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Markets retreat on hawkish Fed comments

  • Local and global equity markets fell this week following US central bank comments regarding reductions in their balance sheet, which appeared to be earlier and larger than the market was expecting.
  • Government bond yields surged again this week as markets continue to aggressively price in significant central bank rate hikes this calendar year to fight off rising and high inflation.
MARKETS
  • In local stock news, an NSW planning panel has approved extending the life of Whitehaven Coal’s mine at Narrabri. The decision extends the mine life from 2031 to 2044, as long as the miner limits carbon emissions.
  • Ampol and petrol station operator EG have dropped their legal claims against each other, with the 2 companies previously disputing terms relating to EG’s purchase of a Woolworths fuel business in Ampol will be the exclusive supplier to stores within the EG Australia network.
  • Listed wealth manager Perpetual has made an offer to acquire competitor fund manager Pendal Group for an indicative $6.23 per share, at the time of The scheme of arrangement would include both shares and cash, giving Pendal shareholders 48% ownership of the combined company. Perpetual will need to up their bid to get the deal done, whilst the bid is likely to attract other suitors.
  • Iron ore crusher and lithium miner Mineral Resources said it will increase production at its 2 lithium mines in WA to meet surging demand and take advantage of sky-high spot prices.
  • Magellan Group shares rose after the company reported fund outflows had started to abate with about $1 billion in funds leaving the business during March.
  • Oil prices weakened as members of the International Energy Agency agreed to join in the largest ever US oil reserves release. Member countries did not agree on volumes or commitments of each country at their The move comes after OPEC+ stuck with their planned production increase amid calls for them to significantly increase production.
  • The Aussie dollar fell this week as the US dollar rose on the back of hawkish policy comments and sentiment from the US central bank.
 
ECONOMICS
  • The Reserve Bank of Australia left the cash rate unchanged at 10% as expected. Their post-meeting statement seemed to give a green light to their first interest rate hike in the coming months. They are closely watching inflation and particularly wage trends.
  • Australian dwelling prices rose by 0.3% across the 8 capital cities in March, with annual growth now sitting at 3%. Sydney and Melbourne saw small declines whilst strong gains were recorded in Brisbane, Adelaide, Perth, and Canberra.
  • New home lending, excluding refinancing, fell by 7% in February with lending down across owner-occupiers, investors, and first home buyers. The level of lending is still elevated but the monthly fall shows signs of a cooling market.
  • The Australian trade surplus narrowed to $7.46 billion in February from the downwardly revised $11.79 billion in January. A lift in imports drove the drop, with consumption and intermediate goods rising Exports were flat for the month.
  • The US economy added 431,000 jobs in March 2022, below market forecasts of 490,000, but still pointing to a tight labour market. Most of the job gains came from sectors that were hardest hit by Figures for February were revised sharply higher to 750,000 job gains, whilst the January number was also revised higher to 504,000. Employment remains down by 1.6 million from its pre-pandemic level.
  • A governor of the US central bank said the Fed would start reducing its bond holdings as soon as next month and at a rapid pace, likely to be US$95 billion per month. This coincides with talk of overly aggressive rate hikes.
  • Inflation in the Euro area accelerated to 7.5% in March, the highest level since the formation of the currency bloc, from a revised 5.9%. The European central bank’s projection for inflation is 1% for the year. Markets are pricing in more than 0.5% of interest rate increases this year. Hard to see unless there is a quick end to the Russia/Ukraine conflict.
  • China’s services sector shrunk at the fastest rate in 2 years in March as the government’s covid protocols restricted mobility and weighed on demand.
  • China signaled it would further loosen monetary policy and explore new measures to boost consumption as authorities battle an escalating covid outbreak, a slumping property market, and spiking commodity prices. The central bank said it would set up a stability fund to provide support to troubled financial firms.
 
POLITICS
  • Support for Russian President Putin has surged among Russians according to a poll in the Whether true or not, who knows. Putin said he would keep supplying gas to European customers, payment in Rubles of course, and is also offering oil to India at big discounts. However, new sanctions against Russia are under discussion.
  • Australia formally signed a trade deal with India as the 2 nations signaled an intention to forge closer trade ties. Negotiations have been in the works for decades. The Federal government rightly seeking to diversify our export markets and reduce Australia’s dependence on China.
  • China’s covid-zero crisis is deepening as a lockdown in Shanghai intensified over the weekend amid a surge in new cases. In other news, Hong Kong Chief Executive Carrie Lam said she wouldn’t seek a second term.
  • The US is apparently seeking to realign its commercial ties with China rather than seek a separation, according to the US trade chief. Her comments follow a congressional hearing last week where she said discussions with China had become difficult.