10 JUL 2023 – Monday Market Highlights – Transcript

Good morning its Monday the 10th of July and I am kate from Milford.

This week in economic news.

The RBA kept rates on hold in July at 4.1%, with market expectations largely balance between hold and 25bps rise. Interestingly, most economist have kept their peak rate assumptions unchanged and therefore pushing peak rates to later in the year. What was more surprising to the market was the dovish statement by the governor which highlighted the cumulative impacts of prior rate rises as rationale for the pause in rates.

Moving to the US, employment data showed the US economy continues to be resilient with a big ADP Employment beat and JOLTS data showed falling vacancies and job cuts are at an 8-month low. ISM Services PMI came in stronger than expected at 53.9 vs 51 expected. However, ISM Manufacturing PMI data was soft, in fact the weakest level in more than three years.  Employment also remained strong with the unemployment rate coming in 0.1% below previous at 3.6% which was in line with expectations.  More importantly, the economy added 209 thousand jobs in June 2023, following a downward revision of 306 thousand in May, and below market forecasts of 225 thousand. This is the lowest reading since December 2020, But is still strong relative to the 70 to 100 thousand jobs needed per month to keep up with the growth in the working-age population.

Finally on US economic news, the Fed minutes showed a less united board at its June meeting, with some officials favouring a 25bps increase but went along with the decision to pause. Almost all members said that additional increases would likely be appropriate

In equity news

The ASX200 was down -2.24% last week with nearly every sector down as macro volatility and central bank uncertainty continues to mount.

Despite this, M&A activity and updates to existing deals evolved last week, including a $1.2bn buyout proposal for Costa Group from PSP and United Malt Group also entered into a scheme implementation deed under which Malteries has agreed to acquire 100% of the shares for a 45.3% premium.

JLG announced the acquisition of two essential home services companies, Smoke Alarms Australia and Linkfire for a total upfront consideration of $62m funded via a $65m equity raise. The acquisition reportedly created a new growth vertical for JLG which supports its existing business.

Suncorp disclosed new reinsurance risk to the market which was not as bad as feared. They announced a 12% increase in reinsurance and natural hazard allowance. Earnings will have more volatility as they are covering less with reinsurance and taking more risk on their own book.

Finally, Redox listed this week, with a $400m raise and $1.3bn market cap. Redox is a supplier and distributor of chemicals, ingredients, and raw materials. on the first day it closed off 5% and closed the week off about 6%

Turning to the week ahead.

The most important data print to look for is the US inflation rate. Core inflation is forest to fall 0.3% to 5% for June. And headline inflation is forecast to be 3.1% which is a 0.9% decline from May.

In the UK, the unemployment rate is expected to remain flat at 3.8%

And in Australia the RBA governors speech will be released, providing details on last weeks interest rate decision.

Thanks for listening and we will see you next week.