Markets
Local and global equity markets fell this week whilst bond yields surged on a bumper US jobs report whilst the US central bank indicated more rate rises ahead.
In local stock news, Downer EDI shares rose to a six-month high after sealing a $4.6 billion contract with the Queensland government to design and manufacture sixty-five six-car trains for the state’s new passenger fleet. The company also sealed a road maintenance contract with a NZ council.
A flurry of takeover offers on the ASX this week with fruit & vegetable grower Costa Group confirming it had received a takeover from US private Equity; shipbuilder Austal benefited from reports of a buyout offer from JF Lehman & Company; and brewing ingredients producers United Malt was bought by French giant Malteries Soufflet.
Whitehaven Coal shares fell despite a NSW court dismissing a bid by environmental activists to invalidate a planning consent for the coal miner’s Narrabri Stage 3 extension project extension on climate change grounds. The company also faces a separate legal challenge.
Magellan shares fell after the company announced further fund outflows of $2.1 billion in June, despite a very strong turnaround in performance of the underlying managed funds. The performance fees they expect to earn also came up a little short versus market expectations.
Saudi Arabia and Russia have both said they will cut their supply of oil further with the Saudi’s extending their voluntary cut of one million barrels per day for another month whilst Russia will reduce by 500,000 barrels per day in August.
Economic
The RBA left the cash rate unchanged at 4.10% at their July meeting with little change in their statement from the previous meeting. The softer inflation print in May seemed to do the trick.
Australian private sector credit increased by 0.4% in May, unchanged from April. Owner-occupied housing credit growth was unchanged, whilst investor housing and business credit growth eased. Personal credit rose by 0.2% in May.
AMP chief economist Shane Oliver said that leading economic indicators continue to point to a high risk of recession in the US, and the risk of recession in Australia is now around 50%.
Australian dwelling prices rose by 1.2% across the eight capital cities in June, with Sydney and Brisbane leading the gains and Hobart recording a monthly decline.
The Federal Treasurer has stated that the Australian budget surplus for 2022/23 will be significantly better than the $4.2 billion expected in the May budget. They now expect a budget surplus in excess of $20 billion, thanks to higher income and company tax receipts and resilience in some key commodities.
Australian new housing lending rose by a very strong 4.8% in May, up from the upwardly revised 1% fall in April. Building approvals rose by 20.6% in May, driven by a large gain in multi-unit dwellings which are volatile from month to month. Detached housing approvals rose by 0.9%.
The Australian trade surplus widened to $11.8 billion in May with exports up 4.4% driven by non-monetary gold whilst imports rose 2.5% driven by an increase in passenger vehicles.
US employment lifted by 497,000 in June, coming in well above expectations for a 225,000 increase. Initial jobless claims rose by 12,000 last week whilst job openings fell from 10.3 million to 9.8 million in May.
Minutes from the US central bank’s June meeting showed another rate hike is likely with some participants wanting to move ahead with another rate hike at their last meeting. The market is currently forecasting an 88% probability of a rise at their next meeting.
The US central bank’s preferred measure of inflation rose by 0.3% in May, in line with expectations, to be up 4.6% on a year ago.
US personal income lifted 0.4% in May, above expectations, with spending up 0.1% but below expectations. A key consumer sentiment index rose strongly in June, coming in above expectations.
US manufacturing services index fell in June to the lowest level since May 2022 whilst also coming in below expectations.
A Eurozone composite manufacturing data point fell into contractionary territory in June, the first contraction since December 2022.
German trade showed a 0.1% fall in exports whilst imports rose 1.7% in May, taking its foreign trade balance well below expectations.
Chinese manufacturing data showed that factory activity contracted for a third month, to a five-month low, adding to concerns regarding their economic recovery.
Politics
The Australian trade minister has said that the European Union has failed to offer us satisfactory terms to sign a free-trade agreement that’s been in the making for five years. Sticking points were in relation to the access on offer across a range of agricultural products.
Australia approved its first thermal coal project since PM Albanese came to office. The decision allows Idemitsu Kosan to mine power station coal at Ensham in Queensland for another nine years.
China imposed restrictions on two niche metals (gallium and germanium) that are critical for chips, electric vehicles, and telecommunications. China is responsible for more than 80% of global output.
The Greek Prime Minister has pledged to repay two years of bailout loans ahead of schedule in a confident signal to financial markets. The PM won a resounding majority last month for another four years in office. Good to see some fiscal conservatism following a decade plus of debt binging by governments.
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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