AUSTRALIAN MARKET WRAP
The Reserve Bank of Australia’s Governor warned that it is important to anchor inflation expectations, and stressed the importance of charting a credible path back to the 2–3 per cent medium term target. He noted though that, while doing that, it is important to keep the economy ‘on an even keel’, with continued growth and low unemployment. His comments were taken by the media as suggesting the official interest rate will at least double (from the current 1.35 per cent) over the coming months, with potentially three to four more 50bp jumps.
It was in this context, and with expectations that the end-June inflation outturn (to be released on Wednesday) will be at a 32 year high, that the Treasurer was said to preparing a ‘confronting assessment’ for his economic update to Parliament later in the week.
Further afield, ‘economic storm clouds’ were said to be gathering as the European Central Bank made a surprise rate hike of 50bp, its first increase in 11 years (and the biggest in 22 years). It was reported that it has made the decision to ‘front load’ the exit from emergency settings in order to get ahead of rising inflation. Other market-based policy measures were also announced. These operations were reportedly designed to prevent a widening in the gap between different euro-area countries’ bonds, and to ward off another crisis in the currency block. This came amid more political turmoil in Italy and the resignation of its President (former ECB and Banca D’Italia chief Mario Draghi).
Meanwhile, in moves that offer some hope that the worst of the economic impacts of the war in Ukraine might be avoided, Russia was said to have restarted gas supplies to Germany, and a deal was signed to allow grain exports from Ukraine to resume. However, the latter was at risk after Russia bombed the Black Sea port of Odessa.
Australian indices
ASX 200: Rose 2.37% in the past week to 6,807.3 points at the close on Tuesday.
All Ordinaries: Rose 2.51% in the past week to 7025.2 points at the close on Tuesday.
Currencies
As at the close on 26 July, the AUD/USD was $0.6961, 1.61% up on last week. The AUD/RMB rose 1.72% in the week to 4.7024.
Commodities
The Australian Financial Review reported that the Chinese government has set up a new company with the intent of shaking up the $260bn global iron ore market, by making it the hub of vertically integrated investment and supply chains ‘for everything from huge mine investments in West Africa to buying the steel-making material from international suppliers’.
Government Bonds
Ahead of the next round of monthly monetary policy meetings globally, there was discussion about the outlook for the bond markets as central banks grapple with the inflation vs unemployment trade off.
Government Bond Yields (Source: Bloomberg)
|
NAME |
COUPON |
PRICE |
YIELD |
1 DAY |
1 MONTH |
1 YEAR |
|
GTAUD2Y:GOV Australia Bond 2 Year Yield |
2.75 |
100.06 |
2.67% |
+3 |
-3 |
+267 |
|
GTAUD5Y:GOV Australia Bond 5 Year Yield |
4.75 |
107.01 |
3.13% |
-2 |
-28 |
+253 |
|
GTAUD10Y:GOV Australia Bond 10 Year Yield |
1.25 |
82.63 |
3.33% |
-2 |
-38 |
+216 |
|
GTAUD15Y:GOV Australia Bond 15 Year Yield |
3.75 |
102.62 |
3.50% |
-2 |
-34 |
+194 |
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) |
|
1.35 |
+0.50 (5 July 22) |
+0.50 (5 July 22) |
0.10 |
Property
In further signs of economic turbulence, it was reported that a property developer has scrapped plans for a $500mn apartment tower on the Gold Coast, citing spiraling construction costs.
One commentator mooted that ‘better times’ could be coming for Real Estate Investment Trusts, as ‘defensive stocks’ in the face of worsening economic performance.
Looking at the outlook for investment in hotels, new data were said to show that corporate travelers are back in Australia and are staying for longer than they did pre-pandemic.
Venture capital
Uniseed’s CEO and investment manager, Peter Devine and John Kurek, wrote in Startup City about their experience raising capital for early stage biotechs ‘in the age of COVID-19. It was also announced this week that the significant milestone of $1 billion raised by Uniseed-supported startups has now been achieved.
Market commentators suggested that there is a ‘pending wave’ of public-to-private bids targeting the small and mid-cap ends of the Australian market. June’s market falls, coupled with uncertainty about the economic environment and therefore near and medium-term outlooks, and f’und managers that are hungry for small wins’, was said to mean that cashed-up private equity firms might finally get their bids taken seriously.
In a further sign of the tough times, and choices being made, in the market, it was reported that Indebted has had to lay off workers. The fast-growing fintech startup has digitised debt collections, been named Australia’s best place to work, and doubled its valuation in a fresh funding round, has also had to downsize its workforce in a bid to ride out the tech wreck.
Updates
Uniseed
Peter Devine, CEO of Uniseed, announced that its supported startups have now raised $1bn. As part of this, he noted the importance of the relationship with Stoic Venture Capital in Uniseed’s Co-Investment Fund, which has invested in 21 companies.
