Markets
Equity markets were mixed this week with strong US tech earnings buoying US equities, Asian equities were boosted by Chinese stimulus and changes to trading rules, whilst Australian equities struggled as the iron ore price fell.
Residential Sydney property recorded its highest clearance rates at auction in more than two years, a strong indication that buyers expect interest rates to fall and property price gains to quicken.
In stock news, the Australian Competition Tribunal authorised ANZ’s proposed $4.9 billion acquisition of Suncorp’s banking operations, which saw Suncorp’s share price rise strongly. The sensible decision came after the competition regulator (ACCC) had declined the move both initially and on appeal.
IAG reported an underlying insurance margin of 13.7%, up from 10.7% a year but at the bottom end of their full-year guidance of 13.5-15.5%. Shares fell as a result with profit missing expectations by 5% and the interim dividend came in lower than expected.
Westpac shares rose after the company reported it had made an unaudited net profit of $1.5 billion for the three months to December 31, in line with the previous six months.
Ampol shares rose after the fuel refiner and petrol station owner delivered $549.1 million in first-half earnings, down 25% from a year ago.
BHP shares fell after the company reported a reasonable result, but investors were clearly looking for more positives. Underlying revenue was above consensus, whilst earnings and profit were broadly inline. The interim dividend was slightly ahead of expectations. The company talked to China and India demand remaining resilient.
There were some key CEO departures this week with Woolworths Group chief Brad Banducci stepping aside after a series of rather amateur missteps, whilst Virgin Australia CEO Jayne Hrdlicka will step down after four years in the role.
Corporate Travel shares fell sharply after the company reported a messy and weak result with the company blaming short term macro headwinds for the miss in the first half. Earnings of $100.7 million were 10% below consensus whilst guidance for the full year was lowered.
Economic
The February minutes of the RBA Board’s meeting showed members debated whether to raise the cash rate or leave it unchanged. The minutes also showed that the risk of inflation not returning to target within a reasonable timeframe had eased.
Australian wages rose by 0.9% in the December quarter pushing the annual pace of growth to 4.2%, the highest level since 2009. Private sector wages growth was 0.9% in the quarter whilst public sector wages grew 1.3%. This won’t help the RBA’s inflation fight.
The US Commerce Department reported that retail sales fell far more than economists were expecting in January.
Minutes from the Federal Reserve’s latest meeting showed most officials remained more worried about the risk of cutting rates too soon than keeping them high for too long.
Other US economic data remained mixed with producer prices rising more than expected in January; housing starts slid 14.8% in January, the most since April 2020; and a key consumer sentiment reading rose slightly in February to the highest since July 2021.
Two key US central bank officials indicated the bank was ready to remain patient in relation to cutting rates.
Growth in Eurozone negotiated wages slowed to 4.46% in the December quarter of 2023, down from its highest ever reading in the previous quarter since the data series began in 2005.
British retail sales jumped by the most in almost three years, with sales volumes increasing 3.4% in January from a 3.3% fall in December. Sales in all categories rose except for clothing.
China’s travel and spending during the Lunar New Year holiday period exceeded levels from before the pandemic, adding to signs that consumption may be improving. Travel was up 19% from a comparable period in 2019 whilst tourism spending was up 8%.
China’s central bank cut a key lending rate to the property market by 0.25% surprising markets, but the market thinks more stimulus is needed. The cut to this specific lending rate was the first since June.
Politics
In another distraction for Donald Trump’s presidential campaign, a New York court found against Trump and his company and issued a US$364 million penalty. Interestingly, the case was brought against Trump by the state, not by the lenders who he was ruled to have lied to (ie. inflated his net worth) who were happy to lend to him, were paid in full and on-time, brought no claim, and wanted to do more business with him. In contrast, the case creates risk for other property developers in New York.
The New Zealand Treasury Secretary issued another warning about the state of the country’s finances saying it needs to address long-term fiscal pressures now given the backdrop of persistent budget deficits. Living within your means is always important but more so when you’re a government borrowing at rates above 5%.
The US blocked and then proposed a rival draft UN Security Council resolution calling for the temporary ceasefire in the Israel-Hamas war, the release of all hostages held by Hamas, whilst opposing a major ground offensive by its ally Israel in Rafah unless arrangements can be made for civilians there to be moved.
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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