), with gearing well below their targeted range.
In oil news, Russia announced plans to reduce oil production in March by 500,000 barrels per day or 5% of output in response to Western price caps. Oil prices moved higher. The move comes after a two million barrel-a-day production cut announced late last year by OPEC+. The US Department of Energy responded saying it would release another 26 million barrels of oil from their emergency reserves.
Economic
Australian employment fell by 11,500 in January, a second consecutive monthly decline, pushing unemployment from 3.5% to 3.7%. This takes the unemployment rate to just 0.1% away from the RBA’s year-end forecast. The RBA’s tea leaves seem a little off. The fall in jobs in January surprised against expectations of 20,000 gain, with large falls coming from full-time employment.
Australian consumer sentiment fell by almost 7% in February and sits just above the November low, with the RBA’s hawkish rate hike not helping. There was a large hit to the ‘family finances vs a year ago’ component which fell to levels not seen since the early 1990s recession. Unemployment rate expectations worsened to an 18-month high.
An Australian business survey bounced in January, but this data came in pre the February rate hike by the RBA. Both business confidence and conditions rose. The readings remain below the peaks in 2021 but still point to solid economic activity in January. Cost measures also rose.
US inflation cooled for the 7th straight month to 6.4% last month, coming in above expectations. Inflation increased in January from a month earlier due to the rising costs for shelter.
US consumer sentiment rose to an 11-month high whilst longer term inflation expectations were steady. However, inflation expectations a year ahead jumped to 4.2% from 3.9% a month ago.
US retail sales rose 3% in January, coming in well above expectations and the most since March 2021. Industrial production was flat in January, a key manufacturing index improved in February whilst a homebuilders housing market index also increased.
US producer price inflation came in higher than expected (bad for companies that can’t pass on cost increases), with supplier prices rising 0.7% in January in the biggest gain since mid-2022.
European central bank president Christine Lagarde reiterated that the bank intends to raise borrowing costs by another 0.5% at their next meeting given underlying inflation pressures with officials stressing that next month’s rise is unlikely to the be their last.
Japanese PM Kishida’s government nominated a new head of the Bank of Japan in a move which may lead to the gradual paring back of central bank’s significant stimulus program.
Politics
The Americans continued to shoot down more unidentified objects in their airspace this time over Alaska. The US will soon be adding Chinese companies to an export blacklist over what it says are links to a military-backed global balloon espionage program. Interestingly, President Biden said the first “balloon” incident didn’t materially hurt US-China relations.
RBA Governor Philip Lowe came under scrutiny following reports he held a closed door briefing with treasury representatives from the big 4 banks after last week’s rate decision. Something that likely happens fairly often but perception is everything. Lowe then had to front a senate hearing committee with pressure mounting that the Federal Treasurer may not renew his term as governor.
The NSW government’s coal reservation policy will see coal miners forced to sell 5% of their coal into the domestic market at a price capped at $125 compared to the current export price of $320. Problem is the logistics (getting the coal to our power stations) and the type of power stations we have (vs the coal being mined).
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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