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Investors pause to digest central bank speak

Markets

  • Local and global equity markets took a breather this week as the RBA struck a more hawkish tone whilst the US Fed confused markets with mixed comments.

  • More than 50% of the 500 largest listed companies in the US have now handed down their fourth quarter results with 70% of these coming in above earnings expectations and 61% coming in above revenue expectations. Results don’t appear to be as bad as expected, but guidance (or lack +thereof) will be key.

  • In local stock news, IAG warned its bottom line would be hit by Auckland flood claims with the company now expecting a full-year insurance margin of about 10% versus expectations of 14-16% after receiving more than 15,000 claims.

  • Suncorp shares received a bounce after the insurer hiked its dividend after reporting that half-year profit rose 44% to $560 million. Net profit after tax came in below expectations whilst the general insurance margin was solid. The soon to be departing banking division performed well whilst the company reaffirmed guidance.

  • Australia’s largest gold miner Newcrest received a circa $24.5 billion offer ($27.40 a Newcrest share) from US based Newmont in all scrip (shares) deal. The offer price is at a near 22% premium to the Newcrest share price prior to the announcement, which the Newcrest board is considering after rejecting a lower bid previously.

  • Furniture retailer Nick Scali shares fell sharply after the company reported a 70% rise in profit for the 2022 calendar year to $60.6 million. January 2023 sales came in better than the company expected but were down 12% on the same time last year. Investors didn’t seem to like the drop in their dividend policy and the lack of forward guidance.

  • Transurban’s first half result showed earnings of $1.24 billion, coming in above expectations, with the toll road operator raising its 2022/23 distribution guidance following record traffic in Sydney and Brisbane. 94% of the debt book remains hedged. CEO Scott Charlton announced his resignation after 11 years at the helm and will be finishing up at the end of the year.

  • Macquarie Group announced a third quarter update with the company tracking ahead of expectations for the 2023 financial year now guiding to marginally higher earnings this year.

  • Boral shares soared after the building products company reported its underlying net profit after tax had risen 53% in its first set of financial results under their new CEO. The company had success in pushing through higher prices whilst also growing volumes.

  • Oil prices moved higher this week on terminal outages in Turkey, the China demand outlook improving, and broader supply concerns.

  • The Australian dollar rose against a rising US dollar with hawkish comments from the RBA on rates supporting the move higher.

Economic

  • The RBA raised the cash rate by 0.25% to 3.35% as expected, saying they expect that further increases in rates will be needed in the months ahead. The RBA now believes that inflation, whilst continuing to fall from here, will be a little stickier than previously expected. The market is now fully pricing another rate rise in March with an almost 70% chance of a rate rise in April which would take rates through to 3.85%.

  • Australian retail trade volumes fell by 0.2% in the December quarter, coming in better than expected, with volumes excluding food retailing falling by a large 1.6% indicating weakness in discretionary goods spending. This comes off the back retail prices rising by 1.1% in the period, but well down on the pace of the previous two quarters.

  • The Australian trade surplus fell slightly to $12.2 billion in December with exports falling 1.4% while imports rose by 1%, with the overall surplus remaining very high. The fall in exports was driven by falling commodity prices. Exports of services fell in December but are 50% higher over the past year. Services imports rose strongly, boosted by Australians travelling offshore.

  • Data showed that the US economy added a huge 517,000 jobs in January, pushing the unemployment rate to a 53-year low of 3.4%. Some scepticism warranted given expectations were for a 187,000 increase in jobs. The participation rate rose slightly whilst the annual growth in average hourly earnings continues to fall.

  • The US central bank chair reiterated that they won’t be cutting rates this year but made clear that inflation was coming down because supply chain issues had been fixed whilst also highlighting that the drop in inflation hadn’t come at the expense of the jobs market. He went on to say that he expects significant declines in inflation this year.

  • The US trade deficit widened by US$6.4 billion to US$67.4 billion in December, coming in a little better than expected.

  • US consumer credit for December fell to US$11.6 billion from US$33.1 billion in November, coming in well below expectations.

Politics

  • Federal environment minister Tanya Plibersek has rejected a coal mine proposal near the Great Barrier reef on environmental grounds, the first decision of its kind under a new law.

  • A Chinese surveillance balloon has finally been shot down off the coast of South Carolina after travelling across much of the middle of the USA. The incident saw the US Secretary of State postpone his upcoming trip to Beijing. A very oddly handled incident by both countries.

  • Turkey declared a three-month state of emergency due to the devastation caused by two massive earthquakes this week and a series of large aftershocks. The death toll across Turkey and neighbouring Syria has surged past 16,000 whilst more than 11,000 buildings have been damaged.


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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