Weekly financial market update - 24th of April 2023
Written and accurate as at: Apr 26, 2023 Current Stats & Facts
Last week, the local market experienced a modest softening, with the S&P/ASX 200 index dipping by 0.4%. The decline was primarily due to the Resources sector, which fell 2.4% as iron ore futures prices dropped by 9.5%. Several other commodities also recorded weaker prices during the week. In other news, the April minutes from the Reserve Bank of Australia (RBA) reiterated its preparedness to raise interest rates further. The upcoming release of Q1 inflation data will serve as the next crucial barometer of the RBA's likely future actions. Over the past week, the probability of the RBA pausing rates at its May meeting has decreased from 91% to 81%.
In the US, the S&P 500 inched up 0.1% on Friday, while the S&P/ASX 200 futures indicated a 0.4% decline to commence the shortened week in Australia.
Key market drivers include the release of Q1 CPI data for Australia, which is set to occur this Wednesday. Consensus forecasts predict a 1.3% rise quarter on quarter, falling below the RBA's Feb-23 SOMP implied profile of around 1.6%. This figure would mark a significant slowdown from the 1.9% recorded in Q4 2022. Year on year headline inflation is anticipated to decrease to 7.1%, down from the 7.8% high reached in Q4 2022 – the highest level since 1990.
The US Q1 earnings season is still in its early stages, with 18% of S&P 500 companies having reported so far. Blending the earnings of companies that have already reported with consensus estimates for those yet to report, the current Q1 earnings decline stands at 6.2%. This figure is slightly better than the 6.7% decline expected at the end of March. Declining profit margins have been a notable trend thus far. This week will see 180 S&P 500 companies report, including mega tech names like Amazon, Google, Microsoft, and Facebook.
Iron ore futures softened once more last week, falling 9.5% and now sitting 18% below the mid-March peak. This decline is attributed to a weaker outlook for Chinese steel demand, regulatory efforts to cap steel output in China, and concerns about oversupply driven by recent robust production figures from the world's largest miners.
Chile, one of the largest lithium producers, announced its intention to nationalise the industry by taking a controlling stake in all projects. Albermarle and Sociedad Quimica y Minera de Chile S.A., both lithium miners in Chile, saw share prices decline by 10% and 19%, respectively. The Chilean President stated that the government is not looking to cancel existing contracts but would prefer companies to voluntarily adopt a public-private model. Sentiment towards lithium stocks has weakened, with Chinese lithium prices falling more than 30% in four weeks.
In macro and economic news, the April RBA Board Minutes revealed that members had considered a 25 basis point hike before deciding to keep rates on hold. The minutes maintained a clear tightening bias, highlighting the importance of being transparent about potential monetary policy tightening in future meetings. The risks outlined in the minutes suggest that the Board is more inclined to raise rates further rather than loosen its current tight monetary policy stance. Expectations of higher wage growth, stronger population growth, and a decade-low unemployment rate all work against the notion of the RBA easing monetary conditions this year.
Following a review, the RBA will be split into two entities from mid-2024, mirroring the model used by other major central banks like the Bank of England. A Monetary Policy
Board will make decisions on monetary policy, including the cash rate, with press conferences following each meeting. Post-meeting statements will include unattributed votes on cash interest rate decisions, providing greater transparency. The RBA review recommended retaining the 2-3% inflation target, with an increased focus on the 2.5% midpoint. It also proposed that the RBA's full employment objective be given equal weight to the inflation objective.
In the United Kingdom, the consumer price inflation rate eased to 10.1% year-on-year in March 2023, down from 10.4% in February but higher than market expectations of 9.8%. Food and non-alcoholic beverages, housing, and utilities continue to rise at a solid pace. The core inflation rate, which excludes volatile items such as energy and food, remained unchanged at 6.2% in March, not far from September's record of 6.5%.
New Zealand reported Q1 inflation of 1.2% quarter on quarter, below consensus expectations of 1.6% and softer than the Reserve Bank of New Zealand's (RBNZ) forecast of 1.8%. The annual rate of inflation slowed by 50 basis points to 6.7% year on year.
Major share price moves in the S&P/ASX 200 included Telix Pharmaceuticals, which saw a 29.4% increase after reporting its first quarter of $100 million+ in revenue and its second consecutive quarter of positive operating cash flow, driven by rising demand for its radiopharmaceuticals. Whitehaven Coal shares rose 7.4% following Q3 results, with weaker production offset by continued strength in pricing at US$280 per tonne during the quarter. Pilbara Metals' shares increased 7.2% as broker reports downgraded near-term earnings to reflect declining lithium pricing but pointed to emerging fundamental support and long-term drivers.
On the downside, Bellevue Gold's shares fell 8.9% after releasing its Q3 report, which showed plant construction and development activities largely tracking to plan and budget. Capricorn Metals shares dropped 9.9% following a mixed pre-feasibility study for its Mt Gibson gold project, which revealed a higher cost profile and a delayed commencement date, partially offset by higher production. Regis Resources saw an 11.6% decline in share price as Q3 gold production and overall cash flow fell below expectations due to slower underground performance, unplanned maintenance, and weather impacts.