12 December 2022 | Weekly Snapshot

Did you know?

There have been 274 rate hikes around the world since January 1 this year.

Market Movements

Australian Share Market (ASX200) – down 1.21%, snapping a 2-week winning streak but outperforming weak offshore leads with the main theme being a slowdown in the pace of economic growth heading into 2023 and a slight shift in narrative from the prevailing inflation theme that has dominated 2022. The Materials sector (+1.87%) led the gains and is up the last 6 weeks in a row with Consumer Staples (+0.02%) the only other sector higher. Info Tech (-4.74%) led the declines followed by Energy (-3.31%) and Financials (-2.57%). The protests in China over the zero Covid policies seemed to have had some impact with easing guidelines moving faster than expected with new, less draconian, Covid prevention and control measures announced last week that provided further support for the big mining stocks. Oil was the biggest loser last week on the global growth concerns and weighed on the Energy sector. The oil price was down another 10% last week to US$71 a barrel and the lowest since late 2021, after hitting highs around US$120 a barrel earlier this year. The RBA hiked the cash rate by 25 basis points to 3.10% as expected but didn’t lean dovish as some had hoped, with no signals for a pause any time soon. The commentary reiterated that further rate hikes are still expected in the period ahead with the now usual caveat that policy is not on a pre-set course and size and timing of further rate hikes will be determined by the incoming data. The RBA is still aiming to keep the economy on an even keel but stressed the importance of avoiding a wage price spiral due to the super strong labour market which could have been a reference to the higher-than-expected wage inflation data in the US the week prior. Our Q3 GDP data was out but missed expectations. Australian GDP grew 0.6% for the quarter, weaker than 0.7% consensus and down from Q2’s 0.9%. On an annual basis the economy grew by 5.9%, also below estimates for 6.3% growth. Household consumption was weaker but dwelling investment rose for first time since Q3 2021 while employee compensation rose at strongest pace in 16 years.

US Share Market (S&P 500) – down 3.37% with the Dow (-2.77%), and Nasdaq (-3.99%) also lower for the week. It was a risk-off week for US equities with all sectors lower following what has been a decent 2 month rally off the October lows as investors looked to a potential slowdown in growth in 2023. Safe havens like gold bullion and bonds were higher with the 10 yr. treasury yield down a full 100 basis points from the October high as growth concerns trumped inflation concerns. In contrast to the recent weakening manufacturing data, the November ISM Services index printed at 56.5 last week, well ahead of estimates for 53.0. The recent equities rally had largely been based on peak inflation and peak interest rates, but the stronger services data combined with the recent stronger jobs and wages data in the non-farm payrolls report was increasing the potential for a more aggressive US Federal Reserve ahead of their meeting this week. Current expectations are for another 50-basis point hike on Wednesday and to raise the terminal rate dot plot to around 5% when they release their updated economic projections. Negative earnings revisions weren’t helping last week with FactSet reporting that Q4 S&P 500 earnings estimates have declined by 5.6% since late September, making it the largest decrease in bottom-up earnings estimates during the first two months of a quarter since the depths of the pandemic in early 2020. The weekly continuing unemployment claims hit a 10-month high last week and would be the surest sign yet that the super strong US labour market conditions are starting to ease with all 50 states seeing a rise in claims. November Producer Prices were higher than expected, rising by 0.3% for the month, up from last month’s 0.2% increase with core PPI up 0.4% and double the forecasts for a 0.2% increase. The higher-than-expected PPI weighed further on equities and bonds ahead of key US CPI data this week. The University of Michigan consumer sentiment index rose more than expected to 59.1, ahead of consensus 57.0 with respondents more positive on their current conditions. The one-year inflation expectations dropped 0.3% to 4.6%, which was lowest since September 2021.

Portfolio Movements

Santos (STO) announces higher shareholder returns and increases share buyback – Federal Court rejects Santos’ appeal on Barossa gas project. Santos announced a simplified capital management framework last week targeting higher shareholder returns. The capital management framework includes a minimum annual return of at least 40% of free cash flow while the gearing target remained unchanged in the 15% to 25% range. They also announced a further US$350 million increase in the on-market share buyback, in addition to the US$350 million announced in August. In other news the Federal Court rejected Santos’ appeal on its $5.3 billion Barossa gas project. Santos had decided to move forward with the Barossa gas project in March 2021. It called Barossa one of the lowest cost liquefied natural gas projects in the world and targeted first production in 2025. In September the Federal Court found the company failed to consult local Indigenous people “adequately” and halted drilling. Santos had appealed the ruling with the Federal rejecting the appeal last week. Santos said the Barossa project will not be delayed, with the company now pushing ahead with applications for all remaining approvals in accordance with guidance provided by the court.

Apple (AAPL) reportedly accelerating plans to shift some production from China. Reports last week that Apple has accelerated plans to shift some of its production outside China, telling suppliers to plan more actively for assembling Apple products elsewhere in Asia, particularly India and Vietnam, and is also looking to reduce dependence on Taiwanese assemblers. According to the Wall Street Journal the move comes in the wake of violent worker protests over COVID regulations at the world’s largest iPhone factory. Another report by CNN earlier in the week suggested Foxconn may also be looking to shift its work outside mainland China. Reports note the decision by Apple comes after years of manufacturing woes stemming from the coronavirus pandemic, supply chain issues and strained geopolitical relations between Washington and Beijing which have lent to a more complicated business plan.

Thermo Fisher Scientific (TMO) announced new 2030 greenhouse gas emissions reduction target. Thermo Fisher Scientific is the world leader in serving science, with annual revenue of approximately US$40 billion. They assist customers with life sciences research, solving complex analytical challenges, increasing productivity in their laboratories, improving patient health through diagnostics or the development and manufacture of life-changing therapies. They announced last week a new 2030 greenhouse gas emissions reduction target to reduce their Scope 1 and 2 emissions from operations by more than 50% from a 2018 baseline with the company on track to achieve its previous 2030 goal of a 30% reduction ahead of schedule.

The Week Ahead

Local data this week includes NAB Business Confidence tomorrow and Consumer Inflation Expectations on Thursday. Also Thursday is the November employment data where a gain of 20,000 jobs, and the unemployment rate to tick up to 3.5% (from 3.4% last month) is expected.

Internationally, it is the last big week of data for the 2022 and a huge week for monetary policy with the US Federal Reserve, European Central Bank and Bank of England all meeting to set interest rates. The Federal Reserve is expected to hike by another 50 basis points on Wednesday and raise the terminal rate dot plot to around 5%. The ECB is expected to hike rates by 50 basis points on Thursday with a very slim chance (13%) of a larger 75 basis point hike. Focus will be around how high rates may need to go with markets currently price a terminal rate around 2.8% by mid next year. The BoE is also expected to hike rates by 50 basis points on Thursday but with a 27% chance of a larger 75 basis point hike. Focus will remain around the BoE’s assessment of how deep the expected UK recession is likely to be with markets currently pricing in a terminal rate of 4.65% there.

Other key data includes China loan growth today and UK GDP tonight, German CPI is tomorrow along with a raft of Eurozone country CPI during the week. US CPI is Wednesday along with UK PPI and CPI. Friday night is busy in the US with Housing Starts, Empire State Index, Philadelphia Fed Index, Retail Sales, Capacity Utilization and Industrial production.

Corporate reporting continues to wind down into year’s end with just Annual General Meetings for Microsoft and Westpac on Wednesday and NAB on Thursday.

Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice

The information presented in this publication is general information only, and is not intended to be financial product advice. It has not been prepared taking into account your investment objectives, financial situation or needs, and should not be used as the basis for making an investment decision. Before making any investment decision you need to consider (with your financial adviser) your particular investment needs, objectives and financial circumstances.

Some numerical figures in this publication have been subject to rounding adjustments. Akambo Pty Ltd (including any of its directors, officers or employees) will not accept liability for any loss or damage as a result of any reliance on this information. The market commentary reflect Akambo Pty Ltd’s views and beliefs at the time of preparation, which are subject to change without notice.