19 December 2022 | Weekly Snapshot

Did you know?

The last time the S&P 500 posted consecutive annual calendar year losses was the 2000-2002 period. Prior to that it was back in 1973-1974.

Market Movements

Australian Share Market (ASX200) – down 0.89% for the second week in a row but outperforming weak offshore leads in what was the last big week of data and Central Bank meetings for 2022. The Energy sector (+3.59%) led the gains followed by Info tech (+1.41%) and Industrials (+1.12%). The Materials sector (-3.98%) led the declines snapping a 6-week winning streak with Utilities (-3.94%) and Consumer Discretionary (-1.96%) the next weakest. The Federal government’s decision to impose price controls on gas to reign in energy prices stunned investors early in the week, with major gas produces saying the intervention “may not align with international market standards for investor certainty and could be counter-productive for domestic consumers in the long run.” Although some manufacturers and energy users have welcomed the move. In a reversal of what we have seen all year, consumer confidence improved while business confidence slipped. The Westpac-MI consumer sentiment index rose to 80.3 in December from the near historical lows last month. Consumers remain confident about labour market prospects but are still very pessimistic overall although views on interest rates improved, prompting a lift in sentiment among mortgage holders and the outlook for family finances. The NAB business survey showed business confidence swung to -4 in November from 0 in October and the first negative read since December 2021 reflecting increasing concerns about the economy. Conditions were still a strong +20 and firmly in expansion territory although lead indicators softened further. Australian employment ended the year much stronger than expected, with 64,000 jobs added for the month of November, triple the 19k gain expected with the unemployment rate unchanged at the 48-year low of 3.4%. Despite the participation rate increasing to 66.8%, from 66.5% in October, the underemployment rate fell to 5.8% and the lowest since May when the rate hikes began. While great news for employees, with no noticeable impact yet on the labour market from the most aggressive rate hikes in 30 years, the figures strengthened expectations the RBA will follow up with another 25-basis point rate hike in February. There is no RBA meeting in January.

US Share Market (S&P 500) – down 2.08%, with the Dow (-1.66%), and Nasdaq (-2.72%) also lower for the 2nd week in a row. US equities were off to a positive start to the week ahead of key inflation reports and Central Bank meetings. US equities closed higher on the lower-than-expected Consumer Price Inflation report in a volatile session with the VIX index at a 1 month high, as bond yields fell, and the USD index made a 6-month low. Headline CPI for November was up 0.1% for the month, lower than consensus estimates for a 0.3% increase with the annual CPI at 7.1%, the lowest since December 2021, down from 7.7% last month and lower than estimates for a 7.3% increase. Focus then shifted to the FOMC meeting where the US Federal Reserve hiked rates by 50 basis points as expected with no real change in the wording of the policy statement and Chair Powell emphasising “higher for longer” and that policy still isn’t sufficiently restrictive. The closely watched median policymaker rates projection (terminal rate) for 2023 increased by 0.6% to 5.1% from the September projections, which was a bit higher than market pricing and the 2024 and 2025 rate forecasts were also raised. Powell seemed to play down the prospects for any rate cuts in 2023, referring to the new projections, with the market currently pricing in 2 rate cuts in the 2nd half of next year after peaking at 4.75-5.0% in March. US equities then had their worst day in 3 months with the European Central Bank and Bank of England also hiking interest rates with takeaways from all three Central Bank meetings leaning more hawkish than expected, signalling further rate increases and a higher for longer narrative, and downplayed some of the more recent easing in headline inflation. Not helping the slowdown / growth concerns late in the week were US retail sales which declined 0.6% for the month, a sharper fall than the 0.2% drop expected. US retail sales are still up a strong 6.5% over the year but there were notable declines for vehicles, furniture, building materials and department stores in the November report.

Portfolio Movements

Microsoft (MSFT) to buy 4% of London Stock Exchange in cloud computing deal. Microsoft announced last week they have agreed to buy a 4% stake in London Stock Exchange Group in a $US2.8 billion deal. As part of the agreement London Stock Exchange said it will spend at least that amount on cloud services with Microsoft over the next 10 years. The agreement is expected to cost London Stock Exchange between £250 million to £300 million between 2023 and 2025, including about £100 million in capital spending. Additional spending beyond the $US2.8 billion minimum depends on the “success of the strategic partnership” with Microsoft estimating that the “partnership, and broader market opportunity, could generate an additional $US5 billion in revenue for the company over the next 10 years.”

Amcor (AMC) invests US$100 mill in China’s largest flexible packaging plant. Amcor announced last week the opening of its new state-of-the-art manufacturing plant in Huizhou, China. With an investment of almost $100 million USD, the plant is the largest flexible packaging plant by production capacity in China, further strengthening Amcor’s ability to meet growing customer demand throughout Asia Pacific. The new facility is expected to employ more than 550 people, who will produce flexible packaging solutions for food and personal-care products. The plant comes equipped with the first automated packaging production line in China. “This investment is testament to our commitment to grow with our customers in China and throughout Asia Pacific by bringing the best of Amcor’s global expertise closer to them,” said Xin She, General Manager of Amcor Greater China.

Telstra (TLS) best performing SMB campaign in more than two decades. Telstra’s latest ad campaign that shows Australian SMBs (small to medium-sized businesses) how to accelerate digitisation and growth of their businesses was launched in July this year and has been flagged as Telstra’s best performing SMB campaign in more than two decades. Telstra has an extensive range of tech and tools for SMBs which is more like to an all-encompassing IT team. It can help companies with websites, marketing, social media and business applications, as well as tap into its partnerships to facilitate payment solutions, and also for office software and cloud services. Hailed as “a knockout campaign” independent research showed that ad consideration was 12% above benchmark, brand linkage was 10% above benchmark and brand likability was 14% above benchmark after people saw the ad.

The Week Ahead

The final week of the year before the Christmas and New Year break is quiet in terms of economic releases. Local data this week is just the Private Sector Credit on Friday. International releases include US NAHB housing market index and German PPI tomorrow, US Housing starts, Building Permits, and Eurozone Consumer Confidence Wednesday, and a raft of final Q3 GDP estimates for the US and Eurozone later in the week.

There is no corporate reporting this week.

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

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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.