Only 18 out of 1 million Lego pieces are defective. That’s out of every 20 billion pieces that are manufactured every year.
Australian Share Market (ASX200) – down 2.44% for the week with the Australian Dollar hitting its lowest levels in 2 years against a surging $USD which is benefiting from higher interest rate differentials. The Information Technology sector was hardest hit by rate hikes down 6.49%, followed by Utilities -5.38% and Consumer Discretionary -4.9%. The Materials sector -0.51% was the best performer followed by Financials -1.68% and Energy -2.09% as West Texas oil dropped below $80/barrel for the first time since January. Price moves were amplified by local public holidays.
US Share Market (S&P 500) – down 4.65%, with the Dow -4.00% and Nasdaq -5.07%, continuing recent falls. US equity markets last week were largely impacted by the US Federal Reserve’s third straight rate increase of 75 basis points. This had been expected but a continued Fed stance on maintaining a restrictive stance for longer to combat inflation hurt. The US rate hike also caused the USD index to hit the highest levels since June 2002, hurting world growth prospects. The Euro dropped to a two-decade low and Japan intervened in the foreign exchange market to buy Yen for the first time since 1998. Sterling was also negatively impacted by the new UK government’s plan to cut taxes and subsidise energy costs. The oil price dipped below US$80 a barrel, the lowest since January providing some inflationary relief. Energy was the biggest underperforming sector in the US (-9%), followed by Consumer Discretionary ( -7.02%) and REITS (Real estate) -6.42%. Consumer Staples (-2.15%) was the best sector, given its defensive characteristics, followed by Utilities (-3.05%) and Healthcare (-3.38%). Investor sentiment has hit the lowest levels since the GFC, with US real yields hitting the highest levels since 2011. This continues to weigh on equity valuations encouraging equity analysts to cut their S&P 500 price targets. Household equity allocations have fallen to 2018 lows which can help reduce equity market downside from here. Institutional equity positioning also remains very low along with long-term inflation expectations.
Apple (APPL) announced they are raising prices for in-app purchases across Asia and Europe from October 5 to counter the weak local currencies, against the strong $USD. South Korea will have a 20-25% hike, whereas Japan, which has seen major currency weakness, will incur a 30-35% rise. Regions in the Euro will have a smaller move around 8-10%. Apple recorded a record $19.6B service revenue in Q2 2022, (falling just short of expectations), including App Store earnings and was up 12% year-on-year. These hikes highlight how easy it is for Apple to counter the effects of currency and inflation and the degree of their pricing power within their ecosystem.
Alphabet (GOOGL) is working with the Indian Government and the Reserve Bank of India to introduce more strident checks to help curb the use of illegal digital lending apps and weed out unscrupulous activities such as charging excessive rates and money laundering. Last year Google had already removed 2,000 personal loan apps targeting India from its Play Store for violating policy requirements. Google has also been asked to look at other websites and is also starting to look at acting on complaints from industry bodies. Google dominates India’s app market with 95% of smartphones using its Android platform and with India’s digital lending market growing to $2.2B last year, its vital that Google takes an active role in compliance.
Diageo (DGE) has focused on employee wellbeing, mental health, cultural inclusion and diversity, resulting in them being named in the top 10 best companies in the US in 2022. This is the 13th year they have been recognised and is largely due to their 10-year ESG action plan. This includes gender neutral parental leave and mental health benefits program. DGE was also recognised as a top company for Executive Women, a 2022 Best Company for Multicultural Women and Best Company for Dads. These rewards recognise DGE’s aim of creating the best working environment where staff feels a sense of belonging and can thrive and contribute to their fullest.
The Week Ahead
A slow week for domestic data with Retail Sales for August out on Wednesday and Private Sector Credit (August) due Friday. The key focus domestically will be the following week when the RBA decides on their next interest rate move (Tuesday Oct 4).
Internationally, we should see the results of the Italian election on Monday, along with Japanese PMI figures and the German GDP. Tuesday has Chinese Industrial Profits, US Durable Goods Orders and the House Price Index. Wednesday sees the release of US CB Consumer Confidence figures and New Home Sales. Thursday has US Pending Home Sales, GDP, Jobless Claims, Consumer Spending and Crude Oil Inventories, Spanish and German CPI, Euro Consumer Confidence (Sept) and Canadian GDP. Friday has Chinese PMIs, Japanese Industrial Production, Housing Starts and Unemployment Rate, German Retail Sales and Unemployment, UK GDP, Current Account and Business Investment, French, Italian and Euro CPI and US Personal Income, Spending and Consumption figures.
These figures continue to take on greater significance than ever, given the focus on inflation to determine the degree of further central bank rate increases to curb inflationary pressures
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.