Investors fret awaiting US inflation data

Blog
Friday 10th June 2022

Investors fret awaiting US inflation data

Blog
Friday 10th June 2022
Written by Chris Lioutas

Markets:

  • Local and most global equity markets fell this week as investors fretted over pending US inflation data following reasonably strong US labour market data. Asian equity markets were the one highlight.
  • In local stock news, hospital and pathology operator Healius shares fell after the company said 1st half trading had been strong but that it expected more difficult market conditions in the 2nd half of the year.
  • Bank shares fell this week following the Reserve Bank of Australia’s aggressive rate hike with investors concerned that lending would continue to fall putting pressure on already weak profit margins, whilst concerns regarding the outlook for bad debts. 
  • Magellan shares fell this week, after mounting somewhat of a recovery more recently, with the company announcing that funds under management dropped 5.3% last month. Most of the fall was market movements as opposed to fund outflows, but the market didn’t seem to care. The company also announced that Hamish Douglass would return in a consultancy role, ceasing to be an employee, whilst the new CEO’s start date has been brought forward to July 19.
  • Toll road operator Atlas Arteria shares soared to a 2-year high after industry fund investor IFM Investors took a 15% stake in the company leading the market to believe that a takeover is on the cards.
  • OPEC+ has agreed to increase supply over the coming months with a modest boost of 0.4%. At this stage, any additional supply is good, but the quantum of the increase won’t do a whole lot to ease tight oil markets, with oil prices rising strongly during the week as Saudi Arabia raised selling prices and strong US demand.

Economics:

  • The Reserve Bank of Australia shocked economists and markets with a 0.50% rate rise to 0.85% at their June meeting. Expectations were for a 0.25%-0.40% rise at the lower and upper end. The bank clearly accelerating its rate hike path as their window of opportunity shrinks. This could mean we end the year with cash rates closer to 2% if they continue at the current pace.
  • New lending for Australian housing fell by 6.4% in April and is now flat on a year ago, with lending to owner occupiers falling by 7.3% and 4.8% for investors. First home buyer lending is now down almost 30% over the year, whilst the fall in new lending for investors was the first since June 2021. Refinancing fell by 2.6% in April.
  • Australian personal lending finance fell by 3.7% in April, with falls in personal investment and lending for motor vehicles driving the fall, which was partly offset by a rise in lending for travel.
  • A key US financial conditions indicator, a gauge of market stress equities and bonds, has actually eased a little to levels seen before the US central bank’s first rate rise. The indicator remains negative (ie. conditions are tightening), but the improvement may force central bank to get more aggressive in their rhetoric and action.
  • The US trade gap narrowed in April to US$87.1 billion, shrinking more than economists had forecast, after reaching a record deficit in the prior month.
  • The US economy added 390,000 jobs in May, the least since April last year but above market expectations. Last week also saw the release of weaker than expected private jobs numbers. The latest reading left the economy 822,000 jobs below its pre-covid level, with unemployment at 3.6% and wages up 5.2% on the year, a sign that the labour market remains resilient.
  • New data showed that US mortgage applications fell to its lowest level in 22 years last week. Whilst 30-year fixed rate loans remain low for existing borrowers, rates have soared for new borrowers.
  • The European central bank chose to keep rates on hold at their June meeting but flagged that they’re likely to raise rates at their next two meetings in what will be there first rate rise in more than a decade. The Bank also announced an end to new money printing on 1 July, whilst revising up their inflation forecasts and revising down their economic growth forecasts.
  • European sentiment was hit by disappointing economic data including German factory orders and UK retail sales figures.
  • The World Bank cut its forecast for global economic growth in 2022 further, warning that we could see several years of above average inflation and below average growth (ie. prolonged stagflation). The Bank reduced its estimate for global growth to 2.9% for this year, down from their 4.1% prediction in January. The OECD also cut their growth forecasts by 1.5% to 3%.
  • Consumer prices in OECD countries reached 9.2% in April on the same time last year. The same reading was 8.8% in March and just 3.3% a year ago. An acceleration in food and services prices is behind the latest increase in prices.

Politics:

  • The Chinese government has ordered state-owned banks to set up an 800 billion yuan line of credit for infrastructure projects as it looks to stimulate the economy out of lockdown in an attempt to meet their 5.1% economic growth target for the year.
  • British PM Boris Johnson survived a no-confidence vote in his leadership with 211 voting in his favour and 148 against. That’s 41% vote against him by his own party. Good luck surviving that. The PM then pushed ahead with legislation to override parts of the Brexit deal, looking to rewrite the Northern Ireland Protocol, arguing that it hadn’t expected the EU to implement it so strongly.
  • The Australian military said a Chinese aircraft had flown in a dangerous manner beside one of its surveillance aircraft on May 26. China’s defence ministry countered, telling Australia to stop provocations or face serious consequences, denying the Australian government’s allegations that the incident happened.


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

Disclaimer: This material has been prepared without considering any potential investor's or clients objectives, financial situation or needs. This article is of a general nature and does not consider the individual circumstances of its recipients. Any information contained within this publication should not be misinterpreted as advice in any way. Please consult your financial advisor should you have any questions or concern