Last week’s 50 basis point rate hike from the Reserve Bank of Australia was the first time the RBA had lifted rates by 50 basis points at consecutive meetings since it was established in 1960.
Australian Share Market (ASX200) – up 2.11% and recovering some of last month’s decline. Growth assets were a strong outperformer for the week with the Info Tech sector (+6.86%) leading the gains followed by Consumer Discretionary (+5.62%) and Health Care (+5.31%). There were some noticeable disinflation themes over recent weeks that buoyed the growth cohort of stocks, which had also been amongst the worst performers during the first half of 2022. Some early signs of slowing economic growth, continued falls in commodity prices, and the RBA stating they expect inflation to peak later this year boosted the most rates sensitive stocks. The Materials sector (-0.83%) led the declines and is now down 5 weeks in a row on the lower commodity prices. Industrials (-0.08%) was the only other sector lower. The highlight of the week was the Reserve Bank of Australia’s July meeting where they hiked interest rates another 50 basis points to 1.35% in line with expectations although with a slight change in commentary from last month’s statement. Last month’s statement said they expect inflation to keep rising, while last week’s statement said they expect inflation to peak later this year. The market gained on the rate hike statement with the market taking some comfort from the RBA’s peak inflation prediction, implying there could be less need to implement all of the current aggressive rate hikes planned into 2023. The bond market staged a big reversal over the past month. After peaking at a new 8 year high of 4.2% in June, the Aussie 10 yr. bond yield fell to 3.4% last week with the bond market seemingly starting to price in some economic weakness which is a change from the prevailing trend of being solely focused on the rising inflation.
US Share Market (S&P 500) – up 1.94%, with the Dow (+0.77%) and Nasdaq (+4.56%) all higher with some notable outperformance from the tech heavy Nasdaq. It was holiday shortened, relatively uneventful week ahead of the 2nd quarter earnings season set to begin with Bank earnings later this week. The Communication Services sector (4.92%) led the gains followed by Consumer Discretionary (+4.55%) and Info Tech (+4.32%) while Utilities (-2.87%), Energy (-2.39%) and Materials (-1.48%) underperformed. On balance, the economic data was better than expected. The June ISM non-manufacturing index fell 0.6 to 55.3 last week and although it was the lowest reading since May 2020 it was ahead of estimates for 54.5. It was big week for jobs data with the May job openings report showing vacancies fell 427k to a still very high 11.25 mill vacancies and was also ahead of estimates for 11.04 mill. US weekly Continuing unemployment claims came in at 1,375k and higher than the 1,337k expected and the fifth consecutive week of increases after bottoming in May. The weekly data had been suggesting the hot US labour market could be starting to ease and adding to the recent disinflation narrative. But the June nonfarm payrolls came in at a 372k gain on Friday night and much stronger than the 275k expected. There were some downward revisions to prior months but with the bulk of the gains in the professional/business services, leisure/hospitality, and healthcare this was a strong number. The unemployment rate held at a very low 3.6% as expected. The participation rate at 62.2% is still well below pre pandemic levels and the near record number of job openings continues to draw people back into the labour market.
Amazon (AMZN) to take stake in Grubhub. Amazon agreed last week to take a stake in Grubhub as part of a deal that will give members of its Prime subscription program a one-year membership to the food delivery service. The partnership gives Amazon the option to take a 2% stake in Grubhub with Amazon able to increase its total stake to 15% of Grubhub depending on certain performance factors, such as the number of new customers added. Amazon is increasing the perks of its Prime program, which has 200 million-plus members and already includes some food-related benefits such as grocery discounts at Whole Foods. Prime members will now be able to forgo delivery fees on some Grubhub orders and access other benefits of Grubhub’s loyalty program at no extra cost.
Shell (SHEL) to build Europe’s largest renewable hydrogen plant. Plans to build a major hydrogen plant in the Netherlands will now proceed following a final investment decision by subsidiaries of the oil and gas giant. In an announcement the company said the Holland Hydrogen I facility would be “Europe’s largest renewable hydrogen plant” whith operations start in 2025. According to the company the 200 megawatt electrolyzer will be located in the Port of Rotterdam, Europe’s largest port, generating up to 60,000 kilograms of renewable hydrogen per day. Shell has said it wants to “become a net-zero emissions energy business” by the year 2050.
CME Group (CME) reports highest June volumes on record. CME Group reported their Q2 market stats last week showing average daily volume (ADV) increased 25% to 23.1 million contracts during the second quarter which is the company’s third highest quarterly volume ever. June ADV increased 30% to 24 million contracts, representing the company’s highest June volume on record. As the world’s leading derivatives marketplace, CME Group remains well placed to capitalize on the increased global financial market volatility.
The Week Ahead
Domestic data this week includes NAB business confidence tomorrow, and consumer inflation expectations and June labour force data including the unemployment rate on Thursday.
Internationally, we have China new loan growth and M2 money supply today. Tomorrow night sees German ZEW business confidence. Wednesday has China trade balance, German inflation, UK industrial production, Eurozone industrial production and US consumer price inflation data. Thursday sees US producer price inflation and Friday has China GDP and industrial output, Eurozone trade balance and US import and export prices, empire state index, retail sales, capacity utilization and industrial production.
The US 2nd Quarter earnings season gets underway later this week with Citigroup reporting earnings on Friday. According to FactSet S&P 500 earnings are currently expected to grow 4.1% year on year in Q2 down from the 5.9% growth expected at the start of the quarter.
Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice
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