Weekly market update - 21st of August 2023
Written and accurate as at: Aug 23, 2023 Current Stats & Facts
U.S. Bond Yields and Federal Reserve Insights: U.S. Bond Yields Surge Bond yields have increased this week, with 10-year yields in the U.S. surpassing 4.2% for the first time since October 2022. Federal Reserve Minutes for August re-seeded doubt regarding ending the rate rise cycle against a resilient economy and persistent inflation. The tone of U.S. Federal Reserve Chairman Jerome Powell at the annual Jackson Hole symposium will be crucial for the near-term market direction.
U.S. Equity Risk Premium and Market Valuations: Equity Risk Premium in the U.S. The last time U.S. 10-year yields were at this level, the market was approximately 15% lower. It has since re-rated to 19x earnings. The implied equity risk premium in the U.S. has fallen to just over 1.0%, well below the long-term average of 3.6% and at levels not witnessed for over 20 years. The sustainability of this low-risk premium and its resolution raises vital questions for investors.
Australian Market and Domestic Cash Rates: Local RBA minutes for August included optimistic statements, which, coupled with weaker-than-expected employment data for July, led to a growing consensus that domestic cash rates may have peaked. This sentiment represents a critical development in understanding the direction of the Australian economy.
Domestic Reporting Season and Market Performance: The domestic reporting season continues at a brisk pace, featuring notable stocks such as Goodman Group, Carsales.com, Bapcor, CSL, Vicinity Centres, Amcor, J.B. Hi-Fi, Transurban Group, and Steadfast. The Australian S&P/ASX 200 was down 2.4% for the week, while the S&P 500 in the U.S. declined by 2.1%. (NASDAQ -2.6%). These shifts in major indices reflect underlying dynamics in global finance and highlight key market drivers.
Key Market Drivers and Economic Newsflow
- Bonds: U.S. bond yields were pushed higher during the week, leading to increased attention to potential rate rises and market direction.
- Valuations and Sentiments: The U.S. lead and concerns around economic newsflow out of China affected the Australian market negatively.
- Interest Rates and Employment: Signs of a softening labour market in Australia have prompted economists to suggest that the tightening cycle is over.
- Wage and Growth Metrics: Australia's Wage Price Index increased by 0.8% q-o-q in the June quarter, an important indicator for the RBA.
Earnings Snippets and Major Share Price Moves
Company Highlights:
- Carsales.com: +57% rise in EBITDA, with solid growth.
- JB Hi-Fi: NPAT -3.7% on p.c.p., better than expectations.
- CSL Limited: Result in line with robust future projections.
- Transurban Group: Proportional EBITDA +29%, slightly below estimates.
Major Share Price Moves:
- Inghams Group: +19.0%, ahead of market estimates.
- Carsales.com: +13.4%, strong result and positive outlook.
- Core Lithium: -27.8%, $100m institutional placement at a discount.