Weekly market update - 23rd of October 2023
Written and accurate as at: Oct 23, 2023 Current Stats & Facts
Last week's equity markets exhibited stress, primarily attributed to geopolitical events in the Middle East, inflation worries, and mixed cues from U.S. Q3 earnings reports. The S&P ASX 200 in Australia dropped by 2.1%, while the S&P 500 in the U.S. fell by 2.4%. Here's a deep dive into the driving factors and their potential implications.
Unfolding Events and Market Reactions
The Middle East continues to be a hotbed of unrest. Israel's preparations for a potential ground invasion of Gaza have significantly impacted markets. Not surprisingly, oil prices are on the rise, fueling inflationary concerns. Meanwhile, gold prices have gained from this scenario, underlining a decrease in investor risk appetite.
Sector-Wise Performance
Energy was the lone star, rising by 2.7%, buoyed by higher oil prices and Whitehaven Coal's 12.4% jump post-acquisition of coking coal assets from BHP & Mitsubishi. Conversely, the Information Technology, Consumer Discretionary, and Health Care sectors were hit the hardest, declining by 5.1%, 3.4%, and 3.3%, respectively.
Central Bank Indications
This week, the Reserve Bank of Australia (RBA) took a hawkish turn. Minutes from its latest meeting show low tolerance for slower-than-expected inflation moderation. Market expectations for Q3 domestic inflation stand at a quarter-on-quarter rise of 1.1%, or an annual rise of 5.2%. This could prompt the RBA to consider a 25 basis point rate hike in November, especially when inflation appears more persistent than previously assumed.
U.S. Federal Reserve's Position
In the U.S., Federal Reserve Chair Powell indicated a cautious approach to policy tightening. Despite this, strong economic indicators imply that interest rates may remain "higher for longer." Mixed results from Q3 earnings reports are broadly in line with long-term averages but suggest a cautious outlook.
Macro-Economic Updates
The UK saw inflation rates holding steady at 6.7% for September, primarily due to soaring fuel costs. The job market in Australia remains robust despite a slower-than-expected job growth in September. Cash rates will remain elevated until March 2025, suggesting a long-term hawkish trend.
Share Price Movers
Notable gainers included Weebit Nano Ltd, up 24.9% on a commercial licensing deal, and Whitehaven Coal Ltd, up 12.4% following a major acquisition. On the downside, Credit Corp Group Ltd dropped by 31.1% owing to deteriorating collection conditions in the U.S.
While markets remain turbulent due to geopolitical concerns and inflationary pressures, central banks worldwide are recalibrating their strategies. With the RBA showing an increasingly hawkish stance and mixed signals from the U.S. Federal Reserve, investors should brace for potential rate hikes and continued volatility in the coming weeks.