It was a mixed week for Australian Shares, but the ASX200 finished up 0.96% last week. Mining stocks did most of the heavy lifting climbing 5.1% for their best week since March. Investors digested a 50bps rate hike from the Reserve Bank of Australia (RBA), Philip Lowe’s dovish comments and Jerome Powell’s remarks that solidified the Fed’s aggressive stance on curbing inflation. Here are the three things to know from last week:
1. Fifth consecutive rate hike for the RBA
As expected, the Reserve Bank of Australia (RBA) lifted its cash rate by another 50bps to 2.35%. This was the fourth consecutive 50bps hike by the RBA (and the 5th consecutive hike overall), showing its commitment to do what is necessary to ensure that inflation returns to target over time whilst keeping the economy on an ‘even keel’.
The RBA signalled that future rate hikes depend on incoming economic data and are not on a pre-set path. A 25bps hike to bring the rate to neutral at 2.5% looks set to be the RBA’s next move as they assess the impact of their previous tightening cycle. Governor Philip Lowe reaffirmed the likelihood of a 25bps hike in a speech at the annual Anika Foundation in Sydney. Here, he also indicated that the pace of interest rate rises would soon slow, and that interest rates have increased ‘very quickly’.
2. Australian GDP grows as consumers continue to spend
Gross Domestic Product (GDP) rose by 0.9% in Q2, showing the third consecutive quarter of economic growth. On an annual basis, GDP added 3.6% following a 3.3% gain in the previous year. The continued strength in household spending helped drive growth for Q2, with consumers spending at cafes, restaurants and even clothes.
This was also the first full quarter that travel could start again. The Australian Bureau of Statistics (ABS) said this was one of the main reasons that spending on travel had significantly increased but anticipates further growth in travel spending.
However, investors should expect that the economy’s strong performance will likely ease in the coming quarters. As RBA Governor Phillip Lowe pointed out in his statement last week, “the full effects of higher interest rates are yet to be felt.”
3. A winner and loser last week from the S&P/ASX200
The standout name for the week was Pilbara Minerals Ltd (PLS), with shares rising 26.76% last week. According to data, more Australians purchased an EV in August than ever before, with the lithium miner set to benefit further from the global transition to electric vehicles. See BatteryTech.
One of the best performers for the year was one of this week’s worst performers. Woodside Energy Group Ltd (WDS) fell 3.36% after trading ex-dividend with its second-largest dividend ever. The stock came under further pressure as global oil prices came under pressure during the week.
*Data accurate as of 09/09/2022. Data Source: Bloomberg
3 things to watch next week:
1. Consumer Sentiment: Look at what consumers are doing, not what they are saying
This week will see the release of the Westpac Consumer Sentiment Index on Sept. 13. The index fell 3% in August as rising interest rates, growing inflation, and falling house prices weighed on sentiment. The reading could be set to improve with the ANZ/Roy Morgan confidence survey increasing 1.3% this week, but last week’s 50bps rate hike from the RBA might have taken a toll on confidence. The recent retail sales data showing a jump of 1.3%calls for optimism, showing consumption isn’t nearly as depressed as confidence surveys may suggest. It’s important to remember to look at what consumers are doing and not always at what they’re saying.
2. AU Unemployment: Bad news will be good news for markets
July recorded the lowest unemployment rate in Australia since 1974, and all eyes are on the August rate that will be released on Sept. 15. Another decline in the unemployment rate will only solidify the RBA’s aggressive tightening cycle and may even impact September’s hike. Australia’s falling unemployment rate comes from ongoing shortages in labour following the pandemic. However, bad news will be good news for markets, as the RBA wants to see the labour market cool. This could be the case, with the number of Australians employed falling as businesses prepare for potentially more difficult times ahead as financial conditions tighten.
3. US CPI: Why you should care about the Fed
The big event for investors to watch won’t be local, but instead on the other side of the globe with the US Consumer Price Index (CPI) released on Sept. 13. The Federal Reserve has been hiking rates aggressively as inflation surges, and July’s CPI reading was encouraging as both core and headline inflation dropped with lower energy prices. However, since then, oil prices have continued to slump, which could signal another lower reading, showing peak inflation in the US is behind us. Australian investors should watch for changes in housing and food prices to indicate underlying inflation is easing, which could lead to the Fed taking a slightly more dovish stance. Although expectations for a 75bps hike in September are around 86% heading into the reading, a lower CPI print could lower these expectations to a 50bps hike, providing some relief to the Australian market. Still, we must approach these key economic highlights with caution and expect the unexpected.
*Data accurate as of 09/09/2022.
Disclaimer:
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