12 JUN 2023 – Monday Market Highlights – Transcript

Good morning, it’s Monday the 12 June and I’m Nick from Milford. Looking at the key economic news from last week:

Domestically we had the RBA interest rate decision for June, where they decided to hike rates a further 25bps bringing the cash rate to 4.1%. This was a surprise to the market, with expectations set on another pause. The key driver of the hike was to give the RBA greater confidence that inflation will return to targets levels after recent strong data prints indicated further upside risks to inflation. It’s also worth noting that the final paragraph remained unchanged to prior statements noting that further tightening may be required, while remaining data dependent.

Continuing in Australia, Q1 GDP growth came in at 0.2% q/q, below consensus of 0.3%. Although still indicating economic growth, the pace continues to slow.

In the US we had a weak ISM services print falling to 50.3 in May down from 51.9 in April and below forecasts of 52.2. Details were soft across the board with new orders down to 52.9 from 56.1 and business activity and new export orders also decreasing.

Moving to the EU, GDP unexpectedly contracted in Q1 coming in at -0.1% v expectations of 0%. Details showed household and public sector expenditure decreasing. After the revision down in Q4 2022, this is the 2nd consecutive quarter of negative growth for the EU.

We also had the China inflation print coming in slightly below expectations for May at 0.2% y/y compared to expectations of 0.3% and a print of 0.1% in April.

Turning to Equity news:

It was a busy week in the NZ market, on Tuesday we had EBOS announce that they lost their major contract with the Chemist Warehouse to Sigma group, which is coming up for renewal in June 2024. It’s worth noting that Sigma included equity in their deal, giving Chemist Warehouse approximately 10% ownership post issuance.
On Wednesday Infratil announced that they will acquire the remaining 50% of One NZ (previously known as Vodafone NZ) from Brookfield for $1.8b. The funding for this included an $850m equity raise, at $9.20 a share.
On Friday we also had the Auckland council vote in favour of selling down 7% of their 18% stake in Auckland International Airport as part of a plan to reduce local government debt. This mean a sale of c103m shares for $875m.
ASX Limited had a downgrade at their investor day on Tuesday where they talked through a new tech strategy. They noted increased capex requirements, increased cost growth, they trimmed the dividend payout policy and will raise 200-300m in debt to give balance sheet flexibility.
Baby Bunting came out with a downgrade at their trading update last week noting very weak sales. They downgraded their guidance and talked to comparable store sales being down -4 to -5% of the current trend continues.

Looking at the weak ahead, it’s a busy week on the economic front,

On Tuesday we have the US inflation print out for May and UK employment data.
On Thursday the US interest rate decision and FOMC economic projections will be key to watch. We also have the Australian employment data out on Wednesday which the RBA will watch closely.
Later in the week we have US retail sales out with expectations of -0.1% for May.
The ECB interest rate decision is also this week with the market pricing in a 25bps. Hike.
We have the final EU inflation print for May
And In the US we have the preliminary University of Michigan sentiment survey out on Saturday.

Thanks for listening. We will see you next week.