The ASX200 narrowly missed another week of gains, with the index falling 0.1% last week. The materials sector added 1.82%, helping gains, but the broader energy sector was a drag down 1.27%. However, it was comments from overseas that damped market sentiment. Members of the US Federal Reserve warned of a global recession after citing that interest rates would still have much higher to go in order to tame the highest inflation the world has seen for decades.
3 things that happened last week:
1. RBA Meeting Minutes
Last week, the Reserve Bank of Australia released the minutes of its November 1st board meeting showing that the central bank had mulled if a 25 or 50 bps move was appropriate before settling on 25bps. Pointing towards the 25bps move, they said, “The board agreed that acting consistently would support confidence in the monetary policy framework among financial market participants and the community more broadly”. The board also pointed towards a pause in this rate hike cycle, stating they were “prepared to keep rates unchanged for a period while it assesses the state of the economy and the inflation outlook”. Whilist hinting at a pause, the board were quick to point out that inflation was still way above its target range, adding it “expects to increase interest rates further over the period ahead”. There could be a slowdown in rate rises soon, but we’re likely to still see rates higher for longer.
2. Unemployment falls to decade lows
Last week Australia’s unemployment rate fell to 3.4%, returning to decade lows, underscoring the resilience of the economy. The latest jobs figures show how tight the labour market remains despite the RBA lifting its cash rate for seven consecutive months. This is a worrying sign for the Reserve Bank, given that the tight labour market could lead to a breakout in wage growth. This data will more than almost guarantee another 25bps move from the RBA in December as they look to cool demand. Higher salaries will be a welcome relief to many Australians struggling with the growing cost of living pressures, but this would be a double-edged sword as it will mean rates will be higher for longer.
3. A winner and loser last week from the S&P/ASX200
Fortescue Metals (FMG) had a strong week, climbing 12.39%. The positive week comes after investors’ hopes were raised that China may begin to relax its zero COVID policy. In addition, the Chinese government has also looked to lend financial support to the economy, which could see robust demand for iron ore.
Core Lithium (CXO), one of the ASX200 best-performing stocks in 2022, fell by 16.17% last week after analyst downgrades by Macquarie Group. Despite the drop, the stock has still gained more than 135% YTD.
3 things to watch for the week ahead:
1. RBA Governor Philip Lowe Speech: Trying for a soft landing
After last week’s RBA minutes, we hear from RBA Governor Philip Lowe on Nov 22. A speech anxiously awaited by the market after the minutes showed the RBA’s willingness to return to larger interest-rate hikes if the economy requires it. The RBA has raised interest rates by 2.85% in just seven months in order to combat the country’s highest inflation in more than 30 years. Given the high level of inflation, we forecast Governor Lowe to reiterate that more rate hikes are on the way, while also emphasising the sensitivity of these rate hikes to the housing market. Inflation has yet to peak, with the RBA predicting a rise to 8% by the end of 2022. This means we will see rate rises long into next year and stay higher for longer. Philip Lowe and his team are looking to thread the needle to deliver a soft landing, a tough task, but something that isn’t out of reach.
2. A wave of Annual General Meetings (AGMs)
It’s another big week ahead for Australian corporations as a range of ASX-listed companies hold their Annual General Meetings (AGMs). A common theme that emerged from earnings season in Australia and the US has been ‘forward guidance’, with those providing poor or limited guidance seeing their share prices punished. These AGMs are an important watch for investors as Aussie AGMs give selected investors a chance to grill company directors on their strategies for the year ahead. Last week, we saw frustrated investors put Medibank CEO David Koczar under the pump after their recent cyber hack. Hopefully, the big names to watch this week – Core Lithium (CXO), Evolution Mining (EVN), WiseTech Global (WTC), Fortescue Metals (FMG) and Liontown Resources (LTR) – will get some more love from their shareholders.
3. Black Friday – Stacks of bargains or no stock?
Black Friday is one of the world’s largest spending events. The Australian Retailers Association (ARA) anticipates AUD$6.2 billion in spending around Black Friday (Nov 25) and Cyber Monday (Nov 28), a 3% increase over last year, as Aussies continue to spend despite rising inflation and interest rates. But cost of living pressures could mean that Aussies are looking to find a bargain ahead of Christmas, particularly if households are feeling conscious about their shopping budgets. This sentiment may also prompt consumers to shop with cheaper retailers, for example, Kogan instead of JB Hi-Fi, or Kmart over Myer. However, consumers’ favourite products might not be stacking the shelves. Supply chain issues and an acute shortage of semiconductors could mean that many products just aren’t available in high quantities, and this could dent sales for retailers locally and globally. Consumer discretionary stocks have been some of the worst-performing this year, which could open the door to some relief if we see a strong spending season in Q4.
*All data accurate as of 18/11/2022. Data Source: Bloomberg and eToro
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