Markets
Local and global equity markets were mixed this week as investors eagerly awaited the US central bank chair’s address at the Jackson Hole, Wyoming conference.
With US corporate earnings nearing an end, analysts expect that profits rose 6.2% in the second quarter compared with a year earlier, with businesses managing through high inflation and rising borrowing costs.
In local stock news, Perpetual and Pendal have reached an agreement for Perpetual to acquire their competitor following an unsuccessful offer back in April. Pendal shareholders will receive one Perpetual share for every 7.50 Pendal shares held plus $1.976 in cash per Pendal share, implying an offer price of $6.02.
Cochlear shares rose after the hearing device maker posted a rise in underlying full year earnings and looked to a strong next financial year with the launch of a new sound processor.
Property group Stockland shares fell as the company announced full year profit was up 25% to $1.38 billion.
Star Entertainment shares fell after the casino operator posted a full year loss of almost $200 million, as covid-related closures and a write-down against its flagship Sydney casino weighed.
Ampol shares rose after the petrol station operator posted a profit surge and more than doubled its interim dividend after a first half of record fuel prices.
South32 shares fell after announcing it was scrapping its $1 billion plan to extend the mine life of its coal operation west of Wollongong in NSW.
Endeavour group shares fell sharply despite the alcohol retailer delivering a better than expected $495 million full year profit, up 11.3% from the year before. Softer margins and rising costs weren’t taken well by the market.
Coles shares fell after the supermarket giant beat earnings expectations but said it was expecting volumes to fall as inflation and rising interest rates hit household budgets.
Scentre Group shares rose after the Westfield owner announced its half-year operating profit had risen 17.6% to $540.5 million, with occupancy up and rents increasing.
Oil prices rose during the week after Saudi Arabia suggested OPEC could consider cutting output. OPEC sources later told news sources that any cuts by the group and its allies are likely to coincide with a return of Iranian oil to the market should the country secure a nuclear deal.
Economic
There has been a gradual lift in offshore arrivals into Australia for work, tourism, and studying purposes, but the level of arrivals remains well below pre-covid levels, and the recent improvement won’t do anything to shift the dial. Without a significant lift, needing to play catchup on the last 2 years, Australia faces a severe labour shortage (both skilled and unskilled) impacting productivity and putting further upward pressure on wages which could force the RBA’s hand to go harder on rate increases.
A flash Australian composite manufacturing index fell into contractionary territory in August. The fall in the data is consistent with other forward-looking indicators showing that aggregate demand in the economy is likely to slow in the period ahead. The same data series also noted that business confidence fell to its lowest level since April 2020.
Sydney house prices have been the hardest hit where home values have dropped almost 5% in the past 3 months, compared with 2% falls nationally. Anecdotal data seems to suggest that Sydney house prices are already down 10-15% from their peaks.
The US economy contracted an annualised 0.6% on quarter in Q2, less than the 0.9% fall in the advance estimate, due to upward revisions to consumer spending and inventories. Still the economy entered a technical recession given the two consecutive quarters of negative growth.
A key US data point which measures manufacturing and services activity fell to 45 in August, the second consecutive month of decline and the lowest reading since May 2020.
In other US economic news, core inflation grew 1.5%, higher than the 1% in the advance estimate, led by food services and accommodations while spending on goods went down 2.4%. Net trade made a positive contribution for the first time in 2 years, with exports surging, whilst residential investment sank 16.2%.
Some 20 million households across the US, about 1 in 6 American homes, have fallen behind on their utility bills, according to NEADA, the worst crisis the group has ever documented. The power bill crisis is even more acute in Europe where governments have had to throw billions of Euros in subsidies to aid struggling families.
UK consumer confidence fell to a record low as concerns about a recession increased and soaring inflation hits household finances. The reading was the lowest since records begun in 1974, and likely to get worse as the Bank of England expects inflation to top 13% in the coming months.
Chinese banks have lowered their benchmark lending rates for the second time this year while authorities stepped up support for the property market with additional loans to help the housing market and stoke borrowing demand. The government has also chimed in stepping up its economic stimulus with a further US$146 billion of funding largely focused on infrastructure spending.
South Korea’s central bank raised interest rates by 0.25% as expected, in a bid to curb inflation and prevent capital outflows. The move was a resumption of normal-sized rate increase increments following previous 0.50% increases. The bank upgraded this year’s inflation forecast to 5.2% and sees economic growth slowing to 2.1% in 2023.
Politics
Chinese President Xi and Russian President Putin are both planning to attend a Group of 20 summit in Bali later this year, according to Indonesian President Widodo, setting up a showdown with US and other leaders.
The US and South Korea will begin their biggest joint military exercise in about 5 years following large-scale exercises that have historically failed to entice North Korea’s leader to make concessions on disarmament talks. The drills will involve thousands of military personnel and will run for 2 weeks.
China, the largest government creditor to emerging economies, said it will forgive 23 interest-free loans to 17 African countries and redirect $10 billion to nations on the continent.
US President Biden said that the government will forgive US$10,000 in student loans for millions of debt-holding former college students, keeping a pledge he made in the 2020 campaign for the White House, whilst failing every basic economic lesson ever taught. Likely the move will further stoke inflation through additional consumption and colleges raising tuition prices.
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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