Weekly financial update - 6th of November 2023
Written and accurate as at: Nov 06, 2023 Current Stats & Facts
The previous week has offered a much-needed reprieve for equity markets. Despite the Federal Open Market Committee (FOMC) maintaining the federal funds rate at the 22-year high range of 5.25-5.50%, investor interpretation of subsequent comments suggests a possible cessation of the relentless rate hikes in the U.S. A discernible ease in financial conditions hints that further increases may not be imperative, underscored by a swift descent in bond yields—with the U.S. 10-year yield retreating to 4.5% after recently peaking at 5.0%.
Across the Pacific, the Reserve Bank of Australia (RBA) finds itself at a crossroads with a 50% likelihood of escalating rates by another 25 basis points, a significant hike from the less than 10% chance predicted a month prior. This shift follows a string of hawkish messages from the RBA, which revealed its scant patience for inflation rates descending to target levels slower than desired. Adding to this sentiment were surprises in inflation and retail sales figures, coupled with the tenacity of a still-tight labour market. Markets are bracing for rates to hover above current levels until March 2024, factoring in the RBA's steadfast approach.
The local stock market reflected these broader economic currents. The S&P ASX 200 climbed 2.2% over the week, with a stark contrast between the resource sector—which remained static—and industrials, which leapt by 3.1%. The American markets outshone this performance, as the S&P 500 and NASDAQ witnessed surges of 5.9% and 6.6%, respectively.
Shift in Market Sentiment and Economic Indicators
The markets have drawn strength from the steady U.S. interest rates and the perceived end to the Fed's aggressive rate hikes. The relaxing of financial strings seems sufficient to preclude further increases, a perspective bolstered by Federal Reserve Chair Jerome Powell's confidence that inflation expectations are in check. The apparent peak of the interest rate curve and the anticipation of rate reductions commencing early in the third quarter of 2024 have further bolstered investor confidence.
The subtler-than-anticipated U.S. job report for October suggests a balancing labour market, which, along with the retreat in bond yields, nourishes the narrative of a cresting Federal Reserve cycle. In Australia, the domestic discourse is rife with speculation over the RBA's upcoming rate decision, as robust economic signals challenge the consensus.
Corporate and Economic Fluctuations
The economic climate is reflected in retail sales, which have ascended beyond expectations, signifying resilience in consumer spending despite the RBA's concerns over household consumption. Credit growth presents a mixed picture, with a slackening pace in housing but a more robust showing in business credit. Loan approvals have dipped, and property renovation costs continue to inflate, reflecting the broader economic strains. China's manufacturing slump reverberates as a sign of a tentative recovery, calling for further state intervention.
Major stock moves:
Amidst this market exuberance, Block Inc. notched a staggering 21.1% surge, bolstered by earnings that comfortably exceeded consensus expectations. The company's strategic pivot, including a significant workforce reduction and announced a $1 billion buyback, painted a picture of a firm in robust financial health.
Neuren Pharmaceuticals followed closely, with its shares catapulting by 19.7%. The pharmaceutical player's triumphant update on DAEBUE, their treatment for Rett Syndrome, nearly tripling its U.S. sales, provided a sturdy pillar for its climb.
In contrast, Origin Energy grappled with a 9.0% tumble after a takeover bid fell short of rallying investor support, reflecting the nuanced investor sentiment on value perception amidst takeover bids.
Pinnacle Investment Management rode the wave of market recovery, finding favour with investors and clinching an 11.5% rise. REA Group, buoyed by positive analyst commentary and a sector-wide resurgence, saw an 8.6% uptick.
In the meantime, Goodman Group led the real estate investment trust (REIT) rally, advancing by 9.2% as investors hedged on an optimistic future with eased rate hike expectations.
However, not all are shared in the bounty. Woodside Energy dipped by 3.4% as it navigated the turbulence of energy market fluctuations and sector-specific challenges.