Stocks rally on US inflation print

Markets

• Local and most global equity markets rose this week as investors responded positively to the weaker than expected US inflation print.

• In local stock news, listed fund managers were in the headlines with alternative investment manager Regal Partners trying to tank the $2.5 billion merger between Perpetual and Pendal with its own bid for Perpetual, floating a $30 per share offer. The offer has since been lifted to $33 and swiftly declined by the Perpetual board.

• Origin Energy received a takeover offer by a consortium led by Canada’s private equity giant Brookfield Asset Management valuing the company at $18.4 billion.

• Afterpay owner Block’s shares soared as the company reported third quarter revenue rose 17% to US$4.52 billion. Afterpay contributed $150 million in gross profit.

• Medibank Private said it would not pay a ransom demand to the perpetrators of last month’s cyber hack, saying there is no guarantee it would ensure the return of the customer data. Subsequently, the criminals have started to dump customer data online with two dumps reported thus far.

• Westpac shares fell after the company reported a full-year profit that met analyst expectations. Whilst the bank is benefiting from rising interest rates, there were fears around a downturn in the property market and slowing economic growth.

• Lithium miners share prices rose after Macquarie raised its price forecast on the battery metal.

• James Hardie shares fell sharply to a more than 2-year low after the building products company downgraded guidance citing a weakening housing market in Europe, Asia, and North America.

• Santos has maintained 2022 production guidance and capital expenditure with costs expected to come in at the lower end of the previously guided range. They expect production to fall in 2023.

• News Corp’s ASX-listed shares fell sharply after the media company reported that first quarter revenues fell 1%, the result of currency fluctuations and lower physical book sales from Amazon.

• Orica shares rose strongly after the company announced it had swung to a full-year profit of $60 million, after declaring a loss last year.

• Oil prices fell as concerns rose regarding the health of the Chinese economy as data continued to weaken.

• The Aussie dollar rose strongly against the US dollar as risk-off sentiment waned following the weaker than expected US inflation print with some suspecting the US Fed might be closer to the end of its rate hiking cycle.

Economic

• Australian consumer sentiment plunged in November, falling almost 7%, and now sits at the very low level reached at the start of the pandemic in April 2020. The main driver of the fall was a large drop in expectations for family finances in the next 12 months given rising costs and concerns over the labour market.

• Australian business conditions remained strong in October, but business confidence fell below its historical average levels, starting to catch-up to the weak consumer sentiment readings. Strong conditions were driven by resilient profitability whilst trading conditions and employment eased. Capital expenditure and forward orders also fell.

• US core inflation (excludes energy and food prices) rose by 6.3% in October from a year earlier, coming in well under expectations. Overall inflation was 7.7%, down from 8.2% in September, coming in below expectations of 8%.

• The US added 261,000 jobs in October, well above expectations of 200,000, after adding 315,000 in September. The monthly job gain was the fewest since December 2020. The unemployment rate rose 3.7% in September with wage growth slowing to 4.7% on the same time last year.

• China’s imports and exports contracted unexpectedly in October, but its crude oil imports rebounded to the highest level since May.

• China’s producer prices fell into negative territory in October largely as expected given the weak trade numbers and ongoing weak domestic demand which saw inflation ease to 2.1% from 2.8% in September. Weakness does not bode well for China’s economic outlook but does provide authorities with plenty of ammunition to ramp up stimulus.

Politics

• The US mid-term election results are astonishingly still yet to be finalised, but it looks likely that the Republicans land a majority in the House whilst the Senate will come down to three states with either party ahead in two of them whilst the third enters a run-off. A disappointing result for the Republicans versus expectations, and hence a good outcome for the Democrats.

• New covid cases have risen in the manufacturing hub of Guangzhou and other Chinese cities raising concerns of further lockdowns. Other news flows seemed to indicate that President Xi is looking to move on from strict covid protocols, but no plans or timeframes were released.
  

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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