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June inflation may give RBA reason to pause

Markets

  • Local and global equity markets had a mixed week with central bankers continuing to talk tough on fighting inflation.

  • Wall Street’s biggest banks all passed the central bank’s annual stress test, showing they can withstand a severe global recession and turmoil in real estate markets.

  • In local stock news, grocery, liquor, and hardware supplier Metcash reported profit growth of 4.6% to $307.5 million for the twelve months ending April 30. Investors liked the result.

  • Medibank shares fell after the banking regulator APRA hit the company with fresh sanctions following a data breach in October 2022. The company will be required to carry $250 million in capital adequacy and will be subject to a technology review.

  • Ramsay Healthcare shares rose after the private hospital operator said it had received significant inbound interest in the sale of its 50/50 joint venture in Asia.

  • Qantas shares rose after the company announced a number of new senior appointments, including a new CFO to replace Vanessa Hudson who will replace retiring Alan Joyce as CEO in November.

  • Transurban shares fell after the competition watchdog flagged concerns about the toll road operator’s proposed takeover of Melbourne’s EastLink freeway.

Economic

  • Australian monthly inflation came in at 5.6% in May, slowing from a 6.8% rise in April, and below market expectations of 6.1%. It was the lowest annual inflation rate since April 2022 and came on the back of a softer pace in growth of both housing and transport prices. Measures of underlying inflation eased but remain above 6%.

  • Australian retail trade increased by 0.7% in May, surprising to the upside versus expectations, to be 4.2% higher through the year. The biggest driver of growth in May was “other retailing” along with strong growth from “cafes, restaurants and takeaway”.

  • Australian job vacancies fell by 2% over the three months to May 2023. This follows a downwardly revised 2.4% decline over the three months to February 2023. Private sector vacancies fell by 2.3% whilst public sector vacancies increased.

  • The US economy grew by an annualised 2% in the March quarter, well above the 1.3% estimate and the 1.4% forecasts by market participants. Consumer spending growth accelerated more than expected whilst exports were up strongly. Detractors came from private inventory investment and residential fixed investment.

  • US central bank chair Jerome Powell indicated that there’s a little further to go with rate hikes after having done most of the heavy lifting already. He indicated that the committee felt monetary policy was now at an appropriately restrictive level but that another one or two rate hikes might be necessary this year.

  • US consumer confidence jumped to a 17-month high, and came in higher than expected, in a clear indication that individuals are feeling better about inflation and the economy.

  • Americans expect prices to rise 6% over the next 12 months, which is the lowest inflation expectations reading in more than two years but still well above the Fed’s 2% target.

  • US companies signalled a further expansion of business activity in June although the rate of growth slowed to a three-month low. Production contracted to the lowest levels since December 2022, whilst service providers saw a slower upturn in output. The pace of job creation sank to the slowest since January.

  • The equivalent European data signalled the weakest expansion since January, coming in well below the market consensus, with services propping up the figure as production activity contracted for the 11th straight month. New orders dropped for the first time in five months, employment growth slowed to a four-month low, and backlogs of work fell at the steepest rate in seven months.

  • The European central bank president commented that their rate hiking cycle is not over given inflation remains too high.

  • Germany’s consumer price inflation increased to 6.4% in June on the same time last year, rising from a 14-month low of 6.1% recorded in May. The June reading came in above expectations whilst core inflation also saw an acceleration.

  • The annual inflation rate in Japan unexpectedly declined to 3.2% in May from April’s three-month high of 3.5%. Market expectations were for a reading of 4.1%. Core inflation remains above the Bank of Japan’s 2% target.

  • Chinese premier Li Qiang struck a confident tone on the country’s economic performance saying the country’s second quarter economic growth would likely outpace the first quarter.

Politics

  • A senior Beijing official has warned governments that attempt to “de-risk” from China would only serve to fragment the global economy and heighten the risk of conflict.

  • NSW Premier Chris Minns dissolved the state’s primary planning agency, the Greater Cities Commission, in a bid to empower developers to increase housing supply quicker.

  • PM Anthony Albanese’s approval ratings have fallen to their lowest level since he took office in May 2022, as concerns mount regarding cost-of-living pressures.

  • An Australian parliamentary inquiry recommended banning all advertising for online gambling in order to decouple betting from sport and reduce financial harm.

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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