Market update - 10th of October 2023
Written and accurate as at: Oct 10, 2023 Current Stats & Facts
Bond Yields Surge Amid Uncertainties
Last week, bond yields continued their upward trajectory. This was influenced by several factors: the likelihood of central banks maintaining higher rates for an extended period, mounting U.S. budget deficits, an increasing supply of bonds, and the ever-present risk of inflation. While this contributed to market stress throughout the week, Friday brought considerable volatility to U.S. markets. Investors found themselves in a tug-of-war, trying to balance the benefits of a resilient economy against the impending inflation and interest rate changes.
The release of an extraordinary non-farm payroll number—336,000 jobs versus an expected 170,000—sent bond yields higher and initially caused equities to slump. However, the S&P 500 recovered, closing Friday's session with a 1.2% gain.
Oil Prices Ebb, Offering Relief on Inflation
While the bond market showed signs of tension, oil prices retracted by 9.3% over the week. The decline came as a surprise, given the unexpected build-in inventories. This provided a respite from the ongoing concerns about oil's inflationary impact.
Key Takeaways from the S&P/ASX 200
The S&P/ASX 200 closed the week down 1.3%, with resources declining by 2.5%. Yet, futures markets indicate an optimistic start to the coming week, pointing to a 0.8% rise. U.S. Federal Reserve officials made notable comments, suggesting that the rise in bond yields could offset the need for further rate hikes.
Central Banks
The odds for another Fed rate hike by the end of 2023 currently stand at approximately 45%.In Australia, the new RBA Governor kept cash rates steady at 4.1%. Despite observing stronger-than-expected H1 GDP growth, the statement underscored that the economy is still in a phase of 'below-trend growth' with 'weak' household consumption.
Financial Stability and Inflation Outlooks
The RBA’s Financial Stability Review appeared to support the notion that both the economy and borrowers could weather higher rates if inflationary pressures persist. Such concerns will likely come into sharper focus with the Q3 CPI update on 25 October and the November RBA board meeting.
Macro News and Market Movement
The RBA's latest statement reiterated that inflation remains 'too high' and is likely to persist. Despite cooling goods inflation, the prices of many services and fuel have risen noticeably. The RBA's review also found that most Australian households and businesses are well-prepared for high inflation and interest rate hikes.
Major Share Price Moves
Ramelius Resources enjoyed a robust +10.5% increase in its share price last week. This climb was initiated by a mid-week broker upgrade and gained momentum as gold prices rallied due to easing bond yields and a weaker U.S. dollar.
Fletcher Building saw a moderate gain of +3.7%, buoyed by receiving an investment-grade rating from Moody's. The company further captivated investor interest by announcing a new debt issuance program.
Despite minimal news, Fisher & Paykel Healthcare experienced a +3.6% rise. It appears the company benefitted from an investor shift toward defensive sectors, which proved resilient amid market volatility.
Core Lithium saw its shares plummet by -13.6%, becoming one of several lithium companies to encounter selling pressure. The dip was largely due to negative sentiment around lithium pricing for the next 12 months.
West African Resources matched this downward trend, also declining -13.6% after announcing a Memorandum of Understanding (MOU) with Orezone Gold Corp. The intention was to explore synergies relating to nearby projects in Burkina Faso, but the announcement left investors unimpressed.
Magellan Financial took a steep tumble, with its shares crashing -22.1%. The company revealed a 10.3% decline in Funds Under Management (FUM) in September to A$39 billion, including a net outflow of $2.0 billion.
In contrast, Nib Holdings marked a modest +2.7% uptick with no company-specific news. This appears to be a reaction from investors seeking stable assets amidst broader market unrest.
Vicinity Centres, too, made a modest late-week gain of +2.1% as bond yields softened. Investors seemed to reconsider Real Estate Investment Trusts (REITs) that have recently been under stress.
Westpac Bank, edged up +1.4%, the best performance among the Big 4 banks. Relative valuations and a reversal in bond yields appeared to fuel buying interest. Additionally, it announced the retention of its Pacific Banking business.
Corporate Travel faced a -5.0% dip with no new announcements from the company. However, negative sentiment surrounding the U.S. economic outlook led some to question the pace of corporate spending recovery.
Similarly, Woodside Energy experienced a 6.3% fall as oil prices reversed to 5-week lows. This also included the biggest one-day loss in the sector for a year.
Mineral Resources rounded off our list with a -9.9% dip. A major broker's downgrade of near-term lithium price forecasts contributed to this downturn.