5 June 2023 | Weekly Snapshot

Did you know?

Nvidia set a new equities market record last week adding $219 billion in market cap in a single day, after reporting “surging demand” for its data center products amid the rise of accelerated computing and generative AI. Surpassing Apple’s previous record when it gained $191 billion in one day in November last year.

Market Movements

Australian Share Market (ASX 200) – down 0.10% for the second week in a row. The Materials sector (+1.53%) led the gains followed by Info Tech (+1.22%) and Health Care (+0.95%). Consumer Discretionary (-2.21%) led the declines followed by Consumer Staples (-1.40%) and Financials (-1.36%). The residential property market continued pick up despite the surprise RBA rate hike earlier this month with CoreLogic’s preliminary figures showing the national auction clearance rate rose to 75.9% last weekend, the highest since November 2021. Core logic also noted house prices were rising quicker than expected with home values in May rising at double the pace of recent months. The new monthly inflation data posted a surprise increase, rising to 6.8% annually in April, up from 6.3% the prior month and well ahead of the 6.4% expected. It was only one month but inflation picking back up at this point in the cycle was surprising with several economist who had called the top in interest rates just 2 weeks ago now revising estimates higher. The Q1 GDP components started coming through with the Q1 construction work done rebounding 1.8% during the quarter from a 0.4% decline in Q4, much higher than expectations for a 0.5% increase. Q1 private Capital Expenditure data was also stronger than expected, +2.4% for the quarter vs. +1% expected, with plant and machinery Capex surging +3.7% compared to +0.6% rise in Q4. The Fair Work Commission announced a minimum wage hike of 5.75% last week, below what unions were after but more than what business groups supported and was at the higher end of economists’ estimates. It will impact around 2.6 million workers on award rates with the 180K workers on the lowest rate getting an 8.7% increase and did add to wage-price spiral concerns. The RBA meet tomorrow where the odds of another interest rate hike have increased following last week’s inflation data with some economists now seeing a peak cash rate of around 4.6%, implying three more rate increases amid stubborn inflation.

U.S. Share Market (S&P 500) – up 1.83%, with the Dow (+2.02%) and the Nasdaq (+2.04%) also higher and the Nasdaq up for the 6th week in a row, its longest winning streak since January 2020. U.S markets reopened after a long weekend with a muted response to the debt ceiling deal announced over the weekend, that passed both the House and Senate by the end of the week. Some concerns now around liquidity with the Treasury department expected to issue an estimated additional $1 trillion in Treasury bills through the end of August to top up the coffers that will need to be absorbed by markets. Consumer confidence was a bit higher than expected but manufacturing indicators continue to struggle with the May Dallas Fed manufacturing index falling further in to negative territory, to -29.1 vs. the -19.5 expected and last month’s -23.4. The Chicago Manufacturing PMI printed at 40.4, well below consensus for 46.8 and April’s 48.6. The March Case-Shiller 20-city house price index unexpectedly rose 0.5% for the month against expectations for a 0.4% monthly decline. The previous month was also revised up. Prices are now down just 1.1% for the year with the release noting prices rose in all 20 cities before seasonal adjustment and suggested the price slides that began mid last year have found support, despite the ongoing rate hikes. It was a strong week for jobs data with the April JOLTS report showing job openings increased sharply to 10.1 million, up from 9.59 mill last month and well ahead of the expected decline to 9.48 million. The ADP private payrolls also beating with a 278K gain well ahead of consensus for 163K. And Nonfarm payrolls increased by 339K jobs on Friday night, well ahead of expectations for a 190K gain. Prior months were also revised higher although the unemployment rate rose more than expected to 3.7%, from 3.4% last month which was the lowest since 1969. The strong jobs data didn’t really move the dial on interest rate expectations with a pause still expected at next week’s June FOMC meeting.

Portfolio Movements

BHP (BHP) to partner with Microsoft (MSFT) to use AI to lift Escondida copper recovery. BHP announced a new collaboration with Microsoft last week to use artificial intelligence and machine learning to improve copper recovery at the world’s largest copper mine. BHP is a top three global producer of copper and has the largest copper endowment of any company globally. BHP estimates the world would need to double the amount of copper produced over the next 30 years, relative to the past 30, to keep pace with the development of decarbonisation technology such as electric vehicles, offshore wind, and solar farms. BHP Chief Technical Officer Laura Tyler said “We expect the next big wave in mining to come from the advanced use of digital technologies. As grades decline at existing copper mines and fewer new economic discoveries are made”

Verizon (VZ) simplifies plans, looks to restructure customer service operations. Dow component Verizon announced new simplified “myPlan” offerings after cellular plans have become increasingly complex as carriers have offered all sorts of add-ons (Apple Music, Disney +, etc). Customers searching cellular plans at Verizon will no longer need to sift through the Get More, Play More, Do More, or Start 5G plans and will instead just offer the premium “Unlimited Plus” or base “Unlimited Welcome” plans, and customers can add on what they want. Following this announcement Verizon held a meeting with their 6,000 customer service employees to notify them of upcoming “restructuring” and “streamlining” measures to be announced shortly with cost out measures featuring prominently during the recent Q1 reporting season as companies look to protect margins.

Wesfarmers (WES) hosted their Investor Strategy Day last week with CEO Rob Scott saying the company’s brands (Bunnings, Kmart, Target, Officeworks, and Priceline) remain well placed to ride out what he expects will be an increase in cost conscious consumers and that their businesses were in good shape. As one our largest employers with around 107,000 staff Scott issued a warning on jobs and wages pressures saying worker productivity had fallen since COVID because of absenteeism, some labour shortages, and that working from home had also created “challenges”. Mr Scott also cautioned that new workplace regulations from Canberra and payroll tax increases in Victoria by federal and state Labor governments would drive up the cost of business.

The Week Ahead

Domestic economic highlights this week include the Reserve Bank of Australia’s June meeting tomorrow where odds of another interest rate hike have increased but remains a very close call either way. Our Q1 GDP data is on Wednesday with expectations for a 2.3% annual economic growth rate, down from 2.7% growth in Q4.

International highlights include China Caixin Services PMI and Japan Services PMI today. Eurozone PPI is tonight along with U.S Factory Orders and the ISM Services PMI. Tomorrow night has German Manufacturing Orders and Eurozone Retail Sales. China Trade Balance is Wednesday and German Industrial Production Wednesday night. China Loan Growth is Thursday with U.S Wholesale Inventories Thursday night. With China CPI and PPI on Friday.

Corporate reporting is quiet again this week with just an Annual General Meeting for Freeport McMoRan on Wednesday.