This week, we’re keeping an eye on three key updates that could sway the markets. First, we’ll get the latest unemployment figures from Australia, providing a clear picture of the current job market trends. Next, significant updates from industry giants Pilbara, BHP, and Rio Tinto will shed light on their production activities for the third quarter. Lastly, we’re set to receive a batch of economic data from China. Let’s explore these events and understand what they mean for investors.
China Data Dump’s (Tuesday)
It’s a huge week for economic data in China, with retail sales, industrial production, GDP, and unemployment all dropping in one monster parcel on the same day.
This week’s CPI reading once again reiterated that the region would clearly benefit from more stimulus, with inflation close to zero and the property market showing no signs of a turnaround. The PBOC will also meet next week, and a rate cut may be on the table, but investors shouldn’t get too excited about that, given the Yuan’s drop since the start of the year.
Retail sales are set to rise 4.5%, down from last month’s holiday-driven boost of 5.5%, and we’re unlikely to see any real growth until consumer-focused stimulus is handed down. Industrial production looks set to slow again after last month’s ‘one-off’ jump, with expectations for production to increase by 5.4%, but a higher reading may match some of the optimism we saw from PMI data in Q1.
The quarterly GDP from the world’s second-largest economy will likely be the standout, with estimates for GDP to expand 4.9% year on year, down from 5.2% last quarter. The property sector remains the main drag on growth, and that will have to change if the region is to meet its ambitious 5% growth target in 2024.
The question remains: when will the bad news become enough of a catalyst to drive substantial government action and push a flatlining market into a golden opportunity for investors? It’s difficult to imagine another quarter of disappointing figures without any serious action but given we’re now 18 months into this saga, it’s more than possible.
AU Unemployment (Thursday)
This Thursday sees the release of March unemployment figures. After hitting a two-year high of 4.1% in January, Australia’s unemployment rate dropped to 3.7% in February. The reason for this jump in employment despite a continuous economic crush on Australian business is sensible; anyone offered a job in the last two months of 2023 or the very start of this year all headed into the office at approximately the same time.
These kinds of fluctuations inevitably distort longer-term trends and the RBA would be sensible to look at this jump critically before allowing it to influence rate decisions. However, a similarly weak unemployment figure this month could be a significant factor in pushing rate cuts even further back on the calendar.
Last month, we saw Australia’s ANZ-Indeed job advertisements report a 2.8% month-on-month drop in February following a significant upward revision in January. This resumes a downward trend, yes, but listings are still high when we look at the bigger pre-pandemic picture, and a shrinking job market needs to continue on this path for a while longer in order to make the case for significant rate cuts.
For March figures, expectations are for unemployment to pick back up to 3.9%, but estimates are as high as 4.2% and a reading that high would once again see rate cut expectations adjusted.
Materials Sector Production Updates – BHP, Rio Tinto & Pilbara
The old adage “when it rains, it pours” comes to mind this week, with some of the biggest players in the Australian materials sector punching in some significant production updates.
In February, BHP investors could take solace from a robust revenue increase despite the company’s H1 underlying profit shortfall. Higher costs and impairment to its West Australian nickel operation contributed to lower profits. The focus will be on its Iron Ore production numbers, and with so much uncertainty around the Chinese economy, Iron Ore revenues are set to continue declining throughout the year. However, Copper production looks set to increase, which should lift revenues, offsetting the drop in its Iron Ore segment.
Rio Tinto faces similar challenges to that of BHP when it comes to China, but the good news for Rio investors is that the business is growing its copper production faster and that will be a key focal point for investors this week. Its growing copper production is one of the reasons that the market expects earnings to grow by 5% in its next semi-annual report, higher than that of BHP’s, which is set to stay flat. Both these massive miners will remain under pressure until we see China’s recovery step up a notch.
Meanwhile, Pilbara Minerals continues to navigate a challenging lithium market, with a focus on future growth and balance sheet strength over immediate dividends. Long-term investors seemingly perceive value in the company’s prospective role in the EV transition, and see the drawdown in a business such as Pilbara Minerals, which will have a huge hand in that transition, as an opportunity to own a quality business at a lower price for the long term.
This was reflected in eToro’s recent top stocks data, which found that Pilbara Minerals was ranked as the ninth top stock riser among Australian eToro users, signifying that Aussie retail investors aren’t willing to give up on Lithium stocks, despite significant drawdowns in the last 12 months.
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*All data accurate as of 15/04/2024. Data Source: Bloomberg and eToro
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