Equity markets weaken as inflation concerns rise

Blog
Friday 21st January 2022

Equity markets weaken as inflation concerns rise

Blog
Friday 21st January 2022
Written by Chris Lioutas

Markets:

  • Local and global equity markets were weaker this week as investor concern rose regarding higher inflation and the likely subsequent reaction from central banks.
  • In local stock news, Wesfarmers is on course for 1st half earnings that will satisfy investors, but the pandemic has hampered Kmart and Target sales. The group’s department stores’ sales were down more than 10%.
  • JB Hi-Fi shares gained after 2nd quarter sales improved, with 1st half profit forecast to be down almost 10% with the period including temporary store closures.
  • Rio Tinto forecast greater iron ore exports in 2022 and is assuming the worst of the pandemic is over for its workers.
  • Santos and Woodside gave 4th quarter reports which showed improved sales, with Santos boasting record sales helped by its takeover of Oil Search, whilst Woodside benefited from higher oil prices and sales which improved 86% on the same time a year earlier.
  • Oil prices extended gains during the week to the highest level in 7 years as geopolitical tensions stirred in the Middle East and concerns about demand as virus restrictions are eased. The aggressive transition away from fossil fuels may be coming home to roost in the form of very high oil prices, which won’t help current inflationary concerns.
  • The Aussie dollar fell as the risk sentiment soured and the prospects of the US central bank tightening policy earlier and faster than previously expected.

Economics:

  • Australian consumer confidence tumbled to its lowest level since October 2020 as consumers worried about the virus. Consumer sentiment fell by 2% in January, with the fall in sentiment smaller than the last few variant outbreaks.
  • Australian job vacancies rose 18.5% in the 3 months to November, 74% higher than they were pre-pandemic. Staff shortages due to Covid health policy and ongoing issues around the supply of labour are now the primary concern facing the labour market.
  • December labour force data was very strong across all measures, with employment lifting by 64,800, whilst the unemployment rate dropped to 4.2%, the lowest since mid-2008. The participation rate was unchanged.
  • Home lending for Australian housing surprised in November rising by 6.3%, with both owner occupier and investor lending increasing in the month. New personal lending rose by 2.0% in November, with data showing a solid rise in lending for holidays and cars.
  • Australian dwelling commencements fell by 16% in the 3rd quarter but are still almost 31% higher than a year ago. Commencements of both houses and apartments were lower in the quarter.
  • New analysis from Deloitte suggests the Australian economic pain caused by the current virus wave will not be as severe as the downturn caused by official lockdowns through 2020 and 2021. Deloitte is forecasting 4% economic growth in 2022. 
  • US consumer prices (headline inflation) accelerated at the fastest pace since 1982 in December, hitting an annualised 7%, up from 6.8% in November, and likely forcing the US central bank’s hand to end their stimulus program earlier than previously expected. Main drivers of the spike in prices included food and car prices.
  • The UK posted higher than expected inflation with the December reading coming at the fastest rate in 30 years. Annual inflation in increased to 5.4% in December from 5.1% in November and above market forecasts. Cost of food, furniture and household goods, and clothing and footwear led the way.
  • Data showed that the Chinese economy grew 4% in the final quarter of 2021, from the same period a year earlier, coming in higher than the 3.3% rise projected but lower than the previous quarters growth.
  • The Chinese central bank lowered a key interest for the first time since 2020 as a property market slump and repeated virus outbreaks dampened the nation’s growth outlook. They also made new funds available (US$110 billion) via their medium-term lending facility, exceeding the previous amount offered.

Politics:

  • The US House is preparing to move forward on a China competitiveness bill that would authorise billions of dollars in funding to boost US research and development as well as aid for their domestic semiconductor industry.
  • North Korea fired two more suspected ballistic missiles as it continues its biggest series of rocket tests since August 2019. Show of force or trying to goad the US into a reaction.
  • Voters have apparently soured on PM Scott Morrison and his party room ahead of the next federal election. A poll shows the Coalition primary vote has fallen from 39% to 34% while Labor’s has risen from 32% to 35%.
  • UK PM Boris Johnson faces a growing rebellion from his party’s parliamentary group that threatens to further weaken his hold on the leadership.  


Author 

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

Maxim Private Clients Pty Ltd ABN 47 611 614 398 AFSL No. 511972

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