Weekly market update - 8th of May 2023
Written and accurate as at: May 08, 2023 Current Stats & Facts
In this week's market update, we focus on central banks' actions, the performance of banking sectors, and other key market drivers.
Central banks were once again at the forefront of market news. The Reserve Bank of Australia (RBA) surprised the market with a 25 basis point (b.p.) increase in cash rates to 3.85% after a one-month pause. This was driven by a robust labour market and concerns about rising services inflation. Meanwhile, the US Federal Reserve raised its rates by an anticipated 25 b.p. to a target range of 500-525 b.p., with expectations of a pause in the near future. The European Central Bank (ECB) also raised its rates by 25 b.p. to 325 b.p., indicating that more work is required to combat inflationary pressures.
In the banking sector, US regional banks experienced a sharp decline due to growing concerns about a widening financial crisis. In contrast, National Australia Bank (NAB) and Australia and New Zealand Banking Group (ANZ) reported solid half-year results, albeit below market expectations. Net interest margins were disappointing, attributed to intensifying competition on both the asset (loan pricing) and liability (deposit funding) sides. The sector's outlook suggests further moderation in margins, leading to lower forward estimates. The overall banking sector declined by 4.4% across the week.
The S&P/ASX 200 index dropped by 1.2% for the week, primarily due to the underperformance of banks. Resources fell by 0.6% despite general weakness in commodity prices. In the US, the S&P 500 declined by 0.8% for the week but rebounded by 1.9% on Friday, supported by a strong result from Apple.
Looking ahead, the Australian Federal Budget will be released on Tuesday night, with cost of living pressures expected to be a significant focus. However, given concerns about high inflation and rising public debt, the Treasurer is anticipated to save the majority of revenue windfalls from elevated commodity prices and a robust labour market. Targeted cost of living support is likely to include energy price rebates and increased payments to single parents and the unemployed.
In other macroeconomic news, the RBA's May Statement of Monetary Policy revealed downgraded forecasts for inflation and GDP growth, while the unemployment forecast for December 2023 was increased to 4.0%. Australian retail sales increased by 0.4% month on month in March, beating expectations, while the trade surplus reached $15.3 billion, the second-highest on record. Lastly, Australian capital city house prices continued to rise, increasing by 0.7% month on month in April.
Major share price movements in the S&P/ASX 200 included a 19.0% increase for Lake Resources, an 11.2% increase for Evolution Mining, and an 8.5% increase for Flight Centre. Conversely, National Australia Bank saw a 7.8% decline, Polynovo decreased by 8.9%, and Syrah Resources fell by 12.1%.