20 FEB 2023 – Monday Market Highlights – Transcript

Nick Morgan
Good morning, it’s Monday the 20th of February and im Nick from Milford. It was busy week last week, both on an economic data and equity front.

The key economic focus in the US was the January CPI print that came out on Wednesday morning. Both headline and core CPI came inline with market expectations at 0.5% and 0.4% m/m respectively.

Another key print was US retail sales which did come in much hotter than expected. Total sales rose 3% m/m, compared to market expectations of just 1.8%. This follows a weak December print that was down 1.1% m/m. The rise in spending was broad based across many of the categories, but lead by department stores, food services and drinking places and motor vehicle and parts. The data indicates robust consumer demand after a slow down last year and supports the hawkish messaging from the FED for rates to continue rising.

Another surprise in the raft of US data last week was the US producer price index coming in above consensus. Headline PPI was up 0.7% M/M compared to expectations of 0.4% and core PPI (excl food and energy) was up 0.5% MoM compared to expectation of 0.3%. Remember the producer price index is a measure of the change in prices that domestic producers receive for goods and services and can be seen as a leading indicator for CPI.

Finally in the US we had various pieces of conflicting data on the housing market. Building permits and housing starts were both below expectations showing further signs of weakness in housing demand, but we did see the NAHB housing sentiment index up from 35 to 42.

Moving to the UK we had January CPI which came in below market expectations for both headline and core. Core CPI was -.9% m/m compared to market estimate of -0.5%, a positive sign in the right direction to bring inflation under control. UK employment data was also out with the number of people in work growing by 74k in the 3 months to December 2022, well above market expectations of 40k. The unemployment remained tight at 3.7%. Lastly wage inflation pressures continued with average earnings excluding bonuses rising to 6.7% q/q in Q4 vs expectations of 6.2%.

Closer to home we had REINZ housing data out in NZ, where prices continued to ease for the 14 consecutive month down 1.2%. Food price inflation also slowed to 10.3% from 11.3% in December and finally a key piece of data in NZ, the 2 year ahead inflation expectation print decreased to 3.3% for Q1 down from 3.62% last quarter.

Lastly , in Australia we had employment data out on Thursday which came in much weaker than expected with the number of Australians working decreased by 11.5k, compared to an estimated increase of 20k. The unemployment rate also increased to 3.7%, ahead of consensus and up from 3.5% last month. The RBA will welcome this evidence of an easing labour market, but it wont be enough to alter their recent more hawkish tilt. Finally the Westpac consumer sentiment index fell 6.9% to 78.5, Cost-of-living pressures and interest rate rises continued to be drivers in the weakness.

Turning to Equity news.

Reporting season continues in Australia, and although its still early days, initial results suggest its going to be a weaker than expected reporting season. The number of companies beating expectations is below average with a higher miss rate and increasing weaker guidance. We had 68 companies report last week, one bring:
JB- Hi FI a consumer electronics and home appliances retail company had largely pre released there first half result was so the focus was on the trading update. The update saw sales momentum slow and the outlook showed potential signs that the retailer is beginning to crack.
We had Global building materials company James Hardie release a softer than expected result, driven by very weak volumes and cost pressures coming through. volumes fell 10% in North America against the prior comparable period evidencing that weakness of the US housing market.
We also had banks report during the week. CBA had a solid result but it was their guidance on net interest margins that was important. They noted that due to mortgage and deposit competition that they saw peal margins in October. Westpac and NAB both also had strong updated broadly in line with the market.

Looking at the weak ahead.

Reporting season continues domestically with 141 companies reporting this week.
We get the RBA minutes out on Tuesday, the RBNZ Official cash rate decisions on Wednesday and the FOMC minute out Thursday.
Throughout the week we also have the US GDP growth rate, Core PCE and various PMI’s around the globe.

Thanks for listing. We will see you next week.