October 31, 2022

31 OCT 2022 – Monday Market Highlights – Transcript

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Monday Market Highlights

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Good Morning, its Monday the 31st of October and I’m Roland from Milford.

The key economic news

  • Domestically was the inflation rate for Australia which increased 1.8% q/q compared to 1.6% expected. The annual rate of inflation increased to 7.3% from 6.1% a quarter earlier.
    • Concerningly, food and gas were key contributor as well as housing-related categories furnishings and new dwellings.
  • We also had the federal budget, which is the first budget that has been released under the Albonese government.
    • It was largely inline with expectations and pre-election promises however the deficit forecasts were less than the prior budget due to better than forecast commodity prices and a strong labour market.
  • European central banks hiked the deposit facility rate inline with expectation by 75bps to 1.5% bringing borrowing costs to the highest level since 2009 as the central bank continues to fight inflation. The central bank also tweaked their messaging, highlighting they will become more data dependent, opening the door for slower rate rises if economic conditions deteriorate.  The refinancing rate now sits at 2%, and marginal lending at 2.25%.
  • In the us we had the core PCE index data out for September. Remember this is an alternative to the traditional CPI metric with different weights allocated to the basket of goods and services. It’s the feds preferred metric.
    • The data was largely inline with annual core PCE increasing 5.1% y/y and 0.5% m/m.

Now turning to equities

  • The US has entered its quarterly reporting period and we have seen some significant moves.
  • Amazon missed analyst earnings estimates and guided to lower sales than expected. It saw amazon fall 20% after the result however it recovered to be down only 7%. Amazon is down 40% over the past 12 months.
  • Meta, previously facebook reported a significant jump in expected capex and opex as they continue to try pivot the business as its core products, facebook and Instagram continue to slow.
    • Meta was down an astonishing 25% or US$86b. its now down 69% for the year.
  • Google’s parent Alphabet reported weaker than expected results with YouTube revenue actually falling 6% albeit the prior period was very strong.
    • The stock was down 9% on the day and is down 37% over the year.
  • On a more positive note, Apple had a small beat verse expectations albeit they haven’t provided guidance so the outlook is uncertain. Apple rallied 7.5% on the day.
  • Domestically, we are entering AGM season plus there are a number of companies who do and in some cases must provide quarterly updates.
  • CARsales reiterated their guidance at the AGM, JBH and SUL both released trading updates showing continued strength in retail sales and Viva provided a quarterly update showing strong convenience and fuel sales with a softening in the refining margin.
  • RMD, provided its quarterly results, which were mixed. RMS reports in USD so the earnings it receives from Europe were a bit softer due to the currency and ROW sales were a touch weaker than expected.
    • RMD fell 5% on the day.

Turning to the week ahead,

  • It’s the week of rates.
  • The RBA, RBNZ, the US fed and the BoE are all set to release their interest rate decisions.
  • For Australia, the RBA on Tuesday is expected to increase the official cash rate by 25bps. The higher than expected inflation for the September quarter has some market commentators calling for a 50bps increase.
    • The RBNZ’s rate is currently set at 3.5% compared to Australia at 2.6%. and theyre expected to move further into contractionary territory also
  • On Thursday morning, the US fed is expected to increase interest rates by 75bps to 4%. Chair Jerome Powell will hold a press conference afterwards which always insightful into how the fed is seeing the unfolding inflation issues in the US.
  • The US ISM Manufacturing PMIs are to be released this week with the market expecting a reading of 49.9. Now when this index is below 50 it implies this sector, being the US manufacturing sector is contracting. This implies weakening demand for goods.
  • We will continue to see US results being released which will provide an idea of how the US economy and consumer is evolving in what is an increasingly turbulent time.
  • In addition, many Australian companies at their AGMs will provide trading updates which will also provide great insights into the Australian economy.

Thanks for listening and happy Halloween, we’ll see you next week.

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