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Equity markets buoyed by US inflation data

Markets

  • Local and global equity markets rose this week with investors buoyed by a US inflation print that was in line with expectations. 

  • Investors have mostly been pleased with US company quarterly reporting season, with analysts now expecting that earnings from the largest 500 companies rose 5.4% in the period. This would be the highest quarterly earnings growth since Q2 2022. 

  • In local stock news, Fletcher Building shares plunged to a more than two-decade low after the Australian / NZ building company cut its 2023/24 earnings guidance saying conditions had weakened. The company said there had been a sharp correction in their Australian residential business. 

  • Offshore listed miner Anglo American rejected a sweetened takeover offer from BHP that valued the company at US$43 billion. The ball is back in BHP’s court to make an improved offer or walk away. 

  • Aristocrat shares rose strongly after they beat first half guidance, added to their share buyback, and announced they are looking to offload low growth assets in their stable. 

  • OPEC stuck to its forecast for strong growth in global oil demand in 2024 and that there was a chance the world economy could do better than expected this year. 


Economic

  • Australian Federal Treasurer Jim Chalmers handed down a bigger than expected budget surplus for the 2024/25 financial year, a second consecutive surplus. Plenty of new spending which has been front-loaded, along with temporary boosts to revenue which are expected to fall away in the coming years. Trying to alleviate cost-of-living issues won’t assist the RBA’s plight. 

  • The Australian unemployment rate rose to 4.1% in April, up from an upwardly revised 3.9% in March. Interestingly, more jobs were created than expected, with 38,000 added during the month whilst the participation rate increased. 

  • Australian wages rose by 0.8% in the March quarter to be 4.1% higher over the year. Growth in wages was driven by the private sector, though growth did moderate to 0.8% for the quarter whilst public sector wages growth also moderated to 0.5%. 

  • A Commonwealth Bank household spending index fell by 1% in April, taking the annual growth rate down to 2.6%. The news comes after the NAB business survey also indicated slowing measures of prices and employment whilst business conditions also softened. 

  • US headline inflation rose by 0.3% in April, coming in slightly below expectations. The monthly move saw annual inflation fall from 3.5% to 3.4%. Importantly, core inflation rose in line with expectations. Whilst the moves here were nothing to crow about, they were well received given recent inflation prints have come in above expectations. 

  • The US central bank chair said they will be patient and wait for evidence that inflation continues to cool before contemplating rate cuts. 

  • A key US consumer survey showed that inflation expectations for the year ahead rose to 3.5% from April’s 3.2%, weighing down sentiment in the poll to its lowest level in six months whilst coming in well below expectations. 

  • US producer prices rose 0.5% in April, coming in above expectations, with the annual growth lifting from 1.8% to 2.2%. A small business optimism index rose in April against expectations for a slight fall. 

  • In other US economic data, retail sales were flat in April coming in well below expectations; business inventories fell in March in line with expectations; a key housing market index fell in April coming in below expectations; housing starts lifted whilst building permits fell; import and export prices rose in April; and a manufacturing index slid further into negative territory against expectations of an improvement. 

  • The UK exited a fleeting recession with economic growth of 0.6% in the March quarter, coming in above expectations. 


Politics

  • US President Joe Biden ramped up tariffs on some Chinese goods following an almost two-year review of tariffs first imposed by Donald Trump. Total tariffs on Chinese electric vehicles alone will rise to 102.5% from 27.5%. 

  • Russian President Vladimir Putin was sworn in for a fifth term and not long after replaced his long-serving defence minister with a trained economist currently serving as Russia’s First Deputy Prime Minister. The change was unexpected. 

  • US President Joe Biden signed into law the bill to ban the import of Russian-sourced enriched Uranium into the US, but with waivers to allow the import of low-enriched uranium if there is no alternative source available. 

  • Slovakian Prime Minister Robert Fico suffered life-threatening injuries after being shot in public in what is the first assassination attempt on a European leader in more than two decades. 

  • US President Joe Biden and Donald Trump said they would debate each other on June 27 accepting an invitation from television news network CNN. 

  • China’s stockpile of US government bonds slid in March to the lowest level since 2009. China remains the second largest foreign holder, behind Japan, with US$767.4 billion. 


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