Markets
Local and global equity markets weakened this week as global recession concerns rose whilst better than expected US economic data risked delaying the ability of the US central bank to slow the pace of rate hikes.
In local stock news, supermarket supplier Metcash reported strong sales growth for the half-year to October 31, with underlying profit after tax up 9.1% to $159.9 million.
Downer EDI shares fell sharply after the infrastructure giant announced it had detected $30-40 million in financial accounting irregularities in relation to a maintenance contract across three years. The irregularities weren’t picked up by external auditors suggesting possible fraud. The company also said difficult weather conditions in Australia’s eastern states and NZ will make its full-year guidance difficult to meet.
Link Administration Holdings fell after the superannuation software provider pulled the plug on takeover talks from Canada’s Dye & Durham Corp for $1.27 billion.
OPEC+ agreed to continue with the plan to cut output by 2 million barrels per day from November through 2023.
The oil price fell sharply this week on rising global recession fears.
Economic
The RBA raised the cash rate by 0.25% at their December meeting to 3.10%, as expected. The announcement had little in the way of changes with the board tight-lipped on any future rate hike moves.
Australian economic growth rose by 0.6% in Q3 to be up by 5.9% on year ago levels. Household consumption increased by 1.1% while business and dwelling investment also made solid gains. Public demand fell over the period but still sits at elevated levels whilst net exports were a drag.
Australian company profits fell by 12.4% in Q3 and were led lower by the mining sector. Mining profits fell by 19.1% in the period but remain 13% higher over the past year. Wages and salaries rose by 2.9% per quarter, down from a lift of 3.4% in Q2, and up by 11% over the past year.
The Australian current account moved into deficit in Q3, the first deficit in almost four years. The trade surplus narrowed with commodity exports lower with a wider net income deficit. The value of goods exports were lower whilst the value of goods imports rose by 5.8% in the quarter. The value of LNG exports lifted by 7% in the quarter.
US nonfarm payrolls showed 263,000 jobs were added in November, coming in above expectations. The unemployment rate remained steady with the labour force participation rate slightly weaker. Average hourly earnings rose in November to a 5.1% annual pace, above expectations, and up from 4.9% in October.
US data on service sector activity and factory output suggests the economy remains resilient even in the face of the US central bank continuing to hike rates.
A monthly gauge of economic activity in the US manufacturing sector surprised on the up, showing more signs of underlying strength in the economy.
The US trade deficit rose from US$74.1 billion to US$78.2 billion, coming in below expectations.
Eurozone retail sales were slightly weaker than expected in October dipping more than forecast in a sign of weakening consumer demand.
Germany’s exports fell to 5.3 billion euros in October from 8.1 billion euros in September, a huge drop. Their trade surplus in the first 10 months of 2022 is down 10 billion euros on average per month from the same period in 2021. Two-thirds of that drop is due to energy.
Global food prices fell for an 8th month in November, a sign that inflationary pressures may be easing, with Ukraine’s grain-export deal easing supply concerns whilst the rising risks of a global recession have assisted with curbing demand.
A global manufacturing output index hit a 29-month low in November with only four out of twenty-one categories seeing expansion in the month.
China’s exports and imports contracted at their steepest pace in at least 2.5 years in November as weak global and domestic demand, production disruptions due to covid restrictions, and a property slump hit home. A big drop in their trade surplus.
Politics
Chinese authorities accelerated a shift toward reopening the economy easing covid restrictions following protests over the last couple of weeks. The new measures include scrapping PCR testing, ceasing cross-region travel restrictions, and allowing some people to quarantine at home.
The G7 countries decision to put US$60 per barrel price cap on Russian seaborne oil came into force on Monday, hoping to limit Russia’s ability to finance its war. Russia has said it will not abide by this measure.
The election result in the US senate seat of Georgia has been settled giving the Democrats an additional seat in the upper chamber, confirming a split House and Senate for the next two years.
The UK will open its first deep coal mine in more than 30 years. The decision was made after two years of consideration.
Dutch officials are planning new controls on exports of chipmaking equipment to China, further hindering the Chinese government’s access to advanced semiconductor capabilities.
Weekly market updates are written by Chris Lioutas. Chris is on the board of Peer Wealth X Futuro Investment Committee. View LinkedIn
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