Weekly market update - 4th of September 2023
Written and accurate as at: Sep 04, 2023 Current Stats & Facts
Market Insights: A Week of Positive Sentiments and Lingering Uncertainties
Supportive economic data last week led to an easing of bond yields and elevated equity markets. With developments in the U.S. job market, Australia's inflation trends, and further monetary easing in China, the financial landscape offers a blend of optimism and caution. Here's a deep dive into the week's economic intricacies and what lies ahead, particularly as the Reserve Bank of Australia (RBA) prepares for its next meeting.
Soft Landing Expectations Gain Momentum in the U.S.
Lower than anticipated job openings in the U.S. signalled a slight loosening in the labour market. An in-line Core PCE reading further aided a pickup in soft landing expectations. This combination contributed to a 2.5% rise in the S&P 500 and a notable 3.3% jump in NASDAQ.
Australia's Economic Performance
A softer-than-expected monthly inflation print locally contributed to the overall positive market sentiment. However, this was more than offset by key economic indicators such as the labour force survey and the monthly July Consumer Price Index (CPI), which surprised the downside. Consequently, fixed-interest markets are assigning an 86% probability that the RBA will keep interest rates steady in its upcoming meeting.
Recap of Domestic Reporting Season
The Australian reporting season concluded with results slightly exceeding market expectations, indicating a resilient economy. Over half of the reporting S&P/ASX 200 companies recorded results modestly above the market's forecast. Nevertheless, approximately two-thirds of these companies have seen a reduction in their forward earnings estimates due to a more uncertain economic outlook and the impact of rising interest rates.
Key Market Drivers
A boost in U.S. soft landing expectations and Australia's tame CPI contributed to the S&P/ASX 200 gaining 2.7% over the week. The high bar for the RBA to hike rates again is fortified by the recent economic data, while maintaining the cash rate at 4.10% is the most likely outcome. While corporate Australia reported solid earnings, the forward-looking estimates indicate caution, especially given the higher interest rate environment.
Macro/Economic Newsflow
- Australia's July CPI fell to 4.9% from 5.4%, surprising the market.
- Retail sales rose by 0.5% month-on-month in July, buoyed by events like the Soccer World Cup.
- Private sector credit growth in July remained in line with expectations, with housing credit growth at +4.5% on a p.c.p. basis.
Major Share Price Moves
- Johns Lyng Group saw a 17.5% hike underpinned by solid results and guidance.
- Tabcorp Holdings gained 10.4% due to insider buying, which seems to have improved market sentiment.
- On the downside, Chalice Mining lost 32.9% following the release of a scoping study that raised some eyebrows due to its assumptions.
As we steer through the labyrinth of economic indicators and market reactions, the takeaway is balanced—guarded optimism with a dash of caution. The RBA's meeting on Tuesday will undoubtedly offer more insight into Australia's economic direction. Companies and investors should brace for a volatile but potentially rewarding financial landscape.