Markets
Local and global equity markets fell this week as the US central bank chair struck a more hawkish tone in front of Congress.
In local company half-year reporting, more than 40% of the largest companies that have reported have posted negative earnings surprises (ie. missed expectations), up from 28% on the same time last year.
In local stock news, Macquarie Group and Italy’s state lender have made an offer for Telecom Italia’s landline network, pitting their bid against that of private equity giant KKR. The bid matches KKR’s US$22 billion bid for the network.
Santos shares rose after the gas producer announced engineering and design work were under way on its Papua LNG project.
Invocare shares rocketed higher after the funerals business received a $1.8 billion takeover bid by private equity group TPG. A very opportunistic bid given where the company’s shares were trading but management and the board have only themselves to blame.
Qantas shares rose as a report by the competition watchdog showed domestic airfares and flight delays both fell in January, no doubt off a very high and low base respectively, given the surge in prices and very long delays experienced over the last two years.
Carsales.com shares entered a trading halt as the company announced a $500 million capital raise to increase their stake in Brazil’s Webmotors from 30% to 70%. The business is the number one in the Brazilian market and the fifth largest car market globally.
Oil prices fell this week on rising global recession fears as US central bank rhetoric turned hawkish and China data weakened further.
The Aussie dollar fell to US65c as traders bet that US interest rates would go higher whilst Australian interest rates may be peaking, as economic data diverges between the two countries.
Economic
The Reserve Bank of Australia (RBA) raised the cash rate to 3.60% at their March meeting as expected. However, market participants took their accompanying statement to be more dovish (ie. very close to peak rates).
The RBA Governor spoke at a summit where he noted that they were closer to the point where it will be appropriate to pause rate increases to allow more time for the lagged effect of rates rises to show through, but that they will be data dependent.
The Australian trade surplus narrowed to a still healthy $11.7 billion in January, with exports rising by 1.4% and imports lifting by 4.6% driven by passenger vehicles. Services exports are recovering faster than services imports, which should be further boosted by China reopening.
US central bank chair Jerome Powell told the Senate Banking Committee that stronger than expected economic activity has reversed the softening inflation trends from late last year which may force the central bank to consider more aggressive rate increases potentially taking interest rates to higher levels than previously anticipated.
The US private sector added 242,000 jobs in February, coming in above forecasts, putting additional pressure on the central bank. Job openings also came in higher than expected despite layoffs continuing in the technology sector. In contrast, initial jobless claims rose to a five-month high but remain at low levels.
A key report on the business conditions in the US non-manufacturing sectors fell in January but came in above market expectations and remains in expansionary territory, with new orders and prices paid both beating forecasts.
A US private sector service survey rose into expansionary territory in January, the highest reading since June, with similar data in Europe and China also expanding in January.
US factory orders fell by 1.6% in January but came in better than expectations, whilst inventories fell by 0.4% in January.
US consumer credit rose by US$14.8 billion in January coming in well below expectations of US$25.35 billion.
Eurozone producer price inflation fell more than expected in January whilst retail sales also came in weaker than expected.
The German trade surplus jumped higher after a rebound in exports whilst industrial orders unexpectedly rose by 1% in January. In contrast, German retail sales fell 0.3%.
UK total retail sales rose 5.2% in February coming in below the 6.7% increase in the same period last year, as consumers began to tighten their belts as cost-of-living hits home (ie. overall inflation around 10% and food inflation closer to 20%).
China’s February services activity rose sharply as demand recovers, but trade data slumped again and producer price deflation worsened as global demand falters.
Beijing announced a rather conservative growth target of 5% for the Chinese economy this year versus expectations for a higher target and more news on stimulus measures. Chinese government is being patient on the stimulus front, waiting to see how the economy reopens.
China CPI inflation slowed to a one-year low providing the government with ample room to ramp up stimulus measures.
Politics
The Biden administration is nearing completion of an executive order that would restrict investments by US companies in parts of the Chinese economy. China’s new foreign minister warned that US “so-called competition aims to contain and suppress China and get the two countries locked in a zero-sum game”.
The European Union plans to take its first steps into the global natural gas market as a buyers’ cartel next month as it seeks to drive down energy prices, with a tender to be launched in April and first contracts to be signed around June.
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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