Weekly market update - 20th of June 2023
Written and accurate as at: Jun 20, 2023 Current Stats & Facts
Last week saw a surge in the Australian local market, registering a robust growth of 1.8%. This was primarily driven by China's easing of its monetary policies, which encouraged domestic buying of resources stocks. This optimistic scenario managed to outshine a tight labour market, as suggested by an employment report.
Investors progressively sought market leverage throughout the week, leading to a sales increase in safe havens. Meanwhile, on the other side of the Pacific, the U.S. Federal Reserve's decision to pause after 10 consecutive hikes lent an additional boost to equities, driving the S&P 500 and the Nasdaq to increase by 2.6% and 3.3% respectively for the week. Despite Federal Reserve's indications of potential further rate hikes, the sentiment continues to remain bullish.
As we step into a week that witnessed an onslaught of economic data, Australian markets are bracing for a quieter opening today. With SPI futures remaining almost static, late June is predicted to bring a lull in company releases as firms close their books for the year. Yet, the lack of news often tends to translate into good news for the market.
Key Market Drivers
- The S&P/ASX 200 Index recorded five successive positive days, gaining 1.8% over the week to conclude above 7250 on Friday. China's interest rate cuts fueled demand for resources stocks, thus bolstering the index. Market gains on Wall Street, following the Federal Reserve's pause on its tightening campaign, also influenced Australian markets.
- At a domestic level, discussions were predominantly centered around a vibrant job report. The Australian economy registered an addition of 76,000 jobs in May, reducing the unemployment rate to a mere 3.6%. Consequently, this led to the prediction of a July rate hike, rendering a peak cash rate of 4.85% a real possibility.
- The Australian bond market quickly adjusted to the news, resulting in an inversion of the yield curve (3 year – 10 year) for the first time since 2008. This unusual phenomenon points to the increasing likelihood of a recession.
- The U.S. equities market also enjoyed a successful week, as the S&P (+2.6%) reported its fifth consecutive week of growth, buoyed by the Federal Reserve's hiatus. Despite signaling the potential for future rate increases, long-duration equities surged, and the Nasdaq (+3.3%) marked eight straight positive weeks.
- While the S&P500 earnings are projected to decline by 6.4% y-o-y in Q2, a growth of 8.2% is now forecasted for Q4, primarily fueled by the tech-related sectors. However, without Communication Services and Information Technology, this figure would drop to 3.9%.
- The European Central Bank (ECB) introduced another 25bps interest rate hike at its June meeting, as per market expectations, while signaling more increases in the future due to sustained high inflation rates. Meanwhile, the Bank of Japan maintained its key short-term interest rate at -0.1% and 10-year bond yields at around 0%.
Macroeconomic Newsflow
- The June Westpac-MI consumer sentiment reading in Australia remained at recession-level lows for nearly a year, with business conditions showing a significant dip.
- In New Zealand, the GDP contracted for the second consecutive month, indicating a technical recession. Despite this, economists predict the Reserve Bank of New Zealand will resist changing rates, thanks to strong migration and fiscal stimulus anticipated to buoy growth in H2.
- Fresh economic data from the U.S. painted a mixed picture. Retail sales rose unexpectedly by 0.3% in May, and the NY Empire State Manufacturing Index rebounded. However, initial claims were higher than anticipated, and industrial production saw an unexpected decline.
- Amid concerns over a slowing economy, China's central bank lowered its main policy rate for the first time in 10 months. New data indicated a miss in both retail sales and industrial production. With a youth unemployment rate now at 20.8%, economists anticipate further supportive policies in the coming months, including infrastructure spending and assistance for local governments heavily impacted by China’s zero-Covid regime.
Major Share Price Moves
Several noteworthy shifts in share prices were observed last week. Liontown Resources shot up by 12.5% on Friday, driven by a wide risk-on rally encompassing lithium, coal, and tech stocks. Telix Pharmaceuticals saw an 11% rise in demand following the inauguration of their radiopharmaceutical facility in Brussels.
On the downside, Capricorn Metals experienced a decline of 6.6%, mainly due to the reversal of sentiment in gold stocks amidst a strong week for equities. Similarly, Bellevue Gold and CSL Ltd fell by 7.4% and 9.0% respectively. CSL Ltd's significant drop followed the company's downward revision of FY24 estimates due to currency impacts and a slower than expected recovery for Behring’s margins.