12 June 2023 | Weekly Snapshot

Did you know?

Japan’s Nikkei 225 equity index hit the highest levels in 33 years last week, the highest since the late 1980’s Japan equities boom, that was followed by the early 1990’s bust.

Market Movements

Australian Share Market (ASX 200) – down 0.32% for the 3rd week in a row. The Materials sector (+2.05%) led the gains followed by Utilities (+1.53%) and Energy (+0.44%) and the only sectors higher. Info Tech (-2.95%) led the declines followed by Telecoms (-1.88%) and Health Care (-1.24%). There were mixed reports on the property market last week with ratings agency S&P issuing a report that showed the number of Australians behind on their home loan repayments has risen to the highest in two years, despite the high auction clearance rates and recovering house prices. A report by Knight Frank on the other hand showed vacant industrial space fell to a record low in Q1 across the eastern states with the amount of vacant space down 82% from the pandemic peak in late 2020 and that prime rents in Sydney were 38% higher compared to the same period a year ago. The RBA raised the cash rate by 25 basis points to 4.10% last week, opting to hike with inflation around 7% still too high. The statement was also quite hawkish noting that recent data indicated upside risks to the inflation outlook have increased and highlighted the risk of a wage-price spiral from the recent increase in the minimum wage and expectations of a further increase in public sector wages. The RBA Still aims to keep economy on an even keel but noted some further tightening may be required and will do what is necessary to return inflation to target. Our Q1 GDP grew 0.2% over the quarter last week, missing the 0.3% estimate. Annual GDP growth of 2.3% was also slightly lower than the 2.4% expected. Capital investment was the main driver on the back of strength in equipment and non-dwelling construction. Housing investment fell, domestic consumption was subdued, and discretionary spending fell below essential spending for the first time since the lockdowns of 2021. External demand was a drag as import growth outpaced exports, although exports services was a strength, as was the terms of trade as import prices fell more sharply than export prices.

U.S. Share Market (S&P 500) – up 0.39%, with the Dow (+0.34%) and the Nasdaq (+0.14%) also higher. The S&P 500 was up for the 4th week in a row while the Nasdaq was up for the 7th week in a row, its longest winning streak since January 2020. It was a relatively quiet week on the macro front with only a few data releases and no Fed speakers as they enter the blackout period ahead of this week’s FOMC meeting and the volatility index (VIX) falling further to a new 3 year low and back to pre-pandemic levels. The increased Treasury bill issuance to top up the Treasury’s depleted coffers following the debt ceiling issues got underway with estimates for around $1 trillion in new bill issuance over the next few months raising some near-term liquidity concerns for risk assets. Combined with the ongoing quantitative tightening, Goldman Sachs has estimated that liquidity could decline by around 5% over the next couple of months. Sentiment continued to improve with the latest Investor’s Intelligence report showing Bulls at 51.3% up from 47.9% in the prior week and the highest since the 57.2% in November 2021. The May ISM services was weaker than expected printing at 50.3, below estimates for 52 and down from last month’s 51.9 with a notable fall in new orders and higher inventory levels. The services part of the economy continues to outperform the struggling manufacturing sector but eased back a bit last week. Jobless claims for the latest week had another leg up to 261K, ahead of consensus for 240K and last week’s 233K and was the highest since October 2021. These are still historically low levels though with a around 300K being considered a low number pre pandemic. As per the recent jobs data still surprising to the upside, the U.S labour market remains strong, but the rising initial unemployment claims does signal some easing which could take some pressure off the Federal Reserve ahead of this week’s FOMC meeting.

Portfolio Movements

Apple (AAPL) 2023 Worldwide Developers Conference – Announces first new major product line since 2014. Apple’s annual Worldwide Developers Conference was last week with the new headset, the Vision Pro, the highlight and the first new major product line since 2014. The Vision Pro headset will run on visionOS, a brand-new platform for the Vision Pro headset. It’s a spatial computing platform that developers will be able to build for, much like they would for iOS on iPhone or macOS for Mac. It will be able to run a multi-app, 3D engine, and Apple said it is the first operating system designed from the ground up for spatial computing. The Vision Pro will cost US$3,499 when it launches early next year and can do messages, watch movies, FaceTime, browsing the web and become a Mac monitor amongst other things.

Google (GOOG) to crack down on office attendance / work from home. Google updated their hybrid work policy during the week emphasising the importance of office attendance with Google’s chief people officer stating, “there’s just no substitute for coming together in person.” And that “there’s no question that working together in the same room makes a positive difference,” The crackdown comes as the company is in an artificial intelligence arms race and has called for all hands on deck to position itself against rivals like Microsoft and OpenAI. Several large companies have made similar announcements recently and with productivity issues now forming part of the inflation problem discussion there will likely be further efforts to get workers back into offices on a more regular basis.

Johnson & Johnson (J&J) Stelara patent settlement could boost revenues. Johnson & Johnson’s legal settlement with Amgen last week to delay their biosimilar version of its psoriasis treatment Stelara until 2025 could boost J&J revenues more than is currently expected. Stelara was released in 2009 and has been J&J’s top selling drug since 2019 with sales of $9.7 billion last year. Its Stelara patents begin to expire this year, opening the door to a cheaper biosimilar entering the market and forcing down the current $13,000 per month price of Stelara. Analysts currently expect Stelara sales to fall from $9.9 billion this year to $7.5 billion with some analysts as low as $5.4 billion for Stelara in 2025, estimates which could end up being too low.

The Week Ahead

Domestic economic highlights this week include the NAB Business Confidence survey today and Consumer Inflation expectations on Thursday. Also Thursday is the May labour force data which is the highlight this week with a 22.5K jobs gain expected and the unemployment rate expected to hold steady at 3.7%.

International highlights include China Loan Growth today, German ZEW Economic Sentiment this evening and the key U.S May Inflation report tonight where annual headline CPI is expected to fall to 4.2% from 4.9% last month. Tomorrow night sees U.K and Eurozone Industrial Production and U.S PPI and then the June FOMC meeting where the Federal Reserve is expected to leave interest rates on hold at 5.25% for the first pause in the current hiking cycle. The ECB meets to set Eurozone interest rates on Thursday night along with U.S Empire State Index, Philadelphia Fed Index, Retail Sales, Capacity Utilisation, Industrial Production, and Business Inventories. Friday sees the Bank of Japan interest rate decision with U.S University of Michigan Consumer Sentiment on Friday night.

Corporate reporting is quiet again this week with just an Investor Day for IAG tomorrow.