Dr. Shane Oliver, Chief Investment Strategist and Chief Economist at AMP, discusses how investment markets have moved over the past week, economic activity trackers, key economic events, and Australian economic events.
Investment markets and key developments during the week
Stock markets have most typically risen again over the past week, with US, Japanese and Australian stocks hitting all-time highs, as expectations for Fed rates through September were bolstered by comments from the Fed chairman. the Fed, Powell, and weak US inflation data. U. S. stocks gave up some bigger-than-expected gains during the week, but that appears to reflect a healthy rotation out of blue-chip technology stocks and into underperforming sectors such as small caps. Japanese and Chinese stocks also rose, but those in the euro zone fell slightly due to uncertainty over the effect of the French elections. Helped by positive US leadership and with hopes that the resumption of falling US inflation will be repeated here, Australian shares rose around 1. 7%, taking them to a record high in March, thanks to strength in retail and telecommunications. , real estate and monetary actions more than offset the weakness in stocks. resource reserves. Bond yields have fallen basically due to the decline in US inflation. Oil, metals and iron ore prices fell, but the Australian dollar rose while the US dollar fell.
Stocks continue to rise amidst a wall of worry. Tight valuations, specifically of US stocks, the confidence of major investors, the persistent dangers of recession and the high geopolitical uncertainty, specifically around the US elections, point to a correction and greater volatility in the stock markets, perhaps due to the seasonally weak August/September era. But for now, the end is bullish: July is sometimes a seasonally strong month, the US earnings season deserves to support the upside wonders and more and more central banks are preparing to cut their rates, which is expected to drive expansion. expectations for 2025-2026. and lead to a decline in bond yields, supporting 12-month equity returns. Australian shares are expected to continue to underperform relatively due to dangers around China and a more hawkish RBA, and are also vulnerable to correction dangers, but still deserve to take advantage of the global rally and anticipation of that the RBA will eventually stick to other core markets. banks on rate cuts. Array Our ASX 2000 Calfinishar year-end forecast of 7,900 has already been surpassed and that is why we are extending it to 8,100.
The start of United States rate cuts in September is shown following Chair Powell’s comments and some other smart June inflation reports. Powell’s comments remained cautiously dovish, noting “some further modest gains” on inflation, the hard-work market has “cooled significantly,” and “we now want to think about the maximum employment facet of the mandate,” referring to the threat that the hard-work market and economy will eventually slow too much. All of this is consistent with the upcoming rate cuts, conditional on the Federal Reserve getting “better” inflation data. This was indeed noted in June’s CPI, in which headline inflation of 3% YoY and core inflation of 3. 3% YoY fell more than expected, helping weaker figures for rentals, airfares, and used cars. as energy.
Source: Bloomberg, AMP
Measures of core inflation and the magnitude of sharp price increases showed significant improvement. For example, the proportion of CPI basket parts with monthly annualized inflation above 3% fell to 33%, its lowest point since 2020.
Source: Bloomberg, AMP
Our US pipeline inflation gauge rose slightly, reflecting emerging shipping rates, but is nothing like the increase seen in 2021, when shipping rates last recovered, because it offsets with the weakness of other signs of inflation. In particular, the persistent weakness of the labor market indicates problems in reducing wage growth and reducing facility inflation.
Source: Bloomberg, AMP
The Federal Reserve is on track to begin cutting rates in September. The CPI has advanced for 3 consecutive months, but that is not enough to start a Fed rate cut in July, since the June core PCE may be a little higher than the CPI, the Fed will most likely need see “smarter results. ” Inflation and economic insight are not weak enough to justify an earlier start, however, they are consistent with our view of a September start of cuts and we continue to see two cuts this year, with one threat of a third cut.
Even the hawkish Reserve Bank of New Zealand is taking a dovish stance. . . with implications for Australia. At its May meeting, the RBNZ had discussed a possible rate hike, but at its July meeting it left its key rate at 5. 5% as planned. And he was moderate, pointing to a series of insights that “all point to a decline in activity,” indicating that “the extent of the [monetary policy] restriction will ease over time, depending on the expected decline in pressures. ” “inflationary” and made no mention of a rate increase. The New Zealand currency market is now forecasting a cut for October and almost 3 cuts this year. Of course, the RBNZ currency rate is much higher than the RBA’s 3. 35% and New Zealand has a lower GDP expansion. -0. 2% year-on-year in the March quarter versus +1. 1% year-on-year in Australia and slightly higher unemployment (4. 3% compared to 4% here). But the salary expansion has been higher (see). chart below) and inflation in the March quarter was also slightly higher than today, so his dovish turn after hinting at the option of further rate hikes in May may simply be a sign of things to come for the RBA .
The fall in US inflation and the RBNZ’s turnaround are positive symptoms for the RBA. Of course, Australian inflation and the RBA do not stick to those of other countries, however, Australia has been part of the global rise in inflation (and therefore rates) and there is no explanation why to expect it to be radically different on the downside. Especially since wage expansion here is not as successful as in other countries. And the United States revels in three monthly high inflation figures maintained through a return to lower figures, suggesting that we could see the same thing here after three high inflation figures from March to May. Of course, the CPI for the June quarter will be key to what the RBA does at its August meeting, but we remain of the view that the RBA will keep rates unchanged ahead of the cuts that will start in February next year.
Source: Macrobonos, AMP
What about the inflationary effect of emerging global shipping costs?Global shipping costs have risen this year mainly because ships have been forced to avoid Africa instead of passing through the Suez Canal (adding two weeks to a normally four-week journey between Rotterdam and Singapore). A 2022 IMF study found that doubling ocean freight rates can increase about 0. 7% to inflation. The majority of our shipping imports come from Asia, but there is still an impact given the pressure on shipping capacity due to the loading time it takes for ships to travel from Europe. Imports of goods account for about 17% of our economy and emerging global shipping costs can therefore increase the value of goods and therefore inflation at a time when we are counting on slowing inflation of goods. reduce overall inflation.
Source: Bloomberg, AMP
However, the effect of emerging shipping charges could be less than expected, as this is very different to what happened in 2021-22. First of all, we are facing a sharp increase in the percentage of shipping costs and not an increase in the cost of everything that is part of the composition of a product, as happened in 2021-2022, when the increasing costs of shipment. with shortages of materials, goods and workers, all due to pandemic-related disruptions, and customer demand was strong after reopening, resulting in strong emerging inflation. Today, emerging shipping rates continue at a time when global commercial production has returned to normal, labor markets are cooling, and demand is weakening with declining discretionary spending and weak demand expansion. of fundamental needs. Therefore, the inflationary impulse should be lower and weakening demand will make it more difficult for companies to pass on higher shipping rates to their customers. This is reflected in our US pipeline inflation gauge (shown above) and our Australia pipeline inflation gauge (shown below), which are not expanding as they did in 2021-2022. , because while the shipping cost component is expanding, other parts are strong or declining. . In Australia, rising shipping costs are partly offset by a downward trend in business survey symptoms for final purchasing spend and promotional spend (see Australia segment below) and by a very low Chinese inflation (unlike three years ago) and symptoms of emerging wages. expansion. Overall, the spike in shipping rates represents a risk, but rising inflation is unlikely to have a massive impact on central banks’ interest rate policies, the RBA added. But it is a threat worth monitoring.
Source: Bloomberg, AMP
The rise of the far right (oh, the far left!) in France. Thanks to high turnout (well, the highest by French standards) and centrist and left-wing candidates putting a “cordon sanitaire” around the far-right National Rally by abandoning three-way elections, the worst situation for the markets of an NR extremist. The government had walked away. In fact, the left alliance came first with 180 seats, Macron’s centrist alliance with 160 and the NR 3 with 143, well behind the latest polls that had “beat” them. They are all far from being a majority, which leaves a “parliament without a majority. ” The most likely scenario is some kind of center-left government with Macron’s alliance, in all likelihood with a mix of Republicans, Socialists and Greens, but achieving this would likely take time and possibly only be achieved after a left-wing minority government . To some extent, Macron’s gamble paid off as the NR was defeated and his centrist alliance maintains the balance of power. Whatever the outcome, it will be difficult to implement meaningful economic reforms and regain control of the budget, and the NR is still on an upward trajectory (it won 35% of the vote, up from 22% in 2022 and 11% in 2017) . ). But for now, the worst situation has been avoided and French bond yield differentials relative to German yields have reverted to part of their peak since the election was called. Meanwhile, French stocks, after their recent 6% drop, are trading relatively reasonably with a forward PE that is less than 70% of that of the US and part of the French stock market through the capitalization of the market obtains the maximum of its profits internationally, which leaves the French economy in another situation. vital for that anyway.
Source: Bloomberg, AMP
I just discovered Love Affair and found that they are a treasure trove of satisfied songs. So here’s A Day Without Love.
Main occasions and economic implications
Last week’s US economic insights were mixed. Small business optimism is greater but remains low: less than 5% consider it a good time to expand. CEO confidence has increased from its lowest levels, but remains moderate. At the same time, jobless claims fell, although this likely would have been affected during Independence Day.
Source: Bloomberg, AMP
Wage expansion in Japan accelerated in May, most likely reflecting 3. 6% for 2024-25 in Shunto negotiations, with the base wage accelerating from 1. 8% in April to 2. 5% year-on-year. This supports the prospects for modest extra salaries. rate hikes through the BoJ this year.
China’s CPI inflation slowed to 0. 2% year-on-year in June from 0. 3% year-on-year in May, and manufacturers’ value inflation emerged to -0. 8% year-on-year from -1. 4 % year-on-year. Deflation continues in China. Chinese industry data for May showed solid expansion in exports but further decline in imports.
Source: Bloomberg, AMP
Australian occasions and implications.
Australian economic knowledge was weak. Consumer confidence fell slightly in July. Falling inflation may have contributed to a slight rise in confidence from its lowest levels, but it remains close to recession levels, with signs of higher interest rates and fears of rising unemployment offsetting the momentum of tax cuts.
Source: Westpac/Melbourne Institute, AMP
While consumer expectations about real estate costs are high, most are not a good time to buy a home.
Source: Westpac/Melbourne Institute, CoreLogic, AMP
While the June NAB business survey showed an improvement in business confidence, business confidence continues to decline due to weak orders, investment plans, and employment.
Source: NAB, AMP
The weakness of the employment component of the NAB survey indicates a significant slowdown in long-term employment growth.
Source: NAB, AMP
The NAB survey also showed a resumption of the downward trend in final product costs and costs, pointing to a resumption of the decline in CPI inflation. As noted in the past, this downward trend has occurred despite an increase in global shipping costs this year, largely due to Houthi disruptions to shipping through the Red Sea and in the Suez Canal.
Source: NAB, AMP
Finally, housing financing commitments fell in May. The trend remains bullish, although a slowdown in real estate sales suggests a slowdown.
Source: ABS, CoreLogic, AMP
What to see this week?
In the United States, retail sales are expected to decline by 0. 2% in June, weak core growth, additional weakness in housing structure situations (both Tuesdays) and a slight increase in housing starts and commercial production (Wednesday). the New York and Philadelphia slots for July likely remained weak. The June quarter earnings season will start to be driven with consensus expectations of a 7. 4% year-over-year increase in earnings, which will eventually stand at around 10% year-on-year. New Year’s Day. Excluding technology, consensus expectations are for 2% year-over-year growth.
The ECB (Thursday) is expected to leave rates unchanged after cutting them in June and expects a cut in September if inflation remains in line with its forecasts.
Japanese inflation for June (Friday) is expected to show a slight increase to 2. 9% YoY and 1. 8% YoY for core inflation.
China’s June quarter (Monday) GDP is expected to slow to 1% q-o-q or 5% y-o-y (compared to 1. 6% q-o-q and 5. 3% y-o-y in the March quarter). June activity is expected to be subdued with commercial production expansion slowing to 5% year-on-year and retail sales expansion slowing to 3. 4% year-on-year.
Australian jobs data (Thursday) is expected to show a slowdown in task growth to 25,000, with unemployment rising to 4. 1%, continuing the slow upward trend.
Market outlook
Easing inflationary pressures, central banks’ decision to cut rates and customers for stronger expansion in 2025-2026 deserve to allow for moderate investment returns during 2024-25. However, with a peak recession threat, conceivable delays in rate cuts and significant geopolitical threats, the next 12 months will most likely be more limited and challenging than 2023-24.
We have raised our year-end forecast for the ASX two hundred to 8,100. A recession is probably the biggest threat.
Bonds will most likely generate returns close to current yields, or even slightly higher, as inflation slows and central banks cut rates.
Unlisted advertising real estate yields are expected to remain negative due to the lagged effect of higher bond yields and working from home.
Australian space costs are expected to see more limited increases over the next 12 months as the resource shortfall persists, but still-high interest rates are reducing demand and unemployment is rising. cause a further decrease in space costs, as they can simply cause buyers to fall behind and increase affected listings.
Cash and bank deposits are expected to generate yields above 4%, reflecting emerging interest rates.
An uptrend for the Australian dollar would likely take it to $0. 70 over the next 12 months, due to a fall in the overvalued US dollar and a narrowing of the interest rate differential between the Federal Reserve and the RBA.
Ends
Important note: Although every care has been taken in the preparation of this document, neither National Mutual Funds Management Ltd (ABN 32 006 787 720, AFSL 234652) (NMFM), AMP Limited ABN 49 079 354 519 nor any another member of the AMP. Group (AMP) does not represent or guarantee the accuracy or completeness of anything contained therein, including, but not limited to, any predictions. Past functionality is not a reliable indicator of long-term functionality. This material has been prepared with the objective of offering general information, without taking into account the specific objectives, monetary situation or wishes of any investor. An investor should, before making any investment decision, consider the suitability of the data contained herein and seek professional advice, taking into account his or her objectives, monetary situation and wishes. This document is intended solely for the use of the party to whom it is provided. This curtain is not intended for distribution or use in any jurisdiction where doing so would be contrary to applicable laws, regulations or rules and does not constitute a recommendation, offer, solicitation or invitation to invest.
Get updates delivered straight to your inbox.
Terms of Use | Privacy Policy | Contact | Mail
Increases across the board of Deep Leads’ resources: quality, tonnage and target area ABx Group has reported a 30% increase in its mineral resource estimate (MRE) at Deep Leads’ rare ion adsorption clay (IAC) earth deposit in northern Tasmania. The accumulation in MRE comes from 36 tested outlets, representing a significant northward extension for the existing Deep Leads prospect.
Lake Resources (LKE. ASX) – LKE has signed two non-binding memorandums of understanding in the 10-day area. Ford Company (Ford) signed a memorandum of understanding for around 25,000 t/year and last week, Hanwa, a Japanese commodity trader, signed a memorandum of understanding for up to 25,000 t/yr. Subject to execution, this is a feat as Ford and Hanwa are poised to engage in longer-term strategic partnerships with LKE. Commercial negotiations are still ongoing, but should, if Ford and Hanwa inject new capital into LKE, further reduce the risk of project financing and thus ensure that LKE and Kachi are fully funded.
Two recent gravity studies have particularly exceeded expectations and revealed prospects for expansion of the existing MRE in Lake Throssell, as well as an opportunity for significant expansion in Lake Yeo. This reinforces the prospect of a multi-decade Tier 1 SOP production center around Lake Throssell.
Lately, TMG is completing paints in preparation for the PFS planned for early 2023, adding the start of drilling in Q3 2022, evaporation testing and permitting activities. The effects of these systems will affect the PFS and any long-term resource improvements.
The SOP reference values have increased to approximately $940/t due to recent geopolitical events. The October 2021 scoping study assumed an SOP value of $550/t and included a sensitivity study showing that every 10% increased value effects in a $144 million NPV increase in the $364 million task NPV. The increase of approximately 70% compared to the scoping study implies a NPV allocation of approximately $1. 4 billion.
Despite falling oil and fuel prices, which fell by 5. 4% and 19. 7% respectively in August, Calima managed to show improvement in its main indicators.
WT Financial Group Limited (WTL) is a diversified money company in development, founded in 2010 and indexed to the Australia Securities Exchange (ASX) in 2015. Their recommendations and product offerings are primarily provided through an organization of independent money advisors who act as legal representatives. of WTL under its broker organization businesses Wealth Today Pty Ltd (Wealth Today) and Sentry Group Pty Ltd (Sentry Group). He has approximately 275 advisers at over two hundred money advisory firms across Australia. It also operates a direct-to-consumer operation under its Spring Financial Group brand.
In May 2021, Corporate Connect analyst Marc Sinatra published a full study report on ASX-listed biotech Immutep Ltd (ASX: IMM). It was so inspired by IMM that Corporate Connect found it imperative to publish a follow-up report valuing the company, as the market did not see the great prospects of eftilagimod alfa (efti).
This monitoring report was published today. Using comparables, after adding a dollar reduction to its EV estimate and dividing by the total number of percentages issued, Corporate Connect now puts the fair price of one percentage of Immutep at A$2. 20.