Australia’s Q3 inflation rate of 7.3% is now just 0.4% below the US’s 7.7% October reading. With SQM reporting last week that average capital city rents have increased 24.5% over the past 12 months, Australia’s inflation rate could be set to exceed the US when our Q4 inflation data is released early next year.
Australian Share Market (ASX200) – down 0.09% and snapping a 3-week winning streak with volatility across global equity markets noticeably lower last week. The Materials sector (+1.82%) led the gains followed by Info Tech (+1.21%) and Consumer Staples (+0.48%) as the only sectors higher. Energy (-1.27%) led the declines followed by Consumer Discretionary (-1.24%) and Telecoms (-0.85%). The Materials sector was boosted as China announced 16 measures to support their property market recovery with key measures including commercial banks extending maturing loans to developers, and policy banks providing funding to ensure completion of pre-sold homes, prompting a big rally in Materials stocks early in the week. The Reserve Bank of Australia released their November meeting minutes, explaining the rationale for the 25-basis point rate hike. A view, both here and abroad, is now forming that although interest rates are likely to rise further, we are probably now through the most aggressive part of the rate hiking cycle. It was a good week for domestic employment and wage data with our Q3 Wage Price Index posting a 3.13% annual increase, well ahead of the 2.8% expected and accelerating from the 2.63% increase in Q2. It was the fastest pace of wage increases in just over 10 years and is welcome news for Australian workers struggling to keep up with inflation currently running at 7.3% with the Retail industry, a major employer, leading the annual wages growth up 4.23%. The October labour force data was also better than expected after employment growth stalled in September. Thirty-two thousand jobs were added last month, much of them full time positions which was ahead of consensus for a 19k jobs gain. Our unemployment rate unexpectedly fell back to 3.4%, its equal lowest point since 1974 versus expectations for the unemployment rate to hold steady at 3.5%. It was a strong report that showed demand for workers hasn’t really deteriorated at all since the RBA began hiking rates in May, and that workers were taking advantage of the strong employment conditions to seek pay rises as was evident in the wage price data.
US Share Market (S&P 500) – down 0.69% with the Dow (-0.01%), and Nasdaq (-1.57% %) also easing back from the prior week’s gains. The recent lower than expected inflation and decrease in volatility seemed to be attracting flows back into equities with Bank of America’s Flow Show report noting US$23B went into stocks last week, the highest in 35 weeks. Focus was on the big US retailers as they closed out the Q3 reporting season, and housing data as the most interest rate sensitive sector. The retailer results were not as bad as feared and showed ongoing resilient consumers but also a pickup in macro headwinds that were driving a more recent slowdown in spending. October US retail sales rose 1.3% for the month, well above expectations for a 1.0% increase. It was the largest monthly increase since February with retail sales up a strong 8.3% for the year. Housing data on the other hand remains weak with the NAHB home builder confidence index falling further for the 11th straight monthly decline and outside the pandemic is the lowest since June 2012. But housing starts and existing home sales were not as bad as feared. Housing starts were down again but slightly better than expected, as were existing home sales that were still down a record 9 months in a row, but unsold inventory tightened, down 0.8% for the month, or just 3.3 months’ supply, with the tight inventories leading to a 6.6% yearly increase in median prices. Headline Producer Prices rose 0.2% for the month, well below consensus for a 0.5% increase. PPI was still up a high 8.0% for the year but below the 8.3% expected and came on the back of the prior week’s lower than expected Consumer Price Inflation report with bond yields falling further last week. Manufacturing data was mixed with the New York Fed’s Empire manufacturing index printing at +4.5 vs consensus for -7.0, while the Philadelphia Fed’s November manufacturing index fell to -19.4, well below consensus for -8.0. Weekly initial jobless claims came in at 222k, still hovering around the 50-year lows with no signs yet of any impacts from the raft of recently announced tech sector layoffs.
Sonic Healthcare (SHL) provides 4-month trading update and AGM – announces new UK contract. Sonic provided a 4-month trading update with their AGM last week. The company has not provided guidance for FY23 due to COVID-19 related unpredictability coming from their Covid testing operations. Splitting out the covid revenue, base business revenue for the first 4 months of FY23 was up 6.7% compared to the same period last year, and up 8.5% from the same period in 2019, before the pandemic. Sonic’s UK subsidiary, Health Services Laboratories (HSL), has been awarded preferred bidder status for the Hertfordshire and West Essex ICS Pathology Transformation Procurement. Subject to the contract being finalised, HSL will provide pathology services for a period of 15 years starting in 2024.
Amcor (AMC) commits to reach 30% recycled content across all products by 2030. Global packaging giant, Amcor, released their 2022 Sustainability Report last week announcing an enhanced target to achieve 30% recycled content across its portfolio by the end of the decade. The new recycled content target is three times its previous target of 10% in a big year for efforts on sustainability. During 2022 Amcor has committed to net zero emissions by 2050, more than doubled post-consumer recycled material purchased since 2019 and achieved a gold rating from EcoVadis for its industry-leading sustainability practices, placing Amcor among the top 5% of all companies assessed.CEO Ron Delia commented: “We’re continuing to show ambition and leadership to deliver better sustainability results for our people, our customers, our investors and the environment. We’re working with every part of the value chain to make this happen.”
Commonwealth Bank (CBA) provides Q1 trading update – interest income up 16%. CBA provided a decent Q1 update with cash NPAT of approximately $2.5 billion, 12% growth in operating performance and sound portfolio credit quality. Income was up 9% driven by higher margins and volume growth, partly offset by reduced non-interest income. Operating performance up 12% on the 2H22 quarterly average, and 16% higher than 1Q22. Portfolio credit quality remained sound, with favourable trends in key credit quality indicators. Net interest income growth of 16% was driven by higher deposit earnings, volume growth across core products, the benefit of rising rates on replicating portfolio and equity hedge balances and 1.5 additional days in the quarter, partly offset by the impact of competition and rising rates on lending products.
The Week Ahead
It’s a quiet week on the domestic data front with just a speech by RBA governor Lowe tomorrow night on the economic outlook.
Internationally it is also fairly quiet this week. German producer price Inflation is out tonight, with Eurozone Markit services and manufacturing PMIs on Wednesday. The highlight of the week is likely the FOMC meeting minutes on Thursday along with US building permits, new home sales, durable goods, university of Michigan consumer sentiment, and Markit services and manufacturing PMIs, with German Q3 GDP on Friday.
Corporate reporting continues to wind down into years end with just Annual General Meetings for VGI Partners on Wednesday, and Qube Holdings on Thursday.
Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice
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