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9 MAY 2022 – Monday Market Highlights – Transcript

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Monday Market Highlights

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Will McVeagh
Good morning. It’s Monday, the ninth of may and I’m Will from Milford. Last week the markets focus was dominated by Central Bank meetings. The RBA was first up on Tuesday were they surprised with a 25 basis point rate hike to take the cash rate to 0.35% versus market expectations of a 15 basis point rate hike, combined with a hawkish statement. In addition, Governor Lowe took the unusual step of holding a press conference and q&a session after the statements release. This was significant and that many had expected the central bank to do little with the federal election so close, showing the governor wanted to send a strong message about RBIs independence, low signal that inflation has increased much quicker than they had expected, upgrading their December 2022 core inflation target by a staggering two percentage points from 2.75% to 4.75%. The bank now expects to hike rates much quicker towards a neutral rate of 2.5%. As wage growth increases and unemployment continues to fall. Financial markets are pricing and further 2.7% of rate rises in 2022 to take the cash rate to 3% by year end. Turning to the US the Federal Reserve raised rates by 50 basis points to take the Fed funds rate to 1% on Thursday morning, while a big jump this was fully priced by the market and the comments by chair Powell that they were not looking to raise rates and 75 basis point increments if future meetings was taken by the markets is dovish, and lead to a strong rally in equities. inflation continues to be a huge issue in the US for the Fed, with very broad base price rises led by a number of factors, in particular soaring energy prices and supply chain issues. questions remain about how much of this inflation is temporary caused by the Russian invasion of Ukraine and the COVID pandemic and how much is more structural. The market is pricing a further 2% of rate hikes this year to take the Fed funds rate to 2.8% by the end of 2022. Finally, on central banks, the Bank of England hiked the reference rate by 0.25% on Thursday night. While some market participants thought they may hike 50 basis points. Only three out of nine members voted for this and a dovish statement. Much of the focus was on the commentary in the statement, which revised up the near term inflation projections materially on the back of further increases in energy and commodity prices. And based on an assumption that supply chain disruptions persist for longer due to the invasion of Ukraine and COVID just locked down restrictions in China. The statement also noted that the BOE sees GDP slowing towards the end of 2022 as inflation bites causing a large fall in disposable income and rundown and COVID Excess savings. market pricing for the UK has 1.35% of rate rises to take the cash rate to 2.3% by year end. Turning to stock news in Australia, there was a wave of company updates as corporates presented at the Macquarie Australian conference last week. key themes from management were around continuing supply chain issues, challenges from limited labor availability and support for household budgets from increased levels of savings in households. Atlassian co founder Mike cannon Brooks put 12% of AGL energy last week via derivative transaction after earlier walking away from a full takeout of the company. Cannon Brooks bought a stake to try and stop the merger of ADLs renewable business and coal generation arm. The stock fell on this views as investors were concerned about how the company would proceed if the merger does not pass shareholder vote gold essay analysis company crisis listed on Friday and what was the largest ASX float of the year so far, the stock fell sharply from an IPO price of $6.50 to end at $4.15 a 36%. fall on the day. And this is we’re concerned that the stock may need more capital in the future to fund its growth. What was provided the market this third quarter sales result where they saw like flag sales lift 4.4% Most metrics were solid with cost inflation running at 2.7%. This calls at 3.3% COVID. Costs looked to be under control which the market light is this was a major negative for Woolies late in 2021. The stock ended the day slightly higher. shortlisted UK bank Virgin Money released the latest results after market on Thursday night. While the headline numbers were strong with profit 8% ahead of expectations and an improved num investors were disappointed with the lack of capital return. The stock was hit hard finishing down 8.2% And Australia on Friday.

Turning to this week, the key data point for the market will be the US April CPI release. The market is expecting a pullback from last month’s bumper print to see headline month on month inflation of 0.2% from 1.2% prior this would see year on year headline inflation fall from 8.5% To 8.1% While core inflation would fall from 6.5% to 6%. These inflation prints continue to be very important for the market, as central banks have been forced to hike aggressively because of rampant inflation. In the UK, we will get the latest GDP figures, with analysts expecting a rise in year on year GDP to 8.9% from 6.6%. Previously. Domestically, the data front is fairly quiet. However, some focus will turn to the upcoming federal election that is only two weeks away. At the stage, there doesn’t appear to be many policies that would have large ramifications for markets. However, there is potential for further announcements that can be stimulatory as the polls have tightened. The potential for a hung parliament is also looking like a more likely outcome, which could cause some short term volatility as markets never like uncertainty. That’s all for this week. Thanks for listening. Have a great week.

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