AUSTRALIAN MARKET WRAP
Australian business news was this week was dominated by the outcomes of the corporate reporting season. Ahead of next week’s ‘jobs summit’ there was also considerable positioning on what needs to be done in regard to immigration, skills and training. And the new Treasurer has outlined his vision for mobilising superannuation savings for investment in ‘social good’ such as housing and clean energy transition.
In Australian economic news, official labour force figures for July showed that unemployment fell further, to 3.4 per cent. These figures continue to be lowest in 48 years, and now mean that there are more jobs vacancies than people looking for employment. Aligned with this, average private sector wages grew at the fastest rate in a decade at 3.8 per cent in the June quarter. However, annual wages reportedly grew by a softer-than-expected 2.6 per cent, meaning that real wages fell by 3.5 per cent in the financial year 21/22. Commentators suggested that wages are likely to increase further and faster as union bargaining and indexed (to inflation) employment agreements feed through the economy.
In the context of strong economic data, and also good outturns in the reporting season, there was discussion about the likely economic and policy trajectory. In particular, there were a number of pieces about the ‘gravity defying’ retail sales figures. It was mooted that consumers have yet to feel the real pinch of interest rate rises, because of the natural delay in those feeding through to changes in monthly repayments, and that the record low unemployment and savings buffers created in the pandemic are so far insulating this part of the economy. The expectation is that there will be a ‘softening’ in activity in the second half of the year, as ‘reality bites’. A leading indicator that this supposition might be correct was a contraction in business conditions in the services sector this month.
A weaker-than-expected growth outturn for China prompted not one but two unexpected cuts to official lending rates over the past week. After the first move, it was suggested that officials in six key provinces (that account for 40 per cent of the population), have been asked to consider pro-growth policy measures. This also prompted wider discussion about whether the Chinese government will be able to successfully ‘reboot’ the economy in the face of the ongoing COVID-zero strategy and associated rolling lockdowns. Alongside the news about the policy changes, there was further commentary on the associated crisis in the Chinese property market.
Elsewhere, the Reserve Bank of New Zealand raised its policy rate by 0.5 percentage points for the fourth consecutive month. It indicated that it believes that inflation has peaked, but that it could take a further two years before it returns to the target band.
Australian indices
ASX 200: Fell 2.02% this week to 6961.8 points at the close on Tuesday.
All Ordinaries: also fell, 2.21% in the past week to 7199.2 points at the close on Tuesday.
Currencies
As at the close on 23 August, the AUD/USD was down 2.29% on last week, at 0.6877. The AUD/RMB was also down slightly, 1.32%, in the week to 4.7145.
Commodities
This week saw Australia’s miners and resources companies produce some of the strongest corporate results, off the back of the recent increases in commodity prices. However, there was market speculation that iron ore prices could nearly halve by next year as China’s economy struggles and its property crisis deepens.
Government Bonds
Government Bond Yields (Source: Bloomberg)
|
NAME |
COUPON |
PRICE |
YIELD |
1 DAY |
1 MONTH |
1 YEAR |
|
GTAUD2Y:GOV Australia Bond 2 Year Yield |
2.75
|
99.51 |
3.01% |
+7 |
+31 |
+303 |
|
GTAUD5Y:GOV Australia Bond 5 Year Yield |
4.75 |
105.92 |
3.35% |
+7 |
+13 |
+263 |
|
GTAUD10Y:GOV Australia Bond 10 Year Yield |
1.25 |
80.99 |
3.57% |
+6 |
+14 |
+248 |
|
GTAUD15Y:GOV Australia Bond 15 Year Yield |
3.75 |
99.61 |
3.77% |
+5 |
+17 |
+229 |
Reserve Bank of Australia Rates (Source:RBA)
|
RBA CASH RATE TARGET (RBATCTR:IND) CURRENT (per cent) |
MOST RECENT DECISION (percentage points) |
MOST RECENT CHANGE (percentage points) |
1 YEAR PRIOR (per cent) |
|
1.85 |
+0.50 (2 August 22) |
+0.50 (2 August 22) |
0.10 |
Property
The resilience of the economy, and particularly consumer sentiment, was highlighted in the property market this week, with the Westfield shopping malls owner suggesting customer numbers in centres have surged 5.1 per cent from the pandemic lows.
Venture capital
Stoic Asset Management discussed the fact that venture capital investment in deeptech is immune to some macroeconomic disruptions, such as inflation.
One of Australia’s ‘startup unicorns’, Mr Yum, has reportedly cut its workforce by 17 per cent, admitting it hired too quickly in an ‘over bullish’ 2021.
Company Updates
ENA Respiratory
Stoic investee ENA Respiratory was in the news this week discussing work on nasal vaccines and therapies, including for COVID-19.
