- Local and global equity markets fell this week as US equity volatility and central bank rate rises hit investor sentiment.
- US corporate profits are on track to rise 7% for the 1st quarter, which would be the lowest year on year earnings growth rate since the last quarter of 2020. Still, more than 80% of companies that have reported to date have beaten analyst expectations.
- In local stock news, ResMed shares dropped after the respiratory care device manufacturer announced that higher freight and manufacturing costs had reduced its profit margin in the March quarter.
- Qantas shares rose to a 2-month high after the airline said it was seeing a strong and sustained recovery in travel demand as Australia transitions to living with Covid and expects a return to profitability next fiscal year. The airline also announced plans to acquire charter flight operator Alliance Aviation for $919 million.
- Woolworths shares rose after the supermarket giant said 3rd quarter group sales were up almost 10% compared with the same time a year ago, despite ongoing supply chain disruptions.
- ANZ Bank has reported a $3.5 billion profit after tax for the half-year ended 31 March, up 10% on the previous half. The proposed interim dividend remains unchanged. NAB reported a net profit of $3.6 billion for the same period, with cash earnings up strongly.
- JB Hi-Fi shares fell after the electronics retailer declined to offer full-year sales and earnings guidance. The company said it was experiencing strong sales growth but couldn’t be sure of stock availability.
- Shopping centre owner Vicinity Centres shares lifted after announcing retail sales during the March quarter rose 11.2%, compared with the same period in 2019, pre-pandemic.
- The oil price rose strongly this week as Europe announced plans for a complete embargo on Russian oil & gas.
- The Reserve Bank of Australia raised the cash rate by 0.25% to 0.35%, as expected. The Board’s statement confirmed more rate rises to come given their inflation forecasts have been revised up. They also confirmed that their balance sheet will begin to decline as they don’t plan to reinvest the proceeds of maturing bonds. The Big 4 banks have all announced they will pass on the interest rate hike.
- Australian retail trade increased by 1.6% in March to be 9.4% higher than a year ago. The result came in stronger than expected. Some of the strength was due to increased prices, given rise in inflation. Household goods retailing was the main driver of the result, followed by other retailing, and cafes & restaurants. QLD, NSW, and WA recorded the strongest results whilst SA was the only state to record a drop.
- Dwelling prices rose by 0.3% in April across the 8 capital cities, with annual growth now sitting at 14.6%. Price moves were mixed between capital cities with Sydney and Hobart falling while Brisbane and Adelaide rose.
- New lending for housing rose by 1.6% in March, but the annual pace of growth continued to decline. The March figure came in well above expectations of a 1.9% fall. Lending to investors drove the increase for the month, though owner occupier housing lending did also pick up. The strongest growth came from outside of NSW and VIC. Total lending to households is now 11.1% above a year ago.
- Australian private sector credit growth slowed in March taking the annual rate to 7.8%. Housing credit growth remained steady at 0.6% and personal credit growth fell. Whilst business credit growth rose in the month, it rose at half the pace it did in February. Expect falls in housing credit growth in the period ahead.
- Australian goods export prices surged by 18% in Q1 and by 46.7% over the year (commodity and energy prices), whilst goods import prices also rose, up 5.1% and 19.3% respectively (petroleum, fertilisers, coffee). This will mean a big terms of trade number and will add significantly to Australian economic growth in the quarter.
- The US central bank raised the cash rate target by 0.50% to 0.75-1.00% at its May meeting, the second consecutive rate hike and the biggest rise in borrowing costs since 2000. Chair Jerome Powell made it clear they’re not considering a bigger rate hike in the period ahead, easing expectations.
- With Beijing deploying increasingly more covid-zero restrictions, Fitch Ratings has cut their forecast for China’s 2022 economic growth to 4.3% from 4.8%, against the Chinese government’s 5.5% growth target. Hong Kong has indicated that strict covid rules will be eased in May.
- A key indicator of Chinese economic health has plunged in April, a 2nd straight month of fall and the steepest contraction since the onset of the pandemic in February 2020. Both manufacturing and services activity shrank at faster rates. Employment fell slightly.
- US tariff relief on China is now under consideration at the White House as the Biden administration deals with the highest US inflation since the early ‘80s.
- US regulators added more than 80 companies, including some fairly large names, to an expanding list of firms that face possible expulsion from US stock exchanges because of Beijing’s refusal to allow access to the businesses’ financial audits.
- A European / Chinese summit apparently didn’t go to plan with the Europeans going into the meeting with a single priority to persuade Beijing to stop Putin. That degree of hubris was never going to end well for the Europeans but has become increasing commonplace in European diplomacy. European focus needs to be on solving for their dependency on Russian oil and gas.
Chris Lioutas, Director, Insight Investment Consultants
Chris holds the position of asset consultant for Maxim Advisors and is a current sitting member of Maxim's investment committee.
With permission of the author, this article is presented by Maxim Private Clients Pty Ltd ASFL No. 511972
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