17 JUL 2023 – Monday Market Highlights – Transcript

Good morning, it’s Monday the 17th of July and I’m Nick from Milford. Looking at the key economic news from last week:

Domestically on Friday it was announced that the current RBA Governor Phil Lowe will not renew his tenure and that he will finish his term in mid September as scheduled. The role will be filled by Deputy Governor Michelle Bullock, who has been appointed to for the next 7 year term. The market will be watching closely to understand where Michelle sits on dove/hawk spectrum.

Moving to US we had the June inflation numbers out, both headline and core came in softer than expected. Headline inflation slowed to 0.2% m/m, below consensus of 0.3% and down from 0.4% in May. Core inflation, the more important measure for the FED, also slowed to 0.2% m/m, below consensus of 0.3% and the softest print since February 2021. There were large market movements post the soft print with equities higher, Us treasury yields lower and the USD materially weaker. The print giving the market further hope that the US economy can manage a soft landing.

We also had a strong preliminary University of Michigan consumer sentiment survey out for June, rising for the second consecutive month to 72.6, well above forecasts of 65.5. Current economic conditions improved to (77.5 from 69) and consumer expectations to (69.4 from 61.5. importantly the 5 year inflation expectations edged slightly higher to 3.1% vs 3% last month. The strong print pushes the case for further tightening, at odds with the soft inflation print earlier in the week.

Lastly in the US we also had the NFIB business optimism index out for June, a survey of small business owners in the US that measures the expectation and outlook for the economy, sales and employment among other factors. The index rose more than expected in June to 91 vs consensus of 89.9 and up from 89.4 in May. Its worth noting that the share of small firms raising prices fell to the lowest level in more than two years and that Inflation continues to be the most important concern.

In the UK we had the employment data coming in softer than expected. The number of people employed was below expectations coming in at 102k vs consensus of 125k. The unemployment rate was also after than expected coming in at 4% vs consensus of 3.8%. We also had UK wage growth numbers out with average weekly earnings excluding bonuses up 7.3%, further strengthening the view that the bonk of England will hike 50bps in August.

Finally in NZ we had the RBNZ interest rate decision where after 12 consecutives hikes, Adrian Or kept the OCR unchanged at 5.5%. details in the statement noted that inflation is expected to continue to decline from its peak’ and that ‘there are signs of the labour market easing.

Turning to equity news

Viva Energy reported a soft Q2 with the key driver being on going impacts of the refinery turnaround at Geelong. Group EBITDA was $360m, 16% below consensus. The key driver of the miss was the Geelong refinery margin being impacted by higher operating costs largely due to shipping activities and the need to purchase product to replace Geelong volumes. Viva reiterated that they expect these issue to be short term and for the refinery to return to full operation in September.
Neuren pharmaceuticals was up 17% on Friday after it was announced that Arcadia will now have the exclusive licence for Trofinetide globally. Neuren are to received UUS$100m upfront + potential milestone payments up to US$427m US as well as royalties.
Megaport shares were up X$ on after a positive update outlining to the market their new profitability strategy focussing on cost out and stabilising rveneue. They upgraded they guidance with underlying EBITDA now expected to be 19-21m up form the previous 16-18m.
Global earnings kicked off last week with good results from the banks on Friday. Among that banks that reported JPM beat on most metrics and guided to higher net interest income for the year and Wells Fargo all raised NII and noted that they see little sign of systematic weakness across the commercial portfolio.

Looking at the week ahead,

It’s a busy week of earnings on the global front, naming a few we have Morgan Stanely on Tuesday, Goldman Sachs, Tesla and Netflix on Wednesday and TSMC on Thursday and American Express on Friday.
On the macro front:
On Tuesday we have the RBA minutes of which the market will be watching closely to analyse how the RBA sees the outlook for rates.
On Wednesday we have the US retail sales, UK inflation and NZ CPI.
And finally we have the Australian employment data out on Thursday.

Thanks for listening, we’ll see you next week.