24 APR 2023 – Monday Market Highlights – Transcript

Good morning its Monday the 24th of April and I am Kate from Milford.

This week in economic news.

US jobless claims were higher at 245k, the highest jump since November 2021. The weaker data points to a possible recession starting in the next few months.

US housing starts fell 0.8% in March, reserving the large gains experienced in February, with declines driven by the multifamily sector, while single family starts where up 2.7% month on month.

UK wages inflation unacceptably spikes to 6.6%, adding to inflation pressures. This comes on the back of the recent inflation print of 10%. these data readings increase the likelihood of a rate hike from the bank of England in May. Also out of the UK, the unemployment rate increased from 3.7% to 3.8%.

In New Zealand, inflation was softer than expected coming in at 6.7% vs 7.1% expected and down from 7.2% previously.

In Australia, the highly anticipated review in the RBA has been released which offered 51 recommendations, which the government said they support them all in principle.

Overall, the recommendations were largely in line with expectations with no changes in the RBA’s 2-3% inflation target, but changes in the board and governance.

The new Board will comprise the RBA Governor and Deputy Governor, alongside six external members with expertise in macroeconomics, the financial system, labour markets or the supply side of the economy.

The new monetary board will meet 8 times per year vs the previous 11 time a year follow by press conference. Which is more in line with global peers.

The RBA will also have a dual mandate for price stability and full employment with equal weighting on both.

At the margin the changes are hawkish and given the inflation outlook, we are likely to see higher rates in the future.

In equity news

Tesla released its first quarter FY23 results last week. where they announced further cuts to their EV prices to bolster demand. The automotive gross margin, driven by the price cuts, fell more than the market expected. And management did not rule out further price adjustments. This shows the EV sector as elements of cyclical-sensitivity despite being early in its penetration curve. Tesla’s share price was down almost 10% on the back of this result.

Star entertainment group downgraded FY23 guidance, with EBITDA cut by about 15%, they also announced a reduction of 500 full time employees and froze all non-EBA employee salaries.

This comes as another setback to the business which is already facing political scrutiny, regulatory headwinds and fines from AUSTRAC.

Several resource sector quarterlies were released this week. most notably, Rio tinto saw mixed results with strength in Iron ore driven by record volumes, but softness across other commodities such as copper.

Lithium producer, Allkem result was mixed with higher-than-expected production offset by lower shipments and lower realised pricing. Mgmt. decided not to sell into the current weak Chinese spot market as they remain of the view the underlying market is solid.

And Santos, posted an in-line production result and strong revenues, about 5% ahead of expectations driven by strong LNG realised pricing. But moving forward the market is focused on the PNG LNG sale which is expected to finalise in the next few weeks.

Turning to the week ahead.

We can expect the Australian quarterly inflation print this week, a key data point the RBA is monitoring to inform its next cash rate decision. Inflation is forecast to be 6.9% down from 7.8% previously.

US data next week include the Durable goods order which is forecast to be 0.8% month on month, US DP growth rate, which is expected to be 2%, down from 2.6% last quarter. And finally, US core PCE Price index, forecast to be 4.5% year on year, down slightly from 4.6%.

And finally, the Euro area GDP growth rate will be released, it is expected to be 1.4% down from 1.8% previously.

Thanks for listening and we will see you next week.