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Investor sentiment cools on likelihood of higher rates

Markets

  • Local and global equity markets fell this week as US economic data held up reasonably well and Fed-speak got more hawkish with news that that two central bank members wanted a bigger rate rise in February.

  • In local stock news, Australian corporate reporting season continued with investors not tolerating any sort of missteps versus expectations whilst also punishing companies that declined to give guidance or gave week guidance. Companies affected included, Domino’s, Charter Hall, NIB Holdings, a2 Milk, Bluescope, Monadelphous, to name a few.

  • QBE shares rose strongly to a 3-year high after announcing a 5% increase in its full-year cash profit to $847 million as insurers push through premium increases whilst earning higher returns on their premium pools.

  • Ampol shares rose during the week after the fuel and convenience retailer announced record full-year earnings and doubled its dividend. In contrast, Viva Energy shares fell after the company reported full-year results below expectations on weaker refiner margins.

  • Aurizon shares rose after the rail company won its biggest non-coal contract ever, an 11-year deal with parcel delivery and logistics company that was formerly known as Toll.

  • BHP cut its dividend after rising costs and softer commodity prices drove a decline in half-year profit. Revenue fell 16% as prices for iron ore and copper fell in the second half of last year. The company said it was optimistic on the outlook for China and has initiated a process to divest two of its coal mines in QLD.

  • Rio Tino reported lower than expected profits and cut its dividend on weak demand for iron ore, aluminium and copper from lockdown hit China.

  • Coles shares fell slightly after announcing a better-than-expected half-year profit of $616 million. The company also announced a new CEO, Leah Weckert, who will replace the current CEO when he retires on 1st May.

  • Seek shares sold off fairly aggressively before recovering somewhat following first half results that were in line from a revenue and profit perspective but tightened guidance closer to the bottom end of their previously guided range.

  • Origin Energy shares rose strongly after a private equity consortium led by Brookfield reaffirmed their interest in acquiring Australia’s largest utility, albeit at a slightly lower revised price, where the market had been worried about a bigger revision.

  • Domino’s Pizza shares fell sharply after the company announced a more than 20% drop in first-half profit. The company said the sub-par result was a function of being too quick to try passing on inflation to customers, hurting its value proposition. Interesting miss in that they gave no indication of likely poorer numbers at the back end of last year.

  • The Aussie dollar weakened this week against the US dollar as market expectations for higher US rates lifted whilst broad risk-off investor sentiment hurt the Aussie.

Economic

  • The minutes of the RBA’s February meeting indicated that a 0.50% hike was also considered. This was in contrast to the December minutes where a pause in rate hikes was also on the table.

  • ANZ joined National Australian Bank economics departments in lifting their forecasts for peak RBA cash rate to 4.1%. The CBA forecast remains at 3.85%.

  • The Australian Wage Price Index rose by 0.8% in the fourth quarter of 2022 and the annual rate stepped up to 3.3%. Including bonuses, the annual rate fell to 3.5% from 3.8%. Private sector wages grew by 0.8% whilst public sector wages rose by 0.7% over the quarter.

  • Total Australian construction work done fell by 0.4% in the December quarter, coming in below expectations, but remains 1% higher through the year. The quarterly fall was driven by a large fall in non-residential building, with total building construction 1.6% lower in the quarter.

  • Australian capital expenditure volumes rose by 2.2% in the December quarter with mining investment up 0.7% and non-mining investment up 2.8%. The biggest boost came from buildings & structures which rose by 3.6%.

  • The US economy grew at a 2.7% annual pace in the December quarter, falling short of expectations.

  • US household debt hit a new high of US$16.9 trillion with bad debts now on the rise. Existing homes sales fell by 0.7% to annualised pace of four million in January, coming in below expectations.

  • Over 9% of US auto loans provided to people with low credit scores were 30 or more days behind on payments at the end of last year, the highest level since 2010.

  • A global manufacturing index rose slightly in February, coming in slightly above expectations, but remaining in contractionary territory. The services component lifted to an 8-month high, coming in well above expectations.

  • Eurozone consumer confidence rose slightly, coming in inline with expectations, but remaining firmly in negative territory.

  • The Chinese central bank left rates unchanged but analysts are betting on more easing ahead. Beijing did announce that it would launch a pilot program for real estate private equity investment funds in order to provide support to the struggling property market.

Politics

  • China’s top leaders declared victory over covid as its death toll drops sharply, whilst factories have turned desperate to attract workers who abandoned their jobs amid lockdowns, wage freezes, and violent protests.

  • US and China officials were in Germany last week seeking to patch relations which didn’t exactly go to plan with officials traded barbs on a number of topics.

  • President Putin has said that Russia will suspend the last accord with the US that limits their nuclear arsenals. The suspension means the US could lose access to inspections and monitoring data.

Weekly market updates are written by Chris Lioutas. Chris is on the board of Peer Wealth X Futuro Investment Committee. View LinkedIn


Disclaimer: The material and contents provided in this article contains general information and does not take into account your personal objectives, financial situation or needs. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, please contact Peer Wealth on (02) 8014 7608.



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