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Markets fret more rate rises on the way

Markets

  • Local and global equity markets took a breather this week as inflation remained stubbornly high.

  • In local stock news, Brambles announced its first half profit after tax had risen 9% to $486 million with the CEO saying the business delivered strong revenue and profit growth despite the challenging external environment. The company upgraded its full-year profit forecasts, passing on inflationary costs to customers.

  • Downer shares fell after the infrastructure company cut profit guidance by $40 million, saying it now expects to make between $170 million and $190 million in full-year profit. Recent accounting issue didn’t help along with impact of recent floods and storms in NZ. The CFO has resigned, and the Chairman has retired.

  • Woodside delivered a mixed result, but guidance was well received by the market. Second half earnings missed consensus as did net profit after tax, with their dividend also falling short of expectations. However, all were higher than the same time last year as the company benefited from soaring energy demand.

  • Qantas shares rose after the airline announced several new senior executive appointments, bringing in an external executive that previously ran Air New Zealand, in moves that may be signalling an end to Alan Joyce’s leadership.

  • TPG shares rose strongly after the telecommunications company announced its full-year earnings had grown 3.8% to $1.8 billion.

  • Harvey Norman shares fell to an eight-month low after the retailer announced a drop in half-year profit and a soft start to 2023, with January Australian sales down 10%.

Economics

  • Australian economic growth rose by 0.5% in the fourth quarter to be up 2.7% on the same time a year ago. Household consumption increased by a more modest 0.3% whilst public spending also lifted. Business investment and dwelling construction contracted over the quarter, whilst inventories were also a drag. The savings rate dipped to 4.5%,below its pre-covid five-year average of 6%.

  • Australian building approvals fell by 27.6% in January, with approvals for private detached houses falling by 13.8% taking the level of new housing approvals to the lowest point since 2012. Approvals for private multi-unit dwellings fell by almost 41%.

  • Monthly Australian inflation fell by 0.1% in January but remains 7.4% higher over the year. The January fall was larger than expected, helped by falls in clothing & footwear as well as household furnishings and equipment prices fell in January.

  • Australian company profits rebounded in the December quarter, rising by 10.6% and coming in well ahead of expectations even after adjusting for inventories. Wages and salaries rose by 2.6% in the quarter to be up more than 11% over the past year, with the strongest gains coming from still recovering covid-affected sectors.

  • Australia’s underlying budget deficit to January 2023 was $28.4 billion, a $13.6 billion better outcome than was expected at the October 2022 budget. Revenue was $8.5 billion better than expected whilst outlays were $5.1 billion than expected.

  • Australian credit growth rose by 0.4% in January, slightly above expectations, to be 8% higher over the year. Total credit growth has been falling on an annual basis since it peaked in October. Business credit growth rose by 0.5%, total housing credit by 0.3%, and personal credit by 0.1%.

  • Australian retail trade rose by 1.9% in January, partly reversing a 4% decline in the previous month, whilst coming in ahead of consensus expectations. The strongest gains came from ACT, VIC, TAS, and WA, with retail trade at department stores and clothing the strongest by sector.

  • Australian dwelling prices fell by 0.1% across the eight capital cities in February, the smallest fall since April 2022. Sydney prices helped, rising by 0.3% in February, with Sydney auction clearance rates pushing back towards 70%.

  • An inflation measure preferred by the US central bank rose 4.7% in January on the same time last year, coming in above expectations, with personal spending up 1.8% last month. The data may put additional pressure on the Fed to keep raising rates. The January print follows the 4.4% increase to the same inflation measure in December.

  • US economic data continued to provide plenty of mixed signalling with durable goods orders falling more than expected in the steepest decline since April 2020, pending US home sales jumped in January coming in well ahead of expectations, whilst a manufacturing index fell further into contractionary territory coming in well below expectations.

  • UK household confidence rebounded by the most in almost two years in February with signs that very high inflation has started to ease. However, confidence still remains in negative territory.

  • Recession fears returned in Germany after economic growth fell by 0.4% the December quarter. In contrast, German consumer sentiment improved for a fifth month.

  • Inflation reports from both France and Spain came in higher than expected with investors now betting that a 0.5% increase as the next move for the European Central Bank.

Politics

  • China called for a cease-fire between Russia and Ukraine in a 12-point proposal for ending the war. The first time China has openly spoken about the war, with their proposal (whilst pragmatic) has little chance of winning support from those backing Ukraine. Separately, the US is readying a new US$2 billion assistance package for Ukraine and has warned China against providing military aid to Moscow.

  • British PM Rishi Sunak struck a new deal with the EU on post-Brexit trade rules for Northern Ireland. Now to convince the Northern Irish on the benefits of the deal.

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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