Weekly financial market update - 19th of April 2023
Written and accurate as at: Apr 19, 2023 Current Stats & Facts
Key Market Drivers
The US headline inflation for March came in a bit cooler than expected, providing support for markets. The Producer Price Inflation (PPI) was lower than anticipated, while retail sales and initial unemployment claim data indicated a slight easing in US labour markets and a slowdown in US consumer spending.
In its latest World Economic Outlook, the International Monetary Fund (IMF) warns that the chances of a hard landing for the global economy have risen sharply. Inflation is predicted to stay higher for longer, and risks in the financial sector are elevated.
Australian employment data was again strong, and consumer sentiment indicators improved from low levels. Economists were divided on the implications for policy, with some noting it increased the risk of a May rate hike, while others argued the Reserve Bank of Australia (RBA) would need more time to assess the lagged effects of prior rate hikes.
According to the March FOMC minutes, incoming data before the onset of the banking sector stresses led many participants to see the appropriate path for US interest rates as somewhat higher than their earlier assessment in December. The slowing pace of decline in inflation was also noted as highlighting the still uncertain nature of the disinflationary process.
Macro / Economic Newsflow
Employment rebounded more strongly than expected in March, up by a strong 53,000 month-on-month, against consensus expectations of +20,000. This follows +64,000 month-on-month in February. The number of unemployed declined by 1,600 to 507,000, with the unemployment rate unchanged at 3.5%. This remains near 50-year lows.
The NAB Business Survey highlighted that business conditions softened marginally in March (-1 point to +16) but remain elevated and well above long-term averages of +6 points. Measures of price pressures also softened in the month, across both product prices and labour costs. Business confidence rose +3 points to -1.
Australian consumer sentiment saw a broad-based rebound in April. This coincided with a fall in expectations around future interest rates following the RBA decision to hold cash rates steady. Consumer sentiment increased +9.4% month-on-month to 85.8 points. This remains well below the ~102 points 20-year average.
March US headline CPI of 0.1% was cooler than the consensus 0.2%, down from February's 0.4% print. Annualised inflation of 5.0% also came in below consensus for 5.2% and February's 6.0%. This was the ninth consecutive period in which the annual inflation rate slowed. Core CPI of 0.4% was in line with consensus, though down from last month's 0.5%. The annualised core of 5.6% was modestly up from 5.5% in the prior month.
Assuming recent financial sector stresses are contained, the baseline IMF forecast is for global growth to decline from 3.4% in 2022 to 2.8% in 2023, before rising slowly and settling at 3.0% five years out. This is the lowest medium-term forecast in decades. Advanced economies are expected to see a more pronounced slowdown, from 2.7% in 2022 to 1.3% in 2023. Risks to the outlook are heavily skewed to the downside.
The IMF forecasts domestic GDP growth slowing from 3.7% in 2022 to 1.6% in 2023, 1.7% in 2024, headline inflation of 5.3% in 2023 and 3.2% in 2024, while unemployment is expected to rise to 4.1% in 2024.
In the March FOMC minutes, a number of participants noted that the likely effects of recent banking-sector developments on economic activity and inflation led them to lower their assessed rate target range. Staff projections at that time included that the US economy would enter a mild recession later this year. The slowing pace of decline in inflation was also noted as highlighting the still uncertain nature of the disinflationary process.
MAJOR SHARE PRICE MOVES - S&P/ASX 200
Corporate Travel +15.5%: The company announced that it had secured a material contract from the UK Home Office, which may add >10% to EBITDA. There is some uncertainty regarding likely billings and revenue from it.
Nickel Industries +14.8%: The company issued US$400 million of unsecured notes at a coupon of 11.25%, improving and extending its debt maturity profile and aiding its ability to fund its growth plans.
Sandfore Resources +11.9%: With Oz Minerals now sold to BHP, Sandfire appears to have become the default copper play for investors seeking exposure. The stock is up +30% calendar year-to-date.
Polynovo -4.3%: The company has continued to drift lower since the 23rd of March disclosure that the Chairman had sold ~20% of his holding. The profitless biotech had a challenging week.
Star Entertainment -5.7%: The stock continues to drift towards the $1.20 raising price. While gearing has improved, the number of uncertainties creates a wide range of potential earnings outcomes.
Imugene -10.0%: The company gave up most of the prior week's +15.4% gain on the back of announcing that it has dosed the first patients for cohort three of its phase one clinical trial.