Equity markets rise on Fed speak

  • Local and global equity markets trended higher this week with investors reading into US central bank minutes that a rate hike slowdown or pause may be on the cards come the September quarter.
  • In local stock news, Crown Resorts shareholders overwhelmingly approved its takeover by US private equity group Blackstone for $13.10 a share.
MARKETS
  • Incitec Pivot shares fell after the company announced plans to spin its fertiliser business into a new company, Incitec Pivot Fertilisers, and will rename itself Dyno Nobel, after its mining explosive subsidiary. Not sure how this benefits shareholders.
  • Tabcorp traded this week as two separate companies for the first time, with the lotteries business spun out and trading as The Lottery Corporation, whilst the wagering assets remain with Tabcorp.
  • BHP shares fell during the week as its share went ex-dividend from the demerger of its oil business to Woodside.
  • Fisher & Paykel Healthcare shares fell after the respiratory products company declined to give any guidance for fiscal 2023, given the uncertainty regarding covid in the period ahead and the possibility its hospital customers might face more personnel shortages.
  • The Aussie dollar rose against the US dollar on rising expectations of the US central bank fading their rate hike program later this year.
  • The oil price took another leg up this week as US petrol demand is likely to be high over Memorial Day long weekend whilst US officials talked up banning US oil exports.
ECONOMICS
  • Total Australian construction work done fell by 0.9% in Q1 with building construction the major drag. Engineering construction also contracted. Both private and public sector work fell.
  • Australian private sector capital expenditure volumes fell by 0.3% in the 1st quarter, with both mining and non-mining investment falling by the same amount. The outlook for business investment remains strong, but headwinds of capacity constraints and rising costs will hurt.
  • A key US central bank official said they expect the bank to raise interest rates to 2% by August. That would imply another two 0.50% rate hikes over the coming months, which the market has already priced in. Uncertainty remains as to where rates head after that, with some members citing a pause or slowdown in rate hikes may be necessary come September.
  • The US central bank minutes from their May meeting showed broad agreement from members regarding moving rates higher and faster towards a more ‘neutral’ stance, that the US economy was very strong with a tight labour market, but that risks remain with the Ukraine conflict, China’s covid-zero stance, and restoring price stability given very high inflation.
  • US existing home sales in April fell 2.4% from March levels, boosting inventory of unsold existing homes to 1.03 million homes. First home buyers were the largest component of sales at 28%.
  • The US economy contracted at an annualised 1.5% in the first three months of 2022, slightly worse than initial estimates of a 1.4% decline, with the biggest drag coming from trade.
  • Most market predictions now have a 30-40% of the US entering recession sometime in the next 2 years. The US central bank will need to convince investors it can tighten monetary policy and reel in inflation without tipping the economy into a recession. Not an easy task.
  • A US manufacturing indicator fell in May from the previous month, coming in at the lowest level in 4 months and below market expectations. The reading remains at expansionary levels, but the pace of expansion was weight down by hikes in selling prices and concerns over higher rates. The rate of growth in new sales was the slowest since August 2020.
  • The European central bank president said that the bank was likely to lift the Euro area deposit rate out of negative territory by the end of September and could raise it further. Recession fears will need to be overcome.
  • UK consumer confidence fell to its lowest level in at least 48 years after surge in cost of living. Falling consumer confidence would usually result in more fiscal stimulus, but it can’t when you’ve got inflation surging and central bank needing/wanting to raise rates.
  • Chinese banks cut a key interest rate for long-term loans by a record amount. The cut is a significant move to boost loan demand. The lower rate will be applied to new mortgages immediately whilst existing mortgages won’t be repriced until next year at the earliest.
  • China will offer more than US$21 billion in additional tax relief mainly aimed at businesses as it seeks to offset the severe impact of covid-zero policies on the economy.
POLITICS
  • Labor’s Anthony Albanese is the 31st prime minister of Australia after the weekend’s federal election results with Labor yet but likely to form government, breaking the Coalition’s almost decade long run. Interestingly, both major parties received some of the lowest primary vote totals seen in some time. Four seats are still yet to be called.
  • The Chinese Premier gave his starkest warning yet about the economy as it comes under severe strain from covid outbreaks and lockdowns. He said the situation is worse than in 2020 and urged more efforts to reduce a soaring unemployment rate.
  • The US energy secretary said the Biden administration hasn’t ruled out a ban on oil exports to tame domestic fuel prices.