28 November 2022 | Weekly Snapshot

Did you know?

England has the most valuable team at the World Cup in Qatar worth around 1.2 billion euros. The highest player transfer value is Kylian Mbappe of France who is worth 160 million Euros.

Market Movements

Australian Share Market (ASX200) – up 1.51% to new 6 month high in what was another positive week for equities with all sectors higher. The Utilities sector (+5.04%) led the gains followed by Financials (+2.05%) and Healthcare (+1.78%) while Info Tech (+0.14%), Materials (+0.47%) and Energy (+0.90%) rose the least. Offshore leads were also positive although domestic company and economic data news was fairly light on, with the continued upward momentum in equities coming from a sense of relief that we are now likely through the most aggressive part of the Central Bank interest rate hiking cycle. Reserve Bank of Australia Governor Lowe gave an interesting speech on the economic outlook during the week which seemed to be a bit critical of some of the Government’s more inflationary policies, while the RBA’s monetary policy is aimed at bringing inflation down, with the expected result being higher volatility in inflation going forward. He mentioned the need for fiscal policy anchored by a strong underlying structural budget position and took aim at the energy transition. Governor Lowe mentioned the significant investment in renewable energy was not being met by investment in existing energy sources and could expect higher and more volatile energy prices. Views that were in line with the Government’s recent budget forecast for energy prices to rise another 50% over the next 2 years. In our region The Reserve Bank of New Zealand hiked interest rates by the most on record – 75 basis points – to 4.25% and the highest since 2008. The RBNZ noted “Core consumer price inflation is too high, employment is beyond its maximum sustainable level, and near-term inflation expectations have risen” and forecast a shallow recession next year. China’s central bank, the PBoC, went the other way and cut the Reserve Requirement Ratio (RRR) by 25 basis points over the weekend. Daily covid cases in China hit another record high prompting further lockdown measures last week as protests against the zero-Covid policies spread to several cities over the weekend.

US Share Market (S&P 500) – up 1.60% with the Dow (+1.08%), and Nasdaq (+0.70%) also higher for the week with the S&P 500 making a new 2 month high. US equities were relatively calm with volatility noticeably lower in the shortened Thanksgiving holiday week. While the “peak inflation” narrative from earlier this year was premature, there are now signs that some of the components that make up the consumer and producer prices indexes are moderating, despite some components remaining at multi decade highs, with equities getting a boost from expectations of smaller rate hikes going forward. The November FOMC meeting minutes were released noting “A substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate,” in line with more recent market expectations. Atlanta Fed’s Bostic was the latest Fed speaker to advocate downshifting pace of rate hikes at the upcoming December FOMC meeting. Saying that if the economy proceeds as expected, just a further 75-100 basis points of rate hikes will be warranted for this cycle. A flurry of data was released ahead of the Thanksgiving holiday with Markit’s flash Services PMI falling further, citing weaker demand and a decline in new business with the Manufacturing PMI hitting a 30-month low. University of Michigan’s Consumer Sentiment, Durable-goods orders and New-home sales were better than expected. Without US leads focus was on the Eurozone where sentiment has been improving with the broader Stoxx 600 index at a new 3 month high. The German Ifo November business survey improved more than expected with the expectations component improving but current conditions remain very weak. Other recent surveys from Germany (ZEW, GfK and PMIs) have also been showing signs that the German economy could be nearing a trough. The European Central Bank’s October meeting minutes were also released with the ECB in a difficult position due to high inflation and slowing growth with a large majority backing the 75-basis point hike.

Portfolio Movements

Shell (SHEL) to review GBP25 billion in investments following UK government’s tax hike on Energy companies. The new U.K chancellor Hunt increased the windfall tax on oil and gas profits from 25% to 35% in the recent budget with Shell announcing last week it will now review £25bn of investments in British projects that were announced five months ago. Shell’s UK chairman Bunch said the oil giant would re-examine each of its projects on a “case-by-case basis” and that a stable fiscal environment was needed to make sure they can get those investments out of the door. Mr Bunch called on the government to set out how the windfall tax might be withdrawn, stating “the current design of the windfall tax does not have a price point at which that windfall tax turns off.”

ANZ (ANZ) to benefit the most from RBNZ outsized rate hike. The Reserve Bank of New Zealand bucked the recent “slowing pace of rate hikes” trend last week, hiking interest rates by the most on record – 75 basis points – to 4.25% and the highest since 2008. The RBNZ noted “Core consumer price inflation is too high, employment is beyond its maximum sustainable level, and near-term inflation expectations have risen”, and forecast a shallow recession next year. Bank Net Interest Margins have been getting a boost from the higher rates recently, with share prices rising on the higher revenues as impairments remain very low. ANZ, the smallest of the big four banks, would get the biggest boost from the higher NZ interest rates, but comes with risks due to the shallow recession forecasts.

Qube Holdings (QUB) provides positive trading update at AGM. QUB provided a positive outlook at their AGM yesterday saying the company has experienced a strong start to FY23 with many of the elements that underpinned the FY22 results – including high volumes and margin improvement – continuing across most parts of the business. They noted that earnings are not expected to be materially impacted by cost inflation given Qube’s ability to recover higher costs through a combination of contractual protections, rate adjustments and productivity improvement. Qube is Australia’s largest integrated provider of import and export logistics services with over 160 locations across Australia, New Zealand and Southeast Asia employing over 8,200 people.

The Week Ahead

It’s a busier week on the domestic data front with Retail Sales today, Building Approvals and Private Sector Credit on Wednesday, the AIG Manufacturing Index and Q3 Capital Expenditure on Thursday, and Housing Finance on Friday.

Internationally it is also a busy week. The US Dallas Fed Index, Japan Trade Balance and Eurozone Confidence Indicators are tomorrow. A host of Eurozone country Q3 GDP and CPI figures are due over the week. China PMIs are Wednesday. US 2nd estimate for Q3 GDP, Wholesale Inventories, JOLTS Job Openings report and Eurozone Manufacturing PMIs are Thursday, and US Personal Consumption Expenditure, US Non-Farm Payrolls and Eurozone PPI on Friday.

Corporate reporting continues to wind down into years end with no 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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