Weekly financial market update - 6th of February 2023
Written and accurate as at: Feb 06, 2023 Current Stats & Facts
Key market drivers
Less hawkish US Fed (and ECB and BoE) takeaways and an upbeat start to this week's big tech earnings were tailwinds for risk sentiment. The market continued to factor in a more rapid path to moderating inflation and a softer economic landing. A stronger-than-expected US payrolls report on Friday saw Treasury yields reverse earlier declines and equities give up some earlier gains, with a lift to terminal rate expectations.
As widely expected, the US Federal Reserve again lowered its pace of rate increases to 25 b.p. to 4.50- 4.75%. Whilst noting that it expected ‘ongoing increases’ to be appropriate, Chairman Powell noted in his press conference that it was certainly possible that the Fed could keep its benchmark rate below 5% and that it believed it could bring inflation down to targeted levels without a meaningful uptick in unemployment.
In somewhat mixed messaging, Powell noted that the disinflation process had started; however, it was premature to declare victory on inflation. He also said that he didn’t see the central bank cutting rates this year, although a faster deceleration of inflation would play into policy settings.
With ~50% of S&P 500 companies now reported, blended earnings growth for Q.4 is -5.3% versus p.c.p., compared to the -3.2% expected. The market has rewarded earnings beats more than average, highlighting that the bar around expectations has been lowered despite recent worries about earnings resilience.
As expected, the ECB raised rates by 50 b.p. (to 2.5%), and guided for a similar move in March, hinting at a potential pause after that. The BoE also raised by 25 b.p. (to 4.0%), though the statement and dissents leaned dovish, feeding the market narrative that we are near the end of the tightening phase.
The RBA meets tomorrow and is widely expected to deliver another 25 b.p. rise in official cash rates to 3.35%. Important for the outlook will be the release of updated forecasts, to be detailed further in the SoMP on Friday. Whilst likely to draw a path to a soft landing, its characterisation of the risks will be a focus.
Key Economic news
Retail sales fell -3.9% mom in December (consensus -0.2%), with consumers drawing forward spending to November to take advantage of Black Friday/Cyber Monday discounting. Comparing an average of NovDec to Sep-Oct suggests broadly flat spending. However, this is still +27% above pre-pandemic levels.
Housing credit growth rose by +0.3% mom, with the annual growth rate (+6.5% yoy) decelerating to its slowest pace since September 2021. Compositionally, owner-occupier credit rose +0.4% mom (+6.9% you), and investor credit rose +0.3% mom (+5.5% yoy).
Australian dwelling prices -1.0% mom in January, the ninth consecutive month of decline. House prices nationally are now 8.9% below their peak but still 14.6% above pre-pandemic levels. Declines continue to be led by the top end with the ‘high tiered value’ (top 25% of the market) now -12.9% from April 2022.
Housing loan commitments fell 4.3% mom in December, its eleventh consecutive month of decline, to be at its lowest level since October 2020. On an annual basis, the value of loan commitments are down 29.3% yoy, but still 22.8% above pre-pandemic February 2020 levels.
January US nonfarm payrolls of 517k were well ahead of the consensus of 185k. The unemployment rate was down 0.1pp to 3.4%, the lowest since 1969. Annualised average earnings of 4.4% were also above 4.3% consensus but down from the prior 4.8%. The ratio of job openings to unemployed increased again to 1.9 from 1.7, remaining very elevated compared to about 1.2 pre-pandemic.
The NZ unemployment rate rose a marginal 0.1pp to 3.4% in Q.4, driven by softer employment growth. Quarterly wage growth also decelerated and was softer than expected but still running at 4.5% annualised.
Major share market moves - ASX 200
Flight Centre +13.3% Provided a trading update, to report H.1 underlying EBITDA $95m (guidance was $70-90m), upgraded FY guidance and announced a $180m equity raising to fund an accretive purchase.
Charter Hall Group +10.8% The REIT sector was +4.3% for the week and now +13.3% YTD. This largely reflects the -67 b.p. decline in bond yields YTD, easing concerns around the potential change to cap rates.
Seek Limited +9.8% Higher growth and other longer duration assets, as some of the more directly impacted by inflationary concerns and higher bond yields, have outperformed calendar year to date.
Karoon Energy -8.7% Consolidation after prior week gained +12.0%. No significant additional newsflow.
Silver Lake Resources -13.6% Q.2 production and cost performance was weaker than expected, with lower than expected grades the primary driver. FY guidance was tightened to the lower end of the prior range.
Megaport -19.7% Q.2 result saw several key operational metrics weaker than expected. Major cost out program initiated to focus on profitability, reflects near term challenges, some potential growth impact.