US Fed hawkishness sees US dollar falter

Blog
Friday 20th May 2022

US Fed hawkishness sees US dollar falter

Blog
Friday 20th May 2022
Written by Chris Lioutas

Markets:

  • A mixed week in equity markets with global developed markets lower, the Australian market flat, whilst Asian and emerging markets saw investor support as the US dollar weakened.
  • In local stock news, Viva Energy shares rose to all-time high after the Shell petrol station operator announced that it was enjoying unprecedented profit margins from its Geelong refinery, which allows the company to import crude oil rather than rely on overseas refineries.
  • Brambles shares surged to an 8-month high after the pallet’s giant confirmed it had received an unsolicited tentative takeover offer from global private equity firm CVC Capital Partners. CVC later confirmed that they would not be pursuing a takeover. Aussie companies with lazy boards/management getting picked off by cashed-up foreign raiders. More to come.
  • James Hardie shares fell after the building products company announced sales of US$3.6 billion in the 12 months to end of March, up 24% from a year ago but slightly below market expectations. The company reaffirmed it’s 2023 financial year guidance.
  • Andrew Forrest will take the reins of the company he founded almost 20 years ago after an extensive global search for a new leader failed to yield a better alternative, as current CEO Elizabeth Gaines exits the role in August.
  • Woodside Petroleum shareholders overwhelmingly approved the company’s $41 billion merger with BHP at Woodside’s annual general meeting in Perth. Shareholders also backed a name change to Woodside Energy.

Economics:

  • Australian wages grew by 0.7% during the March quarter according to the Australian Bureau of Statistics. The lift was slightly below market expectations but did move the annual rate up to 2.4%. Private sector wages came in above public sector wage growth in the quarter. Interestingly, wages growth is not yet broad based and real wages growth (net of inflation) are deeply negative.
  • The Australian economy added 4,000 jobs in April, coming in well below market consensus, with a sharp decline in part-time employment. By state, there were small gains in NSW and VIC, whilst there were falls elsewhere. The unemployment rate was unchanged at 3.9% given the downwardly revised March number.
  • The ANZ bank has made a major revision to its house price forecasts for 2022 with a fall of 3% now expected on average across the 8 capital cities. Contrast that with their previous prediction of an 8% rise in 2022. The Australian housing market is always very sensitive to rate movements given the predominance of variable rate loans.
  • The US central bank chair reaffirmed that the bank is likely to raise interest rates by 0.5% at each of its next 2 meetings in June and July in an attempt to bring inflation under control. He said the bank was prepared to hike until there was clear and convincing evidence that inflation was starting to roll over.  Those signs may be nigh.
  • US data showed signs of economic resilience, with US shoppers increasing retail spending in April for the 4th consecutive month, whilst US home prices reached a high in April. In contrast, new applications for unemployment benefits rose for the 3rd week in a row whilst the number of home sales fell.
  • According to the Institute of International Finance, the world economy will essentially flatline this year as Europe heads towards recession, China slows, and US financial conditions tighten.
  • Annual inflation in the UK jumped to 9% in April, the highest level since 1982, prompted by rising prices for electricity, gas and other fuels, and second-hand cars, in another sign consumers’ living standards continue to squeeze. The April reading compares with March’s 7% reading.
  • China’s economic activity is collapsing in the face of tough covid-zero rules with industrial output and consumer spending sliding to the worst levels since the pandemic began. Expect a big bazooka of stimulus over the coming weeks and months, which is likely to coincide with an easing of covid restrictions in some of their major cities.

Politics:

  • Some European Union nations are wanting to delay a push to ban Russian oil so they can proceed with the rest of a proposed sanctions package if the bloc can’t persuade Hungary to back the embargo. Germany has said they will stop importing Russian oil by the end of the year regardless of the bloc’s moves. Russia’s oil revenues are up 50% this year even with various trade restrictions. Whilst there is general agreement that Putin needs to be punished, likely energy rationing and soaring energy bills don’t sound like a good idea for some European countries.
  • NATO members have rallied around Finland and Sweden after they announced plans to join the alliance, marking another dramatic change in Europe’s security structure.
  • China’s top economic official gave an unusual public show of support for digital platform companies, suggesting Beijing may be ready to let up on a long campaign against the tech giants. A good move, but also shows Beijing getting desperate on the economic growth front.
  • The US is preparing a military aid package for India to deepen security ties and reduce the country’s dependence on Russian weapons, according to people familiar with the matter. If true, it would make India one of the largest recipients of such aid behind Israel and Egypt.  


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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