22 May 2023 | Weekly Snapshot

Did you know?

The June quarter contains the highest number of current maturing Australian fixed rate mortgages, with 17% of all fixed rate mortgages due to roll over to variable rate terms. Given that most of these fixed rate loans were struck at less than 3%, it means that many of these will see the interest rate on their loan double.

Market Movements

Australian Share Market (ASX 200) – up 0.31% for the 2nd week in a row. The Info Tech sector (+5.19%) led the gains again followed by Energy (+1.60%) and Materials (+0.97%). Consumer Staples (-1.08%) led the declines followed by Consumer Discretionary (-0.81%) and Health Care (-0.69%). The Australian Westpac-MI consumer sentiment index dropped to 79 in May last week after recovering last month and was back near its lowest levels since the pandemic panic of 2020. The RBA is a large swing factor with the decline in sentiment largely driven by the surprise rate hike earlier this month. An underwhelming Federal budget that provided little if anything for middle Australia facing cost of living pressures also played a secondary role according to the report. The Q1 wage price index was the highlight of the week and was largely in line with expectations, up 0.8% for the quarter and unchanged from Q4. On an annual basis wages increased 3.7%, up from Q4’s 3.3% increase. It was the highest rate of wage growth since 2013 and will help with rising living costs but with Q1 inflation at 7% real incomes were down 3.3% for the year. Economists have noted upside risks to wages from the Fair Work Commission’s wage review in next month, which is expected to recommend an inflation-matching (7%) increase in the minimum wage. The RBA minutes from the surprise May rate hike meeting were also out and leaned hawkish in the commentary. Our unemployment rate unexpectedly rose to 3.7% last week, the highest this year, up from 3.5% last month which was also the consensus estimate. Jobs fell by 4.3K in April against expectations for another 25K jobs increase. The result bolstered expectations of another RBA pausing next month. Following a busy week for employment and wages and the hawkish RBA minutes ANZ, Goldman Sachs and NAB noted the potential for more rate increases and / or a higher terminal rate than they are currently predicting, although CBA said they don’t expect another rate hike and that the RBA is done.

U.S. Share Market (S&P 500) – up 1.60%, with the Dow (+0.40%) and Nasdaq (+3.00%) also higher with the S&P 500 and Nasdaq making new 9-month highs. Prior to last week the S&P 500 had not moved more than a 1% weekly gain or loss for the past 6 weeks, which was the longest sideways stretch since 2019. Results from the big U.S retailers suggested consumers are holding up well and with more than 90% of S&P 500 companies have now reported Q1 earnings, margin compression from input price pressures were not as bad as expected with companies citing “inflation” on earnings calls down substantially on recent quarters. Regional banks were amongst the best performers as still fragile sentiment slowly improved and the week was dominated by debt ceiling developments and multiple Federal Reserve speakers as the focus shifts back to top-down themes from bottom-up company reporting. The New York Fed’s May US Empire Manufacturing Index plunged 42.6 points for the month to -30.8, triple the expected decline to -3.5. It was biggest monthly decline since April 2020 and the depths of the pandemic panic. Retail sales rose 0.4% for the month, lower than the 0.8% gain expected although March was revised up to -0.7% from the initial 1% decline reported. The NAHB housing market index for May continued the recent run of better-than-expected readings up 5 points to 50, back in positive territory and the highest since July last year. By the end of the week debt ceiling progress had stalled with discussions “paused” on Friday night after more positive developments earlier in the week. Fed Chair Powell’s speech on Friday night was less hawkish than other Fed speakers during the week. Powell said the risks of doing too much versus too little have become more balanced, and the Fed can now afford to look at data and make careful assessments given the hikes so far. Powell was also cautious on the tighter financial conditions from the banking issues given the potential impact on economic growth, employment, and inflation, potentially reducing the need for further increase in the policy rate. Markets now expect only a 20% chance of another hike next month, down from 50% last week.

Portfolio Movements

Microsoft’s (MSFT) European Union regulators last week approved Microsoft’s proposed $69 billion acquisition of gaming firm Activision Blizzard, saying that Microsoft had offered remedies in the nascent area of cloud gaming that have allayed their antitrust concerns. Regulators globally have been probing whether Microsoft’s acquisition of Activision could distort competition in the console and cloud gaming market. Activision owns some of the biggest console and PC games in the world, including the Call of Duty franchise and World of Warcraft. Europe’s approval is a win for Microsoft after the U.K.’s competition regulator last month blocked the deal.

Santos (STO), our second largest natural gas producer, wants to use carbon capture projects to store emissions for some of Asia’s top industrial polluters. Their Moomba project in South Australia is intended to store 1.7 million tons of the producer’s own carbon dioxide releases annually from 2024, and the firm also sees potential to handle tens of millions of tons of emissions from third parties, including customers in Japan and South Korea. Australia is seen as a potential key location for the sequestration of emissions because of our geology and depleted underground natural gas reservoirs could store carbon dioxide.

Thermo Fisher Scientific (TMO) announced the FDA has cleared their KRYPTOR novel biomarkers, the first and only immunoassays to receive breakthrough designation and clearance for the risk assessment and clinical management of preeclampsia. The new assays are designed to be used along with other laboratory tests and clinical assessments to aid in the risk assessment of pregnant women who have been hospitalized for hypertensive disorders to determine if they are at risk of progressing to preeclampsia. Preeclampsia is a potentially dangerous pregnancy complication characterised by high blood pressure, usually begins after 20 weeks of pregnancy in women whose blood pressure had been normal and can lead to serious, sometimes fatal, complications for the mother and baby.

The Week Ahead

Domestic economic data releases this week are a bit light on with just the Westpac Leading Index on Wednesday and Retail Sales on Friday.

International highlights include Eurozone Consumer Confidence and Eurozone and U.S Markit Manufacturing, Services and Composite PMI’s along with U.S New Home Sales tonight. Tomorrow night is German IFO Business Survey. Wednesday night is the FOMC meeting minutes with the second estimate for Q1 U.S GDP growth and Pending Home Sales Thursday night. Tokyo CPI is Friday with U.S Durable Goods, Personal Consumption Expenditure and Wholesale Inventories Friday night.

Corporate reporting this week includes Annual General Meetings for Shell tomorrow, and Amazon, Thermo Fischer and South 32 on Thursday.