Weekly market update - 24th of October 2022
Written and accurate as at: Oct 24, 2022 Current Stats & Facts
Strong Friday in the US saw the S&P 500 +4.8% across the week versus a -1.2% decline for the S&P/ASX 200 (Resources -1.9%, Industrials -1.0%). On Friday, this strong outperformance for the US included a +2.4% rise for the S&P 500. This came on the back of a Wall Street Journal article suggesting that the Fed are debating a smaller rate hike in December....here we go again, guessing and second-guessing. Haven’t we been here before? The probability of a 75 b.p. rate rise at the Dec-14 FOMC meeting dropped from 75% to 45%. S&P/ASX 200 futures are pointing to a +1.4% rise on Monday.
The Federal Budget is released on Tuesday, with few significant new policy initiatives expected. The Government is focused on not adding to inflation risks amid elevated cost of living pressures. Whilst the starting point is more substantial than expected, challenges from defence, aged care, NDIS, and public debt interest will be emphasised, whilst we expect economic forecasts to be further revised.
AGM season continues, and as well as some entertaining questions from minor shareholders, we can expect some valuable Q.1 commentary and outlook updates from companies, helping the market further frame the risks to current earnings estimates. ANZ (Thur) and Macquarie Bank (Fri) also report results this week.
Broader Market Moves:
- S&P/ASX 200 -1.2% for week ended 21 October, MTD +3.1%, calendar 2022 YTD -6.7%
- S&P/ASX Resources -1.9% (CYTD +9.6%), S&P/ASX 200 Industrials -1.0% (CYTD -11.0%)
- S&P/ASX Small Ordinaries -0.2%, MTD +2.1%, calendar YTD -22.5%
- S&P 500 +4.8%, MTD +4.7%, calendar YTD -20.3%. NASDAQ +5.2%, calendar YTD -30.2%
- S&P 500 Value +4.1% v S&P 500 Growth +5.5%. CYTD Value -11.5% v Growth -28.1%
- US 10 yr bonds +21 b.p. to 4.22% (CYTD +270 b.p.), Australia +20 b.p. to 4.20% (CYTD +253 b.p.)
- US 2 yr yield +1 b.p. at 4.51% (CYTD +378 b.p.), Australian 2 year bonds +27 b.p. at 3.65%
- USD Iron Ore -1.1%, Oil -1.2%, Copper -1.9%, Zinc +1.0%, Nickel -1.6% Thermal Coal -0.6%,
- Gold +0.6%, AUD +1.2% ($0.631), Bitcoin +0.4% to $19,195
Key Market Drivers:
- Not as much point looking back at last week because the tone of things changed significantly on
Friday in the US. There was a substantial rise in the US equity market (S&P 500 +2.4%), a decline in the US dollar, and a drop in US bond yields. - This came on the back of press speculation in the Wall Street Journal that whilst the Fed is set to
raise by 75 b.p. this month, it could debate whether and how to signal a less aggressive forward
pace….here we go again, guessing and second-guessing. Haven’t we been here before? The
probability of a 75 b.p. rate rise at the Dec-14 FOMC meeting dropped from 75% to 45% - There was also much-improved sentiment in the UK, with a U-turn in fiscal policy and the
resignation of the PM. UK bond yields have declined, whilst the recent decline in European gas
prices has also aided sentiment. - Amidst all this noise and speculation, the next two weeks see a busy period in the US re central
bank policy decisions/commentary and earnings releases. US Q.3 results this week include
Twitter, Microsoft, Alphabet and Apple. - Closer to home, the major bank full-year reporting season commences this week with ANZ to
report Thursday, Oct 27, with Macquarie Bank (H.1, Oct 28), WBC (Nov 7), and NAB (Nov 9) to
follow. - Treasurer Chalmers has framed this week’s Budget as one that will not add to inflation risks amid
elevated cost-of-living pressures and occurs with a background of rising global recession risks. No significant new policy announcements are expected. Likely focus on implementing major
election promises (Childcare, Aged Care), framing medium-term spending challenges (defence,
aged care, health, NDIS, public debt interest), and revising economic forecasts.
Macro / Economic newsflow:
- RBA Deputy Governor Michele Bullock discussed the Board's recent policy deliberations, noting
that while the reduction in the pace of rate hikes in October (to +25bp) partly reflected
uncertainty about the economic outlook, it also reflected the fact that the RBA meets more
frequently than peer central banks (11 times per year). - The Minutes of October's Board meeting noted the decision to hike 25bp was "finely balanced."
(vs. hiking +50bp) and highlighted that a slower but more sustained rate increase could "keep
public attention focused for a longer period on the Board’s resolve to return inflation to target." - Members also noted that "wage growth had not reached levels that would be inconsistent with
the inflation target." This recent speech & Minutes are consistent with a view that the RBA still
has a way to go with its hiking cycle, albeit at a slower pace. - Employment growth surprised to the downside in September, coming in broadly unchanged at
+1k against expectations for a +25k gain. The unemployment rate also remained at 3.5%, but it rose in unrounded terms to 3.54% from 3.48%. - New Zealand Q3 CPI inflation came in markedly higher than expected at +7.2% YoY, remaining
near 32-year highs, prompting upward revisions to economists' cash rate outlook with several
now looking for a 75 bp hike in November.
Domestic Sector Performance:
- Outperforming Sectors: Energy +1.6%, Financials +0.0%, REITs -0.2%, Information Technology -
0.6%, Communication Services -0.8%. Consumer Staples -1.1% - Underperforming Sectors: Utilities -3.4%, Materials -3.0%, Health Care -3.0%, Industrials -1.6%,
Consumer Discretionary -1.2%
Major share price moves, S&P/ASX 200:
Chart of Interest:
