October 3, 2022

3 OCT 2022 – Monday Market Highlights – Transcript

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Monday Market Highlights

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Roland Houghton
Good morning. It’s Monday, the third of October and I’m Roland from Milford. The key economic news this past week was most certainly the U turn and policy by the Bank of England. The mini budget and fiscal policies outlined by new prime minister Liz truss saw the pound for significantly against major currencies and bonds materially sold off. This, in turn put a huge amount of stress on parts of the UK financial system. In particular, the pension funds, who for a number of reasons had to post a margin as the value of their assets fell and the hedges moved against them. This would force them to liquidate assets, putting further upward pressure on bond yields and forcing them to pose even more margin, requiring the sale of even more assets and so on and so forth. This force the Bank of England’s hand, in a Wednesday, they announced they’d buy as many 30 year government bonds as necessary to stabilize markets. The plan at this stage is for this to cease on the 14th of October. Prior to this, the pound was at record lows against a number of currencies. It has since recovered some of these losses as yields have stabilized albeit we’re by no means out of the woods. Domestically, Aussie retail sales were released coming in ahead of expectations, sales for August 2.6% month on month, a deceleration for 1.3% achieved in July, but ahead of market estimates. In addition, the new monthly CPI index was released by the abs. Previously, Australian inflation was only released every quarter. I suspect we will see this number revised as they work out the kinks in the system. But nonetheless, it gives us an indication of where inflation is in Australia. headline inflation was 6.8% in August on an annual basis, slowing slightly from 7% in July, however, core inflation that backs out food and energy prices accelerated to 6.2% from 5.5%. And the US the PCE data was released which as you recall is a different measure of inflation from the traditional CPI index. It’s also the preferred measure of the Fed. It highlighted that inflation remains sticky and persistent increasing point 3% month on month compared to point 1% expected. However, what was most concerning is that core PCE inflation accelerated 2.6% and came in ahead of point 5% expected turning to equity news, Optus remained under pressure as more information on their data breach has surfaced. As a reminder, Optus is owned by SingTel, is Australia’s second largest mobile network, and suffered the largest data breach in Australian history with 10 million customers having some personal information leaked. The ramifications are still being worked through, with the actual cyber attack being classed as blunt and unsophisticated, which is of particular concern, remaining in telco land. The a triple C’s released this statement of concerns around the TPG Telstra regional network sharing deal. Under the proposed deal. Telstra will get access to TPG is regional spectrum and TPG will get access to Telstra regional infrastructure. The competition watchdog is concerned this would potentially see upward pressure on mobile prices and disincentivize infrastructure investment in the region. They expect to release their final decision by the end of October. Listed youth retailer universal store announced the acquisition of Australian clothing brand thrills. The acquisition consolidates a key third party brand into the universal store family and provides another growth angle. Universal funded the deal with existing cash reserves and issued equity to the founders of thrills. The deal is expected to be approximately eight to 12% Creative depending on the estimates. Turning to the US information was leaked that Apple has asked its manufacturers to reduce the number of iPhones they were to manufacture for the coming year. This has been taken as a sign of a weakening consumer or at least weakening demand for durable goods. This concern was exacerbated by Nikes softer quarterly result which saw gross margins come under pressure and US inventory levels build 65% Gross Margin guidance also cut 2% Look into the week ahead. We have the RBA interest rate decision on Tuesday where the market is expecting a 50 but rate hike taking the policy rate to 2.85%. In the US we have the non farm payrolls report on Friday, with the market expecting 250,000 jobs to have been added in September down from 315,000 Edit in August. They also expect the unemployment rate to remain flat at 3.7%. And wages to grow point 3% month on month. Thanks for listening. We’ll see you next week.

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