Weekly market update - 7th of August 2023
Written and accurate as at: Aug 07, 2023 Current Stats & Facts
In an unexpected move that defied the projections of most local economists, the Reserve Bank of Australia (RBA) maintained the status quo on its monetary policy this week. Despite having fixed interest markets successfully anticipate their decision, the RBA's continuation at a 4.1% cash rate has increased the likelihood of this figure representing the peak unless future inflation rates experience a significant upside surprise. Indeed, further rate tightening remains a distinct possibility as inflation risks balance precariously.
In their Statement on Monetary Policy issued on Friday, the RBA made minimal changes to Macro forecasts, with inflation still anticipated to return to within the 2-3% target range by the second half of 2025.
Moving overseas, the United States Q2 results season is in its final phase, with more than 80% of results already released. The blended earnings growth of -5.2% has now seen three consecutive quarters of negative year-on-year growth. However, these results are approximately 7% ahead of aggregate expectations. Interestingly, companies that surpassed their forecasts have experienced an average downturn in share prices, likely reflecting high initial valuations.
Notably, the RBA's decision to hold the cash rate steady at 4.1% was not accurately predicted by 18 out of 30 local economists surveyed ahead of the meeting. Instead, they forecasted a +25 b.p. hike. In the United States, 84% of S&P 500 companies have reported their Q2 earnings, with a year-on-year decline of -5.2% for Q2.
On the international trade front, the Chinese Commerce Ministry has opted to end punitive tariffs against Australian barley. However, restrictions on other key exports, such as wine, beef, lobsters and cotton, remain in place.
From a macroeconomic perspective, the August Statement on Monetary Policy confirmed that the RBA considered increasing rates at their July and August meetings due to intense inflationary pressures. However, they decided to maintain the cash rate at 4.1% to assess the impact of previous tightening measures. This suggests the possibility of rates having now peaked.
The Australian property market has seen significant activity recently, with national house prices rising by +0.7% during the month of July. However, housing finance approvals saw a -2.8% month-on-month decline in June, reflecting ongoing tension in the sector.
This week's market activity saw the Australian S&P/ASX 200 decrease by 1.1%, with the S&P 500 in the US recording a more significant downturn of -2.3% (NASDAQ at -2.8%). Significant events in Australian finance also unfolded as the Australian Competition and Consumer Commission (ACCC) rejected ANZ's proposed acquisition of Suncorp’s bank operations for $4.9 billion. Had it been approved, the deal would have created a more concentrated and competitive market, with ANZ obtaining a significant market share boost and Suncorp emerging as a robust and focused insurer.