Markets
Local and global equities held up reasonably well this week even as government bond yields surged again.
In local stock news, IAG shares went into a trading halt after the High Court of Australia dismissed its appeal of a Federal Court ruling related to business interruption claims during covid lockdowns. The company also announced a share buy-back of up to $350 million, after the court decision gave them more clarity.
The NSW casino watchdog has suspended the Star Entertainment Group’s casino licence and ordered it to pay a $100 million fine, but the casino will be allowed to stay open under the supervision of a special manager to ensure it can still operate so that thousands don’t lose their jobs.
Westpac shares rose following the bank’s confirmation it was making a play for payment provider Tyro Payments, which would give the bank a stronger foothold in the hospitality and healthcare sectors. Talks were preliminary.
Woodside shares surged after Australia’s biggest oil and gas company upgraded its full-year production guidance and reported a 70% jump in revenue to $9.4 billion. Santos shares also rose after Australia’s second biggest producer announced that higher oil and gas prices had resulted in more than US$1 billion in free cashflow over the quarter.
Economic
The RBA minutes from their October meeting gave greater insights into why they surprised with a smaller rate hike. They cited the potential for inflation to subside quickly given rapid tightening by central banks globally and worried about the lagged effects of rate rises which have yet to be seen in the real economy, along with the high cost of living expenses putting pressure on household budgets and consumer confidence.
The Australian unemployment rate remained at 3.5% with employment rising by just 900, coming in well below expectations. Full-time employment rose by 13,000 but was mostly offset by a 12,000 fall in part-time employment. The participation rate was unchanged whilst hours worked was little changed in September.
CBA’s wage indicator shows that wages growth was travelling at 3% in September, with Australia not facing a wage price spiral like is being observed in other countries. This may have provided some comfort to the RBA to reduce the size of their rate hikes.
There has been a noticeable pickup in net permanent and long-term arrivals into Australia over the past three months. This momentum, together with a lift in the permanent migration cap and a focus of clearing the back log of visas, suggests we could see further arrivals in the period ahead, thus affecting the labour market.
A member of the US Federal Reserve has said that the Fed should keep rising rates, even beyond current market expectations of a 4.75% ceiling, if core inflation keeps surprising to the upside. However, another member said they expect the bank to end its aggressive rate hikes by early next year.
US housing starts dropped by 8.1% in September whilst building permits rose by 1.4% over the same month. Mortgage applications fell 4.5% in the past week.
US retail sales were flat in September versus expectations of an increase. Excluding cars and fuel, retail sales rose 0.3%.
A preliminary US consumer sentiment index rose in October, coming in ahead of expectations, but remains around levels last seen during the GFC.
UK inflation accelerated to 10.1% in September from 9.9% in August, coming in slightly above expectations. Increases in food, transport and energy prices were the biggest contributors.
The new British treasurer has significantly reduced the size of his predecessor’s mini budget, slashing most of the proposed tax cuts and also taking an axe to the proposed energy package. The proposals are still expansionary, but significantly less so than previously anticipated, providing some comfort to the UK bond market and putting less pressure on the Bank of England.
China’s state banks stepped up their intervention to defend a weakening Yuan with banking sources indicating they sold a high volume of US dollars.
Politics
British government leadership is in a state of disarray after new PM Liz Truss resigned not long after firing her treasurer, ushering in members of Boris Johnson’s inner circle in what can only be best described as a failure to lead and internal party sabotage. Rishi Sunak now looks likely to be the next PM, after he originally lost out to Truss in a run-off.
Chinese President Xi kicked off the Communist Party’s congress with a speech that has been interpreted by most as being hostile and potentially putting Taiwan in their sights sooner than had previously been expected. He also indicated no change in direction for covid-zero and housing market policies.
Russia launched another wave of strikes, this time targeting more populated locations including the capital Kyiv, as they continued their ramp up following the attack on the bridge in Crimea. Dangerous move in that it will likely embolden the US and NATO to act further. No end in sight at this stage.
The European Union is prepared to slap sanctions on Iran over a human rights crackdown and several ministers warned of separate new sanctions if Tehran’s involvement in Russia’s war on Ukraine was proven.
US President Biden has ordered his officials to prepare for more releases from the US’s Strategic Petroleum Reserve as he approved the sale of a further 15 million barrels in December and put a plan in place to replenish the dwindling emergency stockpile. Heading into winter, the US has the lowest seasonal inventories of diesel since 1982.
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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